Painting with a Broad Brush
A recent member’s post in the Small Motor Carrier Business Community group on LinkedIn asked the following:
I think Brokers have a much better chance of getting direct freight from the Shipper because they lowball the rates and make promises they can’t keep. I think Carriers are much more realistic in what they tell the Shipper and that’s not what the Shipper wants to hear. Agree or Disagree? What’s your take on this?
I see this as painting with a broad brush and with a limited viewpoint. Not to say there aren’t brokers who lowball the trucker, but then what would the trucker do if the situation was reversed?
As an example, what would the vast majority of truckers do if they walked into a truck service facility and the service manager asked them how much the trucker would pay for an oil change? Most truckers would lowball the service manager, because the lower the price, the more money stays in the trucker’s pocket. Plain old human nature. Same is true for the broker. If asked for a rate, they aren’t going to provide the highest rate they can afford; they’re going to offer the lowest rate with which they think they can get away. Let the trucker try to push the rate boulder up the hill.
The problem lies in that many truckers don’t have a clue what their rate range needs to be, so they have no choice but to ask a freight broker, “What does the load pay?”
Just like there’s no possible way for a trucker to know the cost overhead and required profit of a truck service facility, it’s impossible for a freight broker to know the cost overhead and required profit for a specific trucker. Question: If the trucker doesn’t know this information, how does he/she expect a freight broker to know?
Information required to address this:
1. For each truck owned, a trucker must know the Break-even Point and required profit margin.
2. The rate range for each truck will be between the Break-even Point and the BeP combined with the profit margin.
3. Know the market forces of the area in which they’re looking for loads to figure where within that rate range the freight revenue will fall, along with the truck-to-load ratio plus the most recent freight rates for their type of freight.
4. They must quote the rate based upon all this information to the freight broker; not allow the freight broker to establish the base line for negotiations.
5. Most importantly, not all loads are going to pay within the rate range established by the trucker. Some will be below their rate structure. This is why it’s vital to operate each truck in a predetermined freight lane, consisting of multiple legs; some paying extremely well, others paying in the midrange of the trucker rate range. For the short-rated haul, this means restaging to better rate legs, by accepting a low rate but adding to the overall cash flow of the truck, thereby adding to the total monthly revenue goal. The ultimate objective is to meet or exceed a preset revenue amount for each truck and driver; at the end of the month, and end of the quarter, which shows a profit for the truck.
The more you know about your trucking business, the better negotiator you become; which equals higher overall revenue and more profit to sustain and grow your operation.
Drive long and prosper.