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low freight rates

Are Low Freight Rates Bad? The Downside of Low Freight Rates

Many industries and the global economy rely on freight shipping to handle business. With the evolvement of commerce, transportation becomes a more and more important branch for businesses. However, in the world of freight shipping, the demand for capacity is higher than capacity itself. This causes frequent fluctuations in shipping costs and directly affects carrier freight rates.

Why are freight rates so low?

Today, companies are under the pressure of providing high-end customer service, fast and affordable shipping, and deliver excellent product quality. While trying to maintain all of these components, businesses also try to stay profitable. For this reason, enterprises constantly seek ways to reduce costs in any possible area. And one of those areas is their logistics and transportation.

Of course, there are numerous ways to reduce shipping costs. But we will touch on the initial onegetting low freight rates. Low transportation quotes are a target for many companies, however, this purpose can easily become a trap for a business. The truth is, the lowest freight rate is not always the best one. Although it is easy to be tempted by cheap shipping, in most cases you will end up paying much more than you expected. So, try not to rush into the first-best deal.

Why are the lowest freight rates not the best ones?

To understand why cheap does not necessarily mean good, you have to understand how the freight rates are formed. Carriers include numerous factors when calculating your quote: fuel price, commodity type, route, shipment dimensions, weather conditions, and others. But carriers also do business, and everyone wants to be profitable. However, in attempts to stay in the competition, some carriers lower the rates to get customers which may result in some sacrifices.

What price you have to pay for cheap shipping?

Low service quality

Logistics experts agree that low freight rates could strongly correlate with a decrease in service quality. “Reducing operating costs through the optimization of capacity often, but not always, manifests itself in the form of a deterioration in the quality of service of our ocean and air providers,” Bolloré Logistics’ president Thierry Ehrenbogen told Lloyd’s, Loading List. It is always a good idea to do your research and see which rates are actually the best before committing to a rate just because it is the lowest.

Low operational quality

Often, low quotes are the direct result of the reduction in driver’s or facility worker’s payment. You get less productivity, inaccurate handling, and lack of efficiency in freight management. Considering that it may lead to freight damage, the lowest possible rate is not always what you will benefit from.

Delays and long transits

Obviously, fast shipping costs more. However, nobody thinks that cheap shipping may be cheap exactly because of the extended transit time. Shippers often don’t know about the common pitfalls of low freight rates, like delays and poor shipment tracking.

Bottom line

Ultimately, if you want to benefit from your transportation strategy in the long run, try to avoid any suspicious “hot offers.” You still have lots of possibilities for negotiation and freight brokerage services to get the best possible rates.

Learn more about freight brokerage services!