Around every turn in the trucking media, it’s being preached how important it is to know your operating cost. I agree that it’s vital for you to know what it cost to operate your business. However, knowing your market and how freight rates are determined doesn’t seem to get the same degree of coverage.

In the early years, while putting my business plan together I met a friend who owned a small fleet to get some advice. When I asked him how to negotiate freight rates, he laughed at me and said “this is one of the most difficult items to figure.” He explained to me that if my phone doesn’t ring, my rates are too high. However, if the phone is very busy, then my rates are too low.”

Next, he told me “freight rates have absolutely nothing to do with what it costs to operate a truck.” This puzzled me at first and I wondered why I spent almost two years working on a business plan when according to my mentor it has nothing to do with the prices charged for service. I decided to do some research on my own.

My study concluded that the only things that affects rates is supply and demand. The focus of my business was to run from two main regions which made learning the markets less difficult. The real lesson I learned early on was “your service is only worth as much as someone is willing to pay or for as little as provided by your competition.” The trick to this knows when you have the upper hand.

Looking back on my early “flatbed” days, I could get a much higher rate in Southern NJ than Northern NJ by a substantial amount. This may have changed as it’s been years since I’ve run that particular corridor. To explain the market forces at play, a large amount of empty flatbeds would come out of New York City and into New Jersey. So why didn’t those trucks just pick up loads in New York City? The reason is because New York City is what I call a “market economy” which to me means they consume more than they produce. All the trucks pouring into New Jersey upset the balance of supply and demand. To take this to an extreme level, if you get to an area and there’s a thousand trucks requiring a load and only a couple shipments to be had, whoever takes those loads will most likely take them for a low rate. However, the opposite occurs when there are one thousand shipments and only a few trucks in the area to take them.

Now, you have some negotiating power to charge a higher rate. Carriers not choosing to enter or frequent a particular location can affect supply and demand just as if every carrier wants to serve a popular area. Don’t expect to charge high rates as you’ll have plenty of competition. Also, seasonal freight can be a major factor as well. Many of these items have a two to three week period in which they need moved. Examples: (pumpkins and Christmas trees.) Due to market demands, rates can dramatically swing from low to high on any give shipment.

As a truck owner, the challenge of your job is to connect the dots between the markets you serve in order to maintain your income per mile at a profitable level.

With the upcoming holiday season upon us we can put this in perspective and ask ourselves… how much is a Christmas tree worth on December 26th?

Comments (8)

Henry Albert

Henry Albert is the owner of Albert Transport, Inc., based in Statesville, NC. Before participating in the "Slice of Life" program, Albert drove a 2001 Freightliner Century Class S/Tâ„¢, and will use his Cascadia for general freight and a dry van trailer. Albert, who has been a trucker since 1983, was recognized by Overdrive as its 2007 Trucker of the Year.

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So True. Supply and Demand. If Demand is high and Supply low the price to get supply to market goes up. Had an economics teacher is college say to do what everyone is not. If everyone is planting corn plant wheat.

September 14, 2014 17:41:47 PM

Great Post here Henry. Supply and Demand is how we operate. Lanes and rates always change. What is good in one area in December isn't good in June and vice-versa. Knowing your lanes and rates geographically is the key to anyone's success.

September 14, 2014 14:03:08 PM

SO right-supply and demand-is the most important thing-but supply and demand are not totally inelastic. Demand can increase as price decreases and vice versa.

December 05, 2013 5:50:43 AM

You explained that well Henry. I've learned that lesson the hard way by jumping on a load to somewhere that ended up being a black hole for freight coming out. I've since narrowed my focus to a few lanes within the southeast region where I can do pretty well.

Natural disasters like Sandy in the northeast create limited opportunities like the seasonal examples you mentioned. As a car hauler, I've gotten a lot of calls begging me to take rental cars to NY and haul flooded cars for the insurance companies back out. Coming out of NY loaded with cars is unusual unless it's Snowbird season.

November 22, 2012 8:45:50 AM

My best experience has been in finding the small company that needs 1 or 2 loads a week out of an area like this. It takes time but in the long run tends to be more profitable.

November 21, 2012 23:35:36 PM

Ronald,
The brokers have as you noted have figured out market pricing very well.. Brokers are in fact changing their rates to the shippers based on supply and demand. The problem is they have a plentiful supply of carriers who will keep hauling the freight for the same price. Over the years my use of brokers has been minimal so my experiance with them has been little compared to dealing directly with the shipper. I think shippers would be interested to know how much a broker moves a load for after they negotiated a high rate from them.

November 21, 2012 12:18:43 PM

Good old supply and demand.

November 21, 2012 11:15:33 AM

This is a great article Henry. The problem going to the " market economy "States is that the rates have never really changed. I have spent the majority of my driving career on the east coast in all of those market economy states. When I started driving nearly 30 years ago the rates out of those states coming back to ( Ohio,Michigan,Indiana,Illinois) was between $500.00-$750.00 dollars depending on the destination. Fast forward to the present they may have risen a $100.00 dollars, The shippers in those states know when a truck delivers their they have only three choices to make they can go west,north or south I guess their is a fourth choice sit and wait. CH. Robinson controls those areas and if you don't have a great contact in those areas their is no negotiations in rates because they know they will move that load! I have called on loads trying to negotiate a higher rate and have either had the phone hung up on me or a take it or leave it response from the person on the other end because the phone you hear ringing in the back ground is a person going to take that load and they don't have time for negotiations and how long are you willing to sit around making phone calls and lets face it TIME is money and you basically have between the hours of 7am-3pm to get empty and reloaded or your going to most likely spend the night. So this means your best bet is to book a load the day before you deliver or your just wasting time and your not going to find a broker or an agent with their back against the wall needing a load moved the day before because they know other trucks are delivering first thing the next morning. The only real negotiations and that's minimal at best is on the original shipper because they have a load going to a market state and let's face it those can be a little difficult to move but in reality those will get moved to because their is a truck that needs to get back to a market state and pick up another load.

November 20, 2012 19:27:19 PM