Life and Family

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Rate Yourself

by Duff McCutcheon

Independent means alone: by yourself - nobody to fall back on. If you're considering wading into the market on your own, you'll need to know a few things about rates. Like how much you can get away with charging. Or how much you might have to settle for in a competitive market.

To have your own authority, and to deal directly with the shipper means you'd better have some idea of what shippers are paying for the lane's you're interested in.

Historically, trucking companies of all sizes - from the one-man show up to the biggies - have worked on a cost-plus basis. They determine all their operating costs and add the margin, usually five to 10 percent, on top.

According to Ray Haight of The Alliance Canada, an owner-operator business consulting firm out of Waterloo, Ont., that strategy doesn't fly any more. "In the last couple of years there's been a little more sophistication in the process," he says. "Certainly you need to know what your costs are and you need to know that you're covering costs, but when you're determining your rates there's been a shift to willingness to pay (by the shipper). Basically, you're going in and finding where the pain is. If the shipper is considering a change, why are they considering it? What aren't they getting from whoever's doing the work now?"

James Lamb, an American transportation consultant with the DOT Authority in Commack, N.Y., agrees. He says in the past carriers have taken the position that ‘here's my rate, take it or leave it.' "Now it really comes down to what rate the shipper is currently paying and what rate they're looking to pay," he says. "It's really left open to the marketplace."

With that in mind, you'd better go in armed with some solid information about going rates in various lanes before you start giving out quotes to a new shipper.

Knowledge is Power
There are a number of industry tools available - for a monthly fee - that will help pin down what you should be charging for a given lane across North America. Sign up to a rate index like that offered by Carrier Depot, TruckloadRate.com, or Transcore's Trucker's Edge, they spell out what carriers are charging for a particular lane, for what piece of equipment, usually in the form of a low-high range of rates for that lane.

You also have to factor in the availability of backhauls out of a given destination and then balance the rate out between your headhaul and backhaul. "If you're trying to get down to Texas for $1.65-1.70 with a dry van, usually there isn't a lot of freight coming out of Texas, and you're probably going to have to run a little further for a backhaul, and there's so much competition the rate's likely going to be thinner coming home," says Haight. "It helps to have someone to talk to about the availability of freight coming home to try and determine what you need going out."

Load boards are a good source for that. Or you can buy tariff books from various outfits in the U.S. for around $200 that have to-and-from type rates based on historical data.

In its simplest form, if you need to earn $1.50/mile on the round trip, but the best backhaul rate you can find is only $1.25/mile, you'll need to charge $1.75 on the headhaul. Anything less and you'll be losing money.

Seasonal freight volumes make a big difference too - especially around harvest time - if you're going into the produce areas like Florida, Texas, or California. If you've got a good produce season going, then all the produce haulers are going to be hauling out of there. That will drive the dry rates up a bit because the availability of trucks in those areas will go down.

You can also maximize your earnings by watching freight cycles. A shipper's quarter ends are good times for you to get maximum rates because companies have to get freight out of warehouses to make their numbers for the quarter end. Same goes for Fridays - if you're giving out spot quotes, or you get that desperation call - you can generally get more money.

"The premise of the rate structure is basically the same no matter what your size. You've got a piece of equipment around and you get a desperation call from someone who needs a load moved on a Friday afternoon. That's willingness to pay - they're stuck," says Haight.

Negotiate, Negotiate, Negotiate
So you've done your homework, got your rates and you're ready to face the shipper with some numbers. Now what?

Really, it's about having confidence in talking to your prospective client and having accurate, bonafide industry data on rates at your disposal, says Lamb.

But bear in mind that when it comes to negotiating rates, there is a difference between talking with a shipper and talking with a broker. "The shipper is going to get his data based on what he's been doing all along and most recently," says Lamb. "Brokers are very often using the same tools you're using. When you're dealing with a broker it's a little different, because they know too much. Usually a broker will throw out the lowball rate, the carrier throws out a higher rate. They laugh, then they split it down the middle," says Lamb.

As far as dealing with a shipper, the Devil's not so much in the rate, but in the contractual details. "One of the biggest problems when it comes to rate making is not necessarily the bottom line price the two parties agree on, but what kind of contract is in place and how that openly affects things like the carrier's ability to collect from the shipper - there are lots of issues that apply to rate making that are really more a matter of contract law."
Accessorial Charges

So you've negotiated your per-mile rate, but what of the extras? The lumper fees, tarping, border crossing, time waiting for loading/unloading?

"The norm in our industry is the first two hours are free and then maybe $50-70 an hour after that," says Haight. "You try to negotiate ahead of time that you get a layover charge if you're waiting around for someone to unload you - maybe $300 a night if you can get it, perhaps something for the border crossing. You ask for those things and if the shipper's reluctant to give it to you, at the end of the day, all that money comes out of the same pot. If they say they don't pay for these things, then you try to determine through conversation how long it takes to get the freight off, and then you just throw it into the rate."

Keep in mind that a lot of shippers hate accessorial charges. They don't want to see a great long list of itemized charges for various services rendered. Pay attention to this - it will work to your advantage over a competitor who doesn't. "I've had competitors that don't listen and they itemize each charge to the shipper," says Haight. "We'll go in with a rate that's 10% higher and the shipper will pay it because it's one flat rate. They don't want to explain every line item to the boss.

"Same goes for fuel surcharges. Ninety percent of shippers aren't going to complain about fuel because it's ingrained. You might go to a shipper and give them a one-year rate with all your surcharges on it, depending on fuel, exchange, etc. Those that don't want to give it, you give them a one-month rate and you review it every month. If they can't live with it, then move on."

The average owner-operator is content to sign on with a carrier and let them deal with the niceties of negotiating rates. But for the truly independent trucker, it is possible to do it yourself. Your best possible situation would be to find yourself a medium-sized shipper you can provide with good, dependable, customized service.

"If I was starting out again, that's the type of shipper I'd be looking for," says Haight. Someone that's willing to pay for that service on a timely basis so you've got a good chance of survival and can make some money.

"Plus, I'd go online and look through tariff books and research where the data comes from for the tariff books, plus any seasonality issues involved. I'd look at some of the larger load brokers that focus in specific areas. Once you get in with those and they get to know and depend on you, they'll give you preference over someone they don't know."

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