How to Negotiate Freight Rates in 2021

Transportation capacity is constrained, a massive worldwide vaccine rollout is underway, and the labor market is tight. Combined, this “perfect storm” of outside forces along with other current trends have created a real seller’s market for transportation providers. This puts breakbulk freight users and other shippers in the position of having to sharpen their pencils and haggle more than usual.

Historically, much of this activity took place manually using phone calls, email, paper, and pencils. With the advent of the Internet, the research component became more “virtual” in nature, as companies took to the web to shop for the best rates and terms. Still, these approaches required a manual-intensive approach to both shopping for and selecting transportation providers.

Adapting to Market Changes

Fast-forward to 2021, and the technology is in place that allows shippers to automate the formerly time- and resource-intensive process of freight rate shopping. And there’s no time like the present to begin using technology platforms to handle this task. According to industry experts, the freight environment is expected to remain largely “unfriendly” for many shippers in 2021 as the world continues to work through the global pandemic and related supply chain disruptions. 

Ocean freight was hit particularly hard by the global shutdowns and demand fluctuations that dominated the market in 2020. “Manufacturers and retailers should expect ocean contract freight rates on most routes to increase in 2021, following major market changes since the COVID-19 outbreak,” one supply chain expert told Logistics Management.

This is because carriers have “gained pricing power and are managing ship capacity to their advantage,” the publication adds. “Some routes and regions stand out as benefiting from lower rates, but the vast majority are seeing rates rise—particularly trans-Pacific eastbound—where the increases are worryingly high for shippers and the rates are much more profitable for ocean carriers.”

All Modes are Impacted

The domestic truck market is also getting more expensive right now, with the key drivers being reduced industry supply (i.e., a driver and equipment shortage) and growing demand for trucking capacity. “…after a shaky start, the trucking market has been a good one for carriers since June, with spot rates rising each month the last couple of quarters,” another industry expert commented in Logistics Management. “Contract negotiations will lag, but the industry pricing has already been reset higher.” 

Airfreight, rail, and parcel are also getting more expensive as the world’s supply chains gear back up and as organizations compete against one another for freight capacity. Here are five tips that you can use to secure the best possible options at the right price, and with the best terms: 

1. Compare apples to apples. Not all freight providers offer the same services on their quotes, so be sure to do a side-by-side comparison before making your decision. Key points to review include the various rate options being offered, accessorial charges, weight/dimensions, and fuel costs. “Before starting negotiations, shippers should understand their contracts, measure the impact of their shipping practices, and get benchmarks to understand what’s available in the marketplace,” Supply Chain Dive “That includes identifying shipping characteristics like the percentage of packages charged by actual weight versus dimensional weight (DIM), those charged the minimum cost, and which accessorial charges are most common.”    

2. Watch for hidden fees. Speaking of accessorials, these added fees are now common with the major carriers. That includes surcharges for residential deliveries, deliveries outside major areas, oversized packages, parcels not in corrugated boxes, fuel, additional handling cost, and others, Supply Chain Dive points out.

3. Leverage advanced technology platforms. A robust supply chain visibility platform can help you drive down or even eliminate accessorials and detention and demurrage charges. Using complete carrier data connectivity and continuous process improvements, companies can proactively drive these fees out of their transportation networks and save hundreds of dollars per container, per day, on their freight expenses.

4. Encourage your carriers to price-match. Nobody wants to lose money or customers, carriers included. “Let your freight partner know when you’ve found a lower rate,” AMX Trucking “There are times when you’ll get a matching rate — from a company you already know and can trust to transport your freight quickly and safely.”

5. Offer to shorten your payment terms. In the current business environment, getting paid quickly can mean the difference between operating profitably or struggling to stay afloat. Carriers are keenly aware of this and are working in a business sector where payment terms have extended to 60 days or more (versus an historical 30 days). “Many firms may offer lower freight costs if they’re guaranteed payment sooner,” AMX says. “All shippers need to do is ask if it’s a possibility.”