How The NON-Broker Model Works to Achieve Lower Freight CostsWritten by Paul Forand
When considering the use of a Third-Party Logistics (3PL) service to handle your freight, one of the most important elements to investigate is what sort of payment model that company is using. It could drastically affect both the prices you pay, as well as the level of dedication that 3PL has to your business.
There are two basic payment setups among 3PLs and the freight carriers: Broker-based and Non-Broker. Broker-based firms are more common, and they usually cost more. So, we wanted to briefly discuss the differences and why a negotiated, non-broker based 3PL is the better choice for most businesses.
The Broker Model Of 3PL Pricing
When you partner with a 3PL using the broker model, they basically act as an “agent” on your behalf, purchasing space for shipments in small quantities. Deals with the freight carriers tend to be negotiated on a case-by-case basis, and these 3PLs take their payment from you directly.
You pay them, they take your stock, and they find someone to ship it where it needs to go.
This seems like an obvious setup for such a service, but it introduces a number of problems for a company looking to optimize -and reduce- its shipping costs:
- Variable margins. Since most of these jobs are negotiated ad-hoc, your 3PL won't be able to guarantee set margins. Prices per-shipment may go up and down depending on what deals they find.
- Fuel surcharges. Many freight companies are charging rather high fuel surcharges on smaller loads, which a broker-based 3PL cannot get around.
- Low transparency. Some broker-based 3PLs are totally transparent, but many tend to hide the details of their negotiations with the freight firms. You may have no way of knowing whether you're truly getting a good deal.
- Higher Risk = Higher Margins. Because brokers take direct responsibility for your stock, that means they're on the hook for lost loads. Their prices go up accordingly to protect themselves. Margins are often in the 15% range, or higher, for this “insurance.”
The Non-Broker Negotiated Model
The alternative to a broker is a 3PL using the negotiated model. This option generally delivers better service at lower rates. These 3PLs have already put deals in place with the freight companies, and they buy their shipment space in bulk, as a representative of all the clients working with them. Negotiated 3PLs are actually paid by the carriers, with their fee integrated into the overall bill of lading.
Because they have guaranteed shipment and fuel rates with select carriers, they can offer lower prices than a broker. And, since they aren't the ones shouldering the burden of lost shipments that means their margins are usually under 10%, as they carry less direct risk.
ReTrans Freight is the premiere negotiated 3PL in the business. For the lowest rates, and the best software systems, contact us today for a free consultation!