What Factors Impact Carrier Pricing?
For shippers, changes in carrier pricing can seem arbitrary, but usually that’s not the case. There are many factors that go into a carrier’s pricing strategy.
You and your carriers can agree on volumes, pricing, and service. You both feel good about the consistency and flexibility you will have, although you know your agreement is not a binding contract. Over time, there are factors that can render these agreements unsustainable.
At such times, the better you understand what’s going through the carrier’s mind, the better prepared you will be to understand what could happen next with pricing, and what, if anything, you can do about it.
Let’s take a look at three key factors that can influence carrier pricing strategy:
1. Carriers absolutely must balance their service networks.
To stay profitable, carriers create synergies between their customers. That is, they try to match your shipment to Chicago with another customer’s freight pickup in the same city. That way, they can keep deadheads at a minimum and be more profitable. Yet, for whatever reason—perhaps they lose a customer or you decide not to ship to Chicago anymore—their service network may go out of balance. Suddenly, they have hard decisions to make about how to bring the network into balance again.
What shippers should do: Your best defense is to understand how your freight fits into the carrier’s service network, and to stay in constant communication with them so you’ll know when something is changing.
2. The market affects carrier decisions.
The transportation market has ebbs and flows that are neither controlled by shippers nor carriers. If capacity is tight and the shipment volumes are greater, shippers will pay higher prices for the equipment.
As a result, some carriers will abandon their existing contracts in favor of higher-paying freight at such times, but the ones with good relationships can remain true to their customers during market shifts.
What shippers should do: For best results, be as loyal to your carriers as they are to you. Consider adjusting and renegotiating rates to more closely reflect market realities when equipment is tight. This can help ensure you have equipment when you need it.
3. Carriers will choose shippers that are easy to work with.
When carriers can be choosy about who they will serve, they pick shippers who are easy to work with. When carrier equipment is at a premium, the carrier can decide to work with the customers who will make their lives easier. Often, they define this as the shippers who help them be the most efficient, and therefore, the most profitable.
What shippers should do: Shippers who delay drivers for any reason will lose out to shippers who limit detention time. Make sure they have enough help on the dock to load and unload and keep the carriers moving.
Building and maintaining a successful carrier relationship takes time and effort. For additional information on this topic, download our Strategies for Transportation Spend: Understanding the Dynamics of Carrier Pricing, Service, and Commitment white paper.