Tag Archives: freight rates

Are the Lowest Freight Rates the Best Ones?

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.

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 one – getting 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 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.

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How a 3PL Can Help You Get Lower Freight Rates

If you are frequently shipping freight, there’s a good chance know what third party-logistics companies do. In fact, 3PL’s can help your business in many ways, and one of those ways is getting lower freight rates for you.

Why is outsourcing so popular?

Outsourcing logistics to a 3PL provider has become more common among many companies, regardless of their size and expertise. Many businesses have chosen to outsource their logistics because of the growing importance of customer experience. People want faster shipping and cheaper delivery costs.

Inventory, warehousing, and logistics costs are constantly rising. Managing logistics becomes costly and complicated for companies to do themselves, so businesses are seeking efficient solutions to save costs on transportation. One of the best ways to cut transportation costs is getting low freight rates on a regular basis. Outsourcing transportation to a 3PL can help companies in many ways and help get you the best rates for your freight.

How can a 3PL get you better freight rates?

An experienced third-party logistics provider has a wide network of carriers and freight brokers with reliable and trusted relationships. This lets a 3PL negotiate exclusive rates for your company. The negotiating process is usually held through a freight broker, who arranges the final shipping cost for a customer.

What are other ways a 3PL can help save transportation costs?

Apart from better freight rates, here are some other benefits of partnering with a 3PL:

Available carrier capacity

One of the primary advantages of third-party logistics providers is that they let you access a wide range of carrier capacity. Regardless of your freight type and volume, an experienced 3PL will always provide you with the required equipment. You don’t have to interact with multiple people and can instead have a single point of contact for anything.

Supply chain management

Usually, a 3PL provides you with a dedicated person or team of experts to manage your company. Apart from freight brokerage, you can also use a 3PL for managing your supply chain. Professional analysts can define gaps in your current supply chain and can help you outline a new strategy. This eliminates waste operations, and, therefore, reduces unnecessary costs.

Custom approach

While you focus on your business, a 3PL should focus on seeking efficient solutions for you. An experienced logistics provider will learn your businesses characteristics and needs so that they can provide you with useful solutions (for example, freight consolidation or shifting to multimodal transportation). Developing a custom approach to your company helps 3PL’s reduce your transportation costs.

Final thoughts

Collaborating with a 3PL can significantly reduce overall transportation spend of your company through competitive freight rates, supply chain management, carrier capacity, and experience in the logistics industry.

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The Ins and Outs of Freight Rates

Moving freight starts with determining what the fair rate for your shipment is. Obviously, carriers and shippers want to make sure they are getting or paying a decent price for a load. Carriers don’t want to lose money, and customers don’t want to pay more than they should. there are many ins and outs if freight rates you need to know before booking a load. 

What are the ins and outs of freight rates?

Before moving a load, it is important to research the market and determine what the fair rate for your load is. There are a lot of variables that go into determining the rate, and it’s important to consider all of them when calculating your target rate.

1. Equipment Type

It’s crucial to keep in mind which equipment you need to move your load. Flatbed and van rates may vary drastically on the exact same lane. If your load is anything out of the ordinary (over-sized loads requiring special equipment), be sure to consider that when calculating the rate as well.

2. Season

Rates follow a similar pattern every year, and seasonality plays a huge role in determining rates. You will have to pay much more for a load in the peak season in the summer compared to February.

ins and outs of freight rate

3. Fuel

Monitor fuel prices and be aware of any spikes and drops. Changes in fuel prices directly and almost immediately affect rates across the country. Having some insight will help you be fair as well as ensure you are not being taken advantage of.

4. Lane

It’s number 4 on our list, but could very well be number 1. This is the basic factor that determines how much you will have to pay for a load. Certain places may be a tough destination to ship to, causing the rates to be much higher. At the same time, moving a load out of that location will be cheaper. Before determining a rate, always research load to the truck ratio at your origin and destination points.

5. Urgency

Once you’ve done all your research and finally have a target rate in mind, there’s one more thing to consider. When it comes to actually move your load, you should evaluate how critical the load is. If you are more or less flexible with pick-up and delivery, you may be able to move it at the market rate. If the load has to go immediately, you may have to work the “premium” into your rate to send it out.

There are many different situations that can cause rates to fluctuate such as hurricanes, new regulations and more. Keep an eye on the news and industry trends to stay on top of the market conditions and navigate through rate fluctuations successfully.

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Why Are Rates Skyrocketing?

Anyone connected with transportation is well aware of the latest market trends and conditions. We have been witnessing a steady increase in truckload rates lately. Experts predict this is only the beginning and spot market rates will keep climbing in the foreseeable future. Capacity is tighter than ever and its load to truck ratio in September is breaking the records.

iStock-841802950.jpgThis is not caused by a single factor – a complex of things is contributing to the tightening capacity and continuous rate increases. Let’s look at a few major reasons:

Aftermath of Hurricanes Harvey and Irma

Two devastating hurricanes hit the US within a very short period of time leaving destruction and severe weather conditions behind as they passed. This had a major impact on the truckload capacity. Recovery required emergency supplied and aid which shifted the capacity to the affected areas, leaving other parts of the country with much lighter coverage.

Driver shortage

This is a problem which did not show up as suddenly as hurricanes. It has been happening for some time now; it has been actively discussed – and it is not likely to stop anytime soon. Qualified drivers are not easy to come by now, and the industry is definitely feeling the pain caused by driver shortage in the form of continuously tightening capacity.

ELD

Probably the most controversial and widely discussed topic in the transportation industry in 2017. The mandate designed to improve safety on the roads and eliminate paperwork component has not been met with excitement by many carriers. The cost and complexity of implementation and achieving compliance caused major pushback from carriers. There have been multiple attempts to stall the process and extend the implementation period for two more years.

As of right now, it seems like the regulation will be fully in effect in December. As a result, we will see a decrease in capacity as some carriers will not be ready by December, some will violate it and face consequences and so on.

All of these factors directly affect truckload capacity and logically, boost the rates. Forecasts suggest that shippers brace themselves for even higher rates in the coming 2018.

Read more: ELD Mandate: What you need to know, Can Shippers Help Increase Truck Capacity?, Secure Capacity with these 3 tips

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Research Shows Freight Rates Have Gone up in December for 3 Years

Analysis.jpgThe first week of December 2016 had the highest week of volumes on the spot market in the past 2 years. DAT reports that the increase in available loads is because of e-commerce shopping. Denver and Memphis, in particular, saw load availability soar because those markets are distribution hubs for e-commerce.

This year, Black Friday and Cyber Monday sales were bigger than ever. SupplyChainBrain reports that even though in-store sales figures were down 5% on Black Friday, online sales hit a new record of $3.34 billion. Then, Cyber Monday topped that number with $3.45 billion in online activity. Fierce Retail says 73% of respondents plan to shop online this holiday season and 1/3 will shop on mobile.

“Shipper volumes definitely have increased during this peak season,” Richard Stocking of Swift Transportation says. “Volumes have increased throughout the fourth quarter through Thanksgiving and remained strong thus far into December.”

Van
Van rates have gone up in December for the past 3 years. Plus, the Midwest and Northeast have been hit with snowy, winter weather, leading to tighter capacity and higher rates. Inbound rates are higher in the Northeast’s popular distribution centers in Allentown, PA. Van rates from Columbus to Allentown averaged $2.96 per mile during the week of November 27 – December 3. Out West, the number of loads tripled on the lane from Denver to Los Angeles.

Reefer
In November, the national reefer rate was 6 cents higher than October’s average. After Thanksgiving, more loads were posted, but rate trends varied widely.
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What to Read Next: Market Update: Seasonal Freight and Consumer Forecast

Price Surge Coming: Lock in Low Transportation Rates Now

Transportation rates are near their lowest point and are expected to rise later this year. New forecasts predict rising contract and spot market rates caused by numerous economic and regulatory factors – which will create tough conditions for shippers to negotiate rates. Shippers who don’t lock down rates now could miss out on a great opportunity.

transportation rates surge

Pricing Conditions are Great for Shippers – For Now

Larry Gross, a partner at freight transportation consultancy FTR, says, “We are now experiencing the first sustained period of favorable shipping conditions since 2009.”

Right now, and the next couple of months, are the best time for shippers to lock in low transportation rates. FTR’s latest Shippers Conditions Index (SCI) reveals just how good things are for shippers today. The most recent score, 4.7, released in February, shows a favorable environment.  When the SCI reports negative numbers, it represents an unfavorable environment. The index reported a 4.3 in January, which was up from 3.0 in December, -0.6 in November, and -3.1 in October.

Gross, after acknowledging the favorable pricing environment, admits that FTR expects a slow degradation of conditions for shippers in 2016 that will gain momentum in 2017. Regulations, the price of oil and economic uncertainty are the driving factors behind price increases.

The Reasons for Rate Increases

Regulations

The HOS regulation and ELD mandate will greatly affect the trucking industry. As usual, the state of the Hours of Service (HOS) regulation is up in the air. Several studies are being conducted and it could be reinstated at any time. HOS rules would considerably impact carriers’ efficiency and operating costs. The ELD mandate has the potential to eliminate a large portion of available truck capacity in the industry. Smaller carriers and owner-operators will be burdened by the financial investment and adjustment period of ELD implementation and many are expected to exit the industry.

Oil Prices

The price of oil, and subsequently diesel, is nearly impossible to predict. Currently, prices are extremely low. This is not sustainable for a long stretch of time and can be harmful to the transportation industry. Historically, the longer the price of oil stays low, the more dramatic and lengthened the rebound in prices will be. The oil and gas supply chain is so complex that nobody can say for sure when prices will rebind, but most economists agree it will happen within three years. When the price of diesel skyrockets, carriers’ operating costs will also skyrocket.

The Economy

The unusual state of the economy plays a role in projected rate raises, too. Low gas prices are good for consumers but are a symptom of broader industrial level suffering. Loose capacity is great for shippers but caused by generally cautious consumers. This high degree of uncertainty has caused many shippers to start securing long-term contract rates in the past few months – slowly locking up future available capacity. When carriers feel safe with their level of guaranteed capacity, they will start to raise rates, and shippers will compete for what’s left.

At best, transportation rates will be neutral in 2016 and slightly negative through most of 2017. At worst, they could increase to 2008 levels if diesel prices rise, capacity dwindles and regulations cripple efficiency. Either way, it’s safe to say that right now is the best time to lock in contract rates for transportation before it’s too late.

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