Why A Better Rate Doesn’t Always Mean Better PricingWritten by Neal Willis
It’s always a good idea to check your inbound freight costs for savings opportunities. You may find that your supplier has better pricing on certain lanes; however, just because your supplier is offering you a better rate than what you can get through your own carrier doesn’t necessarily mean that they have negotiated better pricing than you.
How Freight Charges Are Determined
Your supplier may use an equalized freight program that bills customers based on a percentage (%) of the total invoice price, regardless of the actual freight cost through their carrier. Many shippers operate this way as they either don’t have the time or resources to quote every shipment, so they calculate freight charges as a simple % of the sale price and charge their customers that amount for freight.
Sometimes they make money on a shipment, sometimes they lose money, and sometimes they break even. Losing a little bit of money on a few shipments here and there doesn’t really show up on their radar because they are also making money on others. When all of these shipments are calculated into their overall transportation spend, it usually evens out in the end.
A supplier’s pricing may be better for certain lanes simply because they are geographically located in an area where the carrier has a need to fill empty trucks. A carrier may have an imbalance of freight flows and need more outbound freight from a particular area, which usually warrants more aggressive pricing for the shipper located there. A freight rate is calculated by using the origin, destination, weight and class; however, pricing behind the rate can be based on a variety of things, most importantly a carrier’s needs.
For example, Florida has a lot of inbound freight. Aside from produce, however, there isn’t a lot of outbound freight leaving Florida. Carriers are sometimes willing to offer good discounts to fill empty trucks leaving Florida because they enter Florida with a full load and don’t have much freight available for the return trip. Knowing they have regular outbound freight available to pick up, makes a carrier more likely to offer a Florida based company a better rate on lanes leaving the state as opposed to shippers based elsewhere that dropship things from Florida from time to time.
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