Negotiating, Low Margin Freight, and Commissions | Final Mile 74

Nate Cross & Ben Kowalski answer your freight brokering questions and discuss:

• Negotiating rates with motor carriers
• High volume, low margin freight for freight brokers
• Hiring agents, sub-agents, and employees for a freight brokerage

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Transcript

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Negotiating Non-Negotiable Rates With Carriers

Speaker 1 0:00

Welcome back for another Q&A session here on the final mile . Send your questions in . We'll answer them pending the amount of questions we get in the time we've got . So we got three today . If you're new , make sure to check out all the other content Freight 360 dot net , including Freight Broker Basics course for an educational option . It's a great training solution for small teams or newer brokerages . And check out the sponsors in the description box to help support this channel . You've got Quickscope , levity , blue Book Services and DAT , who are repping their shirt today . All right , first question we've got here is as a broker , how do you politely convey that the rate is non-negotiable ? Ben , you want to take a stab at this and I'll give you my two cents . So well , I guess . Well , you set the tone here , paint the picture here and it's uh , you're talking to a carrier and they're trying . They're always like you know . Um , give me , give me 200 more , boss , and make it happen for you all . I got got's in it .

Speaker 2 1:03

A thousand bucks . Customer won't go above this .

Speaker 1 1:08

Can you make it work ? Now , what if the carrier ? Because the carrier knows typically you're going to have a margin in it . You know what's the ? So I'm trying to think . I had a conversation the last time I had one where a dude was pushing back was probably like two months ago and it was paying above average as it was and still wanted more and more and more . Um . So I'm trying to think here , like , how do you ? Is there something you can say outside of that's all I've got in it , you know ? Or do you just move on to the next one ?

Speaker 2 1:39

or no , I mean , usually I explain the situation like I mean , if that is literally all I have in it , like I'll explain why I'll be like listen , like I'll , I've gone back to my customer . This is the most they're willing to move it for . If they can't move it for this , they're just going to push it until tomorrow , and like a lot of times that's the case , right . So , like I'll usually provide like a larger situational explanation , I guess , as to why , like I can go above it .

Speaker 1 2:04

That's why I was going to add in too . I also go to the other side . It's like , why does the carrier want more money ? And oftentimes you might find out that they have to deadhead and they're like , well , I've got to drive two hours , I'm going to need some extra money . It's like , well , hey , we're probably just not a good fit at this time . And I give some market analytics , like , hey , based on the market right now , this outbound is not as tight as that rate would be conducive for . So this is the rate I've got . I know if I go back to my customer asking for more , kind of to your point , they're not going to go any further up on it , because if I can't get this rate on it , they're going to go to my competition or probably find an alternative asset-based carrier directly . So it's just transparency , right . And that's , I think , in the current market now , versus what we saw three years ago , versus what you'll see in the future , when rates are in the markets are different . The conversation sounds different because you I mean we had this . I'm thinking back to like May , may 2021 .

Speaker 1 3:12

I was down at our trucking terminal and , man , so that's our , we've got a small brokerage operation there that it doesn't fall under my you know my purview of the company , but I was just , you know , I just kind of like talking to this guy that runs it and like , hey , what are you seeing ? And he's like man , I can't wait till this market flips and these carriers are all pissed off because now they're not getting paid what they want . Because , like basically carriers , it felt like we were being gouged by them for a while . But the reality is it was just supply and demand , right , yeah , we needed them . There wasn't a lot of them available compared to what we needed . They got the rates they wanted . So it kind of goes both ways is the way I see it .

Speaker 2 3:55

Yeah , and the other two things is one before I'm negotiating , I'm always asking hey , when and where is this guy going to be empty ? So I know what his deadhead is . Because if he is coming from farther away , like I'll have a different conversation . Right , they're the only truck and they're that far away . Like , maybe conversation . Right , if they're the only truck and they're that far away , like , maybe I will go back and see if the customer will pay deadhead , if they tell me , hey , I'm going to be empty in the city .

Speaker 2 4:10

And to your point , I'm like okay , well , like , why are you looking for more than what I got quoted from two or three other trucks yesterday ? That's usually what I ask . Like , most of the time , what I'm presenting information back isn't like DAT or any rate system . I go this is what other carriers ran it for yesterday . Why are you looking for ? Is there a reason ? Like you need more than what everybody ran it for yesterday ? Like , what's the situation here ? Because that's what I'm really trying to get to is like you just want more .

Speaker 2 4:39

To your point , like , is there a legitimate reason ? Like , oh , it's by appointment . I'll be empty and have to wait six hours for that appointment . Okay , like that there a legitimate reason . Like , oh , it's by appointment , I'll be empty and have to wait six hours for that appointment . Okay , like that's a legitimate reason why you're asking for maybe a different rate . Okay , like , maybe I can see , maybe I can't right , but I'm usually comparing whatever they're asking to to what I just paid , right , like , what other carriers that are comparable or willing to run it for yesterday or this morning ? Are you looking for a number that everyone else was willing to run it for ?

Speaker 1 5:07

Yeah , and I think back like so the the listener asks like , how do you politely convey it ? And , um , the I talked to a guy that was we weren't even in the same ballpark , I think . He was like asking for it was like 800 or a thousand more than than , like , our target rate , and I I was just like , hey , we're not even in the same ballpark . I appreciate your interest , but we're not a good fit and I just moved on . You just move on because , depending on the lane you're typically going to know , yeah , I'll be able to cover this pretty easily , or I'm going to have to , you know , really stretch on this one .

Speaker 3 5:45

So , so one of the things that one of the things that I use in my accounting department hates this with a passion is when someone asked me , like , if I post a rate for a thousand , they asked me to save 1300 , right , I'll just tell them look , here's the deal . It's $1,064 and 23 cents . That's what I can give you , that's it . You can take it or leave it , and more often than not they'll take the odd number and then I've got to scratch it down really quick because I just pulled it out of my head . And then that's what ? Because , for whatever reason , that odd number with cents just gives them a little more . They just feel more comfortable about it than just like $1,100 or whatever .

Speaker 1 6:23

Yeah , we talked about this in the past , Ben . I remember you and I talking about the psychology behind the odd number . It makes them feel like they're getting like every last penny out of you , right .

Speaker 2 6:33

So interesting and , to be honest , like that's the game , like they should be trying . That's what creates the free market . No-transcript . Does the shipment need moved ? Bad enough to pay what the carrier is asking ?

Speaker 1 7:15

Yeah , and that's all about giving context to both your carriers and your customers on especially your customers Like here's the option we have , here's why this costs what it is . If you want to wait longer , we will . There's a likelihood that we'll be able to find someone who's not going to want extra money because they're not going to have to deadhead for two hours . Um , so yeah , good stuff . All right , we'll move on to the next question . Here we kind of uh , hit the nail on the head there .

Speaker 1 7:42

Next question I've done a lot of business with my customer , meeting their needs by being the cheapest option and maintaining those rates all year . Would it make sense for me to approach them with an offer to lower rates even further in exchange for guaranteed high volume freight ? Is that a realistic strategy ? My goal is to control a majority of their freight , knowing that they currently work with two other freight brokers and carriers handling the same shipments as I do . All right , I've got a . I've got a couple of thoughts here there is , so I call this the high , high , high volume , low margin strategy , which means that , yeah , I'm going to get a lot of your freight and because I'm giving you a deal on it , so it makes sense for me to monetize it that way . The benefit a lot of your freight and because I'm giving you a deal on it , so it makes sense for me to monetize it that way . The benefit a lot of volume , it's familiar freight , it's one customer that has one way of operating consistency , right . The downside it's low margin . It could be a burden on my cash flow . It takes up a lot of my time .

Speaker 1 8:43

So now you have the , you have , like your unknown factors of like how fast do they pay ? How many headaches do they have ? Can you get some dedicated carriers to make it easy for you ? It depends . Now , when it comes to the listener said they've got two other providers and they want to get the majority . I don't think it's smart for a customer to put all their eggs into one basket and I don't know that the customer would agree to do this .

Speaker 1 9:11

Even if your pricing is a little bit lower than where it is now and if you're already winning business at low rates now , why would you try to lower it even more ? Just try to build a relationship and figure out lanes that are best for you . So my gut tells me no , I wouldn't go at this strategy . I try to diversify my book of business because it could be a burden . But if you've got a well-developed brokerage and this can be a low touch , low headache , predictable , you know dedicated carriers and their payments are , you know , commensurate with their lower margins like you know , they're paying quick enough that it's OK to have lower margins then OK , sure . But you know I was never a fan of chasing the low margin freight . I think that's a new broker's game . I think that's a broker into a new customer's game . I don't know what's your take on it , ben .

Speaker 2 10:02

I think the first question I think is , if somebody asked me this is why is that your goal ? Is your goal to do more loads in total as a broker ? Okay , well , if that's your goal , like I would probably do the harder thing of trying to get more shippers is the first thing I would answer , right , the second thing is I mean this is pretty common Is it like when it's really hard to get shippers , you try to get more from what you have , which is reasonable , right ? But to your point , like there's also a lot of risk . Even if you got all their freight and the market moves at all , you are going to lose a lot of money , that service is going to fall apart and you're going to lose all of it . So it is very risky .

Speaker 2 10:39

Even if you could achieve it , what I would actually do if I wanted to grab a larger portion of that shipper's freight is I would solve both problems at the same time , both of what you pointed out , which is , find one lane , find a carrier that is willing to run that every week and then go to the carrier and say , hey , if I can get you this load every Tuesday , do you think I can come down a little bit on your rate Because I'm going to offer the same thing to my customer .

Speaker 2 11:02

To try to get you more , I wouldn't change my margin . Be like , hey , if you can knock 50 bucks off this load , I'm going to go to my customer and see if a $50 discount gets us this load every week Because it mitigates my risk of the carrier market going up and down , because if I have a dedicated truck my rates don't change and , two , my workload gets easier . Same load goes to the same carrier every week . Now I can go back to the shipper and that makes sense for me operationally , profitably and risk-wise . And then I would go lane by lane trying to line up dedicated carriers and seeing what we can do to benefit both . The carrier would benefit if that makes sense for them to do it . Maybe that lane is really good , maybe they're willing to run it 50 bucks less , so they get the same load every week . They know when they're in , when it takes to unload , and the shipper then can benefit from it . You benefit from more volume but the same margins . It's a win for all three people . That's probably how I approach it .

Speaker 1 11:53

Yeah , yeah , I agree that's a good point is trying to get the committed carrier . The real danger here and I dealt with this with a bid recently is that if you go for an annual bid right now and you're trying to be really aggressive on price you're making , and if your only way to adjust that rate is by a fuel surcharge , you're putting yourself in a really , really vulnerable situation , because just about everybody expects rates to at least go up a little bit over the next 12 months . Right , but more so , come up a fair amount . Right , it could be and I'm just spitballing it could be 20 cents a mile on average across the board . It could be 50 cents a mile , could be 10 cents a mile , right , no one expects rates to go down .

Speaker 1 12:45

I don't know of anybody that does , at least , at least on average . So if you're going to lock yourself in at the low price for an entire year , it's a dangerous place to be right now . So , but customers are loving bids right now . I did a couple of this week with folks that were more on the mini bid side . You know , six weeks , three months , something like that .

Commission Rates for Freight Agents

Speaker 1 13:14

But yeah , all right . Final question I'm an owner . This this one actually came from Reddit . I saw it and I was like this no one asked us specifically , but it's a really good discussion , so shout out to whoever runs the Reddit freight broker page .

Speaker 1 13:24

I'm an owner of an independent freight agency . My partner and I both came from TQL previously and we are finally at the point of wanting to bring in other brokers , preferably with established books . We currently are in the position to pay 50% commission on both full truckload and LTL . We have two part-time brokers who aren't super huge and are still growing their books . Is 50% enticing enough to brokers with bigger books ? What are other agents paying or getting paid ?

Speaker 1 13:53

All right , I'll try to answer it very simply and say I can too . No , my answer . My answer was going to be yes , um , depending on what you're going to do for them . So , and here , and here's why I say this because I literally know people that pay 30 , 35 percent to a subagent because they're going to offer them operational support or sales support or some kind of mentorship , or this person that they're going to bring on literally has no idea what an agency can make on their own Right . So , like a great example and I'm not endorsing this by any means , but I know of people that have been a 70 percent agent or a 65 percent agent or whatever , and they will go and hire one of their old buddies who's literally under a non-compete Don Solicit and say , hey , I'll bring you over , who's literally under a non-compete Don Solis , and say , hey , I'll bring you over , I'll pay you this lesser amount and we'll get you in here and we'll kind of shield you from the agreement for a little while . I've seen that , not endorsing it , but it's realistic and it happens .

Speaker 1 15:01

It just depends on what you're offering and what your value is . Because if you're going to get paid 70% , which I think is like the industry top average for a really , really good agent , that company is going to expect top notch business out of you , right ? So 50 percent , something that they wouldn't otherwise get , which could be helping them book their loads , which could be after hours or weekend support for them so they can actually have some time off . It could be helping them grow their book of business or mentorship or whatever that might be . But if I'm these guys and we came from TQL and we've got a couple of guys with established books that are growing , my goal is not going to be to go out there and get a bunch of other established brokers and try to pay them less than they're worth .

Speaker 1 15:55

Why don't you just take your expertise and like grow , grow a little office right , hire someone that you think is a stud at communication and building rapport . Think about , like you're you know , those bartenders that just make you feel , or like those waiters at a restaurant , make you feel like , yeah , it feels good to be here and talk to this person and just show them freight , have them come sit with you for a week or two weeks or , you know some , a couple of days and be like , hey , you want to make some serious money , all right , I'll teach you some of the freight side and the sales side and then we'll put you to work Right and you could pay somebody obviously 50 percent or much less . Doing it that way , that's how I would do it , that's how I've seen people do it . But yeah , 50 percent , just straight . Commission , you're not going to get an experienced agent to agree to that amount when they're being offered 60 , 65 , 70 elsewhere . We agree on that part Agreed .

Speaker 2 16:53

I mean I was being facetious and I think , like recruiting is sales and what we were talking about in the podcast , sales 101 , ask questions , find a need . Once you find the need , then you can provide the right solution for it . Right have been agents that are , you know , cradle to grave , getting 70% , like they might not have been able to stack away enough cash to hire an assistant . They might be doing and working 12 , 14 hour days . It might be a person that just had a family and like their life is changing or where they want to be and how much time they can allocate to this . They don't want to be answering the phone 24 , seven . Right , Person like that is getting 70 . If you can provide operational support , 50% makes sense , right , Maybe they get their life back . Maybe you're able to provide the operational support that they don't have the cashflow to be able to do . Maybe I mean it could be you named like half a dozen .

Speaker 2 17:48

There's so many different reasons why this can make sense , Like I've seen go at some , go at 40 for that reason . I've seen some go at 35% , where agents are like listen , I don't want to cover my loads anymore , I don't want to do my track and trace and my checkups . I just want to deal with my customers , hand the loads over . I worked with somebody last month that has an agreement where , like the agency , if you will , also quotes their freight . So like I don't even want to deal with this , Like I just want to kick the loads over .

Speaker 2 18:14

You tell me what you want me to quote . You can run them , you book them , you invoice it . I'll just go hunt . That is a different percentage , right . And like I think it really again starts with understanding who you're talking to , where they are , what they're looking for and maybe what they aren't happy about in their current situation . Because your point , like I've heard I don't speak to nearly the amount of agents you have , but it's like no-transcript grave agent making 70 , give them 50 . And I'm like , well , that's a little harder , but you find one . Again to your point that is , having any number of issues or pains that need resolved . Like now , all of a sudden , you can move that commission because you're providing other services .

Speaker 1 19:22

For sure . And the last thing I'll say here is they asked what are other agents paying or getting paid ? Literally , all you have to do is like just Google , like freight agent , or go to like a job board , like go to Indeed or ZipRecruiter and just look for , like freight agent jobs , apply , talk to a recruiter as if you were interested and find out , like literally . When I built out an agent program , that was a pivotal step was to like know your competition , like literally . If you don't know what's out there , you have no idea what you're up against .

Speaker 2 19:56

So best , advice , best advice so far right , Find out what everyone else is doing . Just go out and test , ask lots of questions , see what else is out there . It'll give you a good understanding .

Speaker 1 20:08

For

Negotiating Commission Rates for Flexibility

Speaker 1 20:09

sure . I literally know a dude who he gets paid 70% at a company and he has a guy that works for him that gets he pays him 65% , so he makes a five percent override and all he does is like help him out when the dude takes time off and that's like their agreement and that works . He's like , yeah , I don't want to work seven days a week , 365 . Like I'm gonna work , you know , I'm gonna take , I'm gonna go on vacation with my wife and my kids and like do this and like , yeah , I know that I'm covered by either you or someone else on the team , so I'll take 5% less for that .

Speaker 2 20:38

So , and I think again , like the way I try to answer any of these when I run into these situations is like all the percentages is just the ability to negotiate what you're getting and what you're paying for .

Speaker 1 20:49

Right .

Speaker 2 20:50

Like it's just the incentive , right . And like I mean I saw that recently with another company I was working with , where I was like , look , these guys are like hey , I want you to help with this , I'll give you 5% of everything . Like normally you wouldn't see an incentive like that , but in that scenario it worked for both people right . Because they're like hey , if I got a bail to go run to do something in the middle of the day , I need to know you're here all the time . So I'll give just a way to negotiate the gray area between what somebody is providing and what somebody needs , I think , and there is no standard 100% .

Speaker 1 21:24

All right , great questions . Keep sending them our way and we'll continue to answer them .

Speaker 2 21:27

Any final thoughts , whether you believe you can or believe you can't . You're right no-transcript .