A Carrier’s Approach to Growing Your Business Through Long-Term Contracts
Contributed by EureekaBI
One of the biggest challenges in full truckload transportation is the pricing cycle. Rates fluctuate throughout the year and are affected by macro and microeconomic conditions that are out of your control. Determining how to price freight movements involves multiple factors that are time-consuming.
To operate as a small or medium-sized company, it’s important to have a strategic approach to maintaining and growing your business.
Evaluating Market Conditions
Market rates are stabilizing following major fluctuations since the start of the pandemic. However, there are more carriers in the market than freight volume, creating challenges for independent owner-operators, small carriers, and asset-based companies trying to cover their expenses and grow their business.
In the short term, it’s convenient to look for loads on the spot market. Either through load boards or relationships with shippers and brokers. The downside is that this is a transactional situation that changes often and can create additional work for a carrier. This creates a front haul opportunity, but then the carrier must find a load that will return them to where they are domiciled.
An alternative to spot market pricing is contract pricing. Contract pricing creates a bit more stability and predictability. As its name implies, contract pricing locks in negotiated pricing for a longer period of time. Typical contract lengths are three, six, or 12 months.
Pros and Cons of Contracts
Like most things in trucking, there are pros and cons to contract pricing:
- A carrier can establish stable rates that can be perceived as favorable to the shipper.
- Consistent volume reduces the time and expenses that would go into finding new business.
- Relationship building with shippers leads to additional opportunities and reduces wasted time trying to learn the ins and outs of their facilities.
- Including fuel surcharges in contracts with the shipper can help improve a company’s bottom line. There are multiple ways to negotiate fuel surcharges that can help you better manage your expenses and ensure you’re getting fair and profitable rates.
- Contracts can help you understand your operational costs, particularly fuel expenses, and prevent undercutting your profitability.
- Improved business operations reduces the stress of determining the current rate, allowing a company to be more strategic in growing its business
- There is no guarantee that the loads won will materialize. If a waterfall method was used, the loads available might not warrant tendering to every carrier that won
- In order to handle this situation, it’s a good idea to follow up with the shipper and let them know there were expectations that weren’t met. It might get you off contract freight or invited to the next bid.
- Volume might not materialize due to external factors outside of the shipper’s control
- In this instance, you could follow up with information stating other strong lanes or areas that need assistance.
- A company may start expanding its carrier network in anticipation of new volumes and lanes. However, if the shipper fails to deliver as expected, this could damage the relationship between the carrier/broker and the carrier/shipper
- To combat this, ask to be placed on upcoming bids and follow up prior to them going out.
- In certain cases, a company might buy equipment in anticipation of contract volume
- Consider negotiating a long-term dedicated contract before purchasing equipment to lower risks or unnecessary expenses.
Strategies to Stand Out
To maximize contract opportunities and negotiations focus on key strengths and providing exceptional service.
Here are five strategies to help you stand out against the competition.
- Know your service levels. On-time pick-up and delivery are crucial in a fluid supply chain. While most shippers expect exceptional service, perception can quickly become a reality. They will likely remember the one late load that caused out-of-stock items, not the other 99 perfectly delivered loads. It’s important to have the metrics and details on any late deliveries as a precaution.
- Focus on your lane strengths. Shippers value carriers they know can handle certain lanes well.
- Diversify equipment types. This can be a differentiator for your business and a lucrative investment. More high-touch commodities pay more, require special instructions, and have different insurance levels. However, this can elevate your company from the others vying for the shippers’ business in a competitive space.
- Position your company as a strategic partner, not just a transactional provider.
- Utilize technology to save time and money. Review the customers’ technologies used and see where you align. Talk with your current technology partners and see if they list shippers. This reduces one potential hurdle and is a lead generation activity.
If more predictable revenue is your company strategy, it is worth looking into shipper bids. It takes patience to find them and then complete them. However, it’s an alternative to spot pricing and accounts for a majority of loads moved in the industry. A few key accounts can make a big difference in a company’s sustainability.
EureekaBI is a software company that offers back-office processing services. They help 3PLs/brokers complete Request for Proposals (RFPs) in less time with higher accuracy. They are data analysts with extensive experience in the transportation industry.