Many variables go into freight rate calculations. Understanding what these variables are will help owner-operators find and negotiate the best rates. In this blog post, we drew from the wisdom of David T., a TrueNorth owner-op. David makes consistent revenue year-round because of how he chooses and bids on loads.
Here are the factors you should consider when bidding on loads and negotiating freight rates.
Spot Rates and Contract Rates
The one-time rate that a shipper pays to haul freight is known as the spot rate. It's the rate that you negotiate on the spot. Average spot rates go up and down according to market conditions such as:
- Seasonal factors
- Cost of fuel
- Lanes
- Supply and demand
- Other market factors
Besides market conditions, the parties negotiate rates on other factors:
- Type of equipment: dry van, reefer, tanker, etc.
- Type of load
- Special rates for same-day and forwarded loads
- Accessorial charges and other charges
Knowing the latest spot rates can give you an idea of what rate you might be able to negotiate for.
Loads-to-Trucks Ratio
The loads-to-trucks ratio for a lane tells you the supply-and-demand conditions for that lane. If you see on the load board that shippers need a lot of freight moved in a certain lane, but there are not enough trucks in the area, you might negotiate a higher rate.
The opposite is true when there are a lot of trucks in the area, but the freight available on the lane is soft, you can expect the load to pay less.
Your Cost Per Mile
To make any business profitable, you have to bring in more money than what it costs you. That's why it's crucial that you know your cost per mile (CPM). That way when you negotiate freight rates, you know the minimum rate you need in order to break even. According to OOIDA's 2020 Freight Survey, owner-operators who knew their cost of operations earned $1.00 more per mile than those who did not know.
Load Time
If you see that a load was posted on the load board for a long time, you may have an opportunity to negotiate a higher rate. The pickup time can give you clues about the rates you can command. If they need to get the freight moving quickly, your service can be more valuable and you can bid at a higher rate.
The dock hours can affect whether you have to pick up or deliver at times when you have to deal with heavy commuter traffic and whether or not you are driving into the wee hours of the night. Negotiate a rate that makes it worth it.
Drop-off Location
Live loads at distribution centers and warehouses can mean long detention times. You could be waiting there for 11-12 hours. Brokers pay detention in 30, 45, 60 days, and it becomes one more item for you to keep track of and remember to follow-up on. For this reason, David T. avoids these types of facilities.
Additional Fees
Take into account the costs of running a lane:
- Tolls
- Permits
- Lumper fees
- Late fees
- Fuel surcharge
Likewise, consider any accessorial charges that might be appropriate to add to your rate.
- Hazmat
- Nonstandard pallets or odd-shaped freight
- Limited access delivery
- Trade show delivery
- Advance notice to the consignee
- Other accessorial charges
“When bidding on loads, add in everything: detention, deadhead, all your expenses. ”
— David T., TrueNorth Owner-Operator
Deadhead Miles
Some well-paid loads land you in a place where the freight going out is soft or nonexistent. There will be times when you have to run with an empty trailer. You don't make any money from deadhead miles, and your hired drivers might want to get paid. So when you deadhead, you're running at a loss. Does that mean you shouldn't deadhead? If the heatmap shows that you can get high-profit loads near your destination, deadheading might make sense.
You don't need to refuse loads just because they deadhead. If you can get to the hot map areas, be willing to deadhead. "You want to take it into account and bid with deadhead in it," says David T. "If a load is paying $800, I'll bid $1,300."
Comparing Load Rates
Many load board platforms will let you compare freight side-by-side. Having a wide selection of loads to choose from and knowing the latest spot rates gives you negotiating power to get highest rates. TrueNorth's app gives you that choice and visibility to maximize your revenue.
Take into account deadhead miles, tolls, highway use taxes in the lanes, and any other expenses.
Know When To Walk Away
Know what you're worth. This is where your CPM comes in. Don't accept rates that aren't profitable to your business.
You're a professional, and you should command professional rates. Shippers don't want the cheapest haulers, they want the best value. They want a professional who they can trust to get the shipment there on time.
Get it in Writing
The broker isn't obligated to pay you anything without a written contract. Make sure you get it in writing, and make sure they're the terms you agreed to.
Be Valuable and Deliver on Time
Remember, shippers don't want the cheapest rate, they want the most value. Good communication with the broker and excellent customer service can earn you a lot of trust, which leads to better-paying loads.
- Know your costs and explain that these go into the rate you're asking
- Listen to the customers and understand their needs
- Be reliable and trustworthy
Avoid overbooking loads or booking 3 or 4 loads in advance. Don't assume that you'll get your current load done in the timeframe you expected -- you never know when you'll get delayed. It's better to complete the load you're on before booking another. You could get charged a fine for canceling a load, or worse, a shipper may blackball you for repeatedly canceling loads.
There's a trucking company (we won't say who) that has a reputation for drivers booking multiple loads in advance and then canceling. As a result, shippers leave instructions on the ratecon for brokers not to book them for their freight. Don’t be that guy.
7 Questions to Ask a Freight Broker
Some brokers might tell you everything you need to know without asking. Some of this information might be in the fine print. But here's the list of questions David is prepared to ask of every load he considers taking:
- Is it a distribution center or warehouse?
- We've already talked about how you could spend 12 hours or more at a distribution center warehouse. It makes a mess of hours of service besides.
- How much does the load weigh?
- You can't presume the loader knows how to distribute the weight of the product. Sliding your tandem axles only redistributes the weight by about 250 lbs for each hole you move the locking pins to.
- We have more about axle weight distribution here.
- Is the location where it says on the board?
- Sometimes the location shown in the ratecon description is the nearest metro area. For example, the load board might say the freight picks up in Dallas. Then when you read the address, you find out it's in Corsicana — about a 45-minute drive from Dallas.
- If you have to drive further, take it into account when you negotiate rates.
- What's the pickup time?
- Is it a strict appointment time, or is there a window? You want to make sure that there's enough time to get there safely and legally.
- What is the commodity?
- What you're hauling can affect what you should bid. Some commodities have a higher risk of damage. High-value freight may have an increased risk of theft.
- Is it Hazmat?
- Of course, hazmat is defined as freight that can pose a health and safety risk. You'll want to be paid more to take on the risk.
About TrueNorth
At TrueNorth, we provide owner-operators and small fleet owners with the tools and resources to grow their business and keep more of the profits. Our software pulls in the major loadboards where you can search them all at once. We show you the latest spot market rates and heatmaps, so you're equipped to choose the best loads and negotiate the best rates. Find out more and speak to one of our recruiters.
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