Rates are down, and any change in that trend doesn’t appear likely in the near future.
It’s critical for truck drivers, especially those with their own authority, to negotiate rates in a poor market.
Tom Crowley and Aron Lynch of OOIDA’s Compliance Department recently spoke with Land Line Now and provided some best practices for negotiating rates.
“Without knowing your cost of operation, how do you know where your break-even point is?” Crowley said. “When a broker is lowballing you, without knowing your cost of operation, you might end up taking a load that you’re actually paying to haul. It comes back to cost of operation – and an accurate cost of operation based on current fuel prices.”
Differentiating between fixed and variable costs is critical to determining cost of operation.
“If you’re having a hard time getting out of an area and going to end up hauling a load for a rate that’s not quite what you want, I would rather deadhead out of that area than haul freight that doesn’t make a profit for me,” Crowley said. “I’m not taking on that liability for fuel money.”
Lynch said that when negotiating rates, sometimes less is more.
“Don’t let them know it’s a backhaul for you,” Lynch said. “The last couple of years, rates have been in the toilet. Some are more in a positive area than they have been in prior months, but it’s going to take a while to get back.”
Letting a broker know you’re needing to get home or to a certain location is another common misstep.
“You’ve lost all the leverage at that point,” Lynch added.
It’s important to keep in mind that the load board is typically what the broker’s regular carrier passed on, Crowley said.
“They have it listed at one price, and that’s what they’re hoping to get it hauled for – or less,” Crowley said. “You have to go in with a reasonable expectation of a profit margin. Negotiating is part of the industry. If you’re going to run a small business and be profitable, you have to negotiate. Any load you haul that you don’t negotiate for a better price is money your leaving on the table.”
Agreeing to lower rates has a ripple effect throughout the trucking industry.
“If someone comes in and undercuts you, that does a disservice to everyone,” Lynch said. “It can’t just be you that negotiates better. This needs to be across the board. All small carriers need to jump on board with this. It can’t just be 20%, because that other 80% will drive the rates down – and that’s been happening for the past three years. Bad negotiating skills are part of the reason we’re in this situation.”
Brokers are well aware of those willing to accept lower rates, Crowley added.
“These brokers take notes on which carriers they can get cheaper,” Crowley said. “Generally, those who have the trucks that don’t break down are not taking the bottom-rate freight because it costs money to keep your truck on the road. If you’re not making the money, how do you repair your truck?”
And walking away from a load is not necessarily a bad thing in certain scenarios.
“Another load will pop up. They always will,” Lynch said. “Freight moves every day at high volumes. There’s not only brokers and load boards; direct freight is available. If you can get a couple of dedicated runs or shippers to work with, that can change the whole perspective of your business. With a small operation, you can’t realistically haul for a hundred different distributors. You only need one or two to say yes.”
It’s not an easy process, but it’s a necessary one to sell your business and your service.
“Creating those relationships and that foundation can set you apart,” Lynch said. “If you’ve been in business 28 years and all you’re utilizing is the load board, you’ve inherently done something wrong.”
OOIDA offers a cost of operations calculator on its website. LL
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