Cold Calling Strategies & More Q&A | Final Mile 77

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

• Understanding spot rates
• Cold calling strategies
• Credit approval for customers

Support Our Sponsors:
QuikSkope - Get a Free Trial: Click Here
Levity: Click Here
Bluebook Services: Click Here
DAT Freight & Analytics - Get 10% off your first year!
DAT Power - Brokers & Carriers: Click Here
DAT Express - Brokers: Click Here
Truckers Edge - Carriers: Click Here

Recommended Products: Click Here
Freight Broker Basics Course: Click Here
Join Our Facebook Group: Click Here
Check out all of our content online: Click Here

Chapters

• 0:00 Spot Rates vs. Contract Rates Explanation
• 9:40 Navigating Broker Relationships

Transcript

Speaker 1: 0:19

Welcome back for another edition of the final mile, where we answer your questions, keep sending them our way. We look through the YouTube comments, we get some forms filled out on our website, on the contact us section, and we get some direct emails too. So actually I'm going to I'm going to read an email. Well, first, please check out all of our content, including the Freiburger Basics course, on our website. We have all of our podcasts, blogs, et cetera, and you can check out the sponsors in the description to help support this channel. But I want to start off today's episode with a message we got from one of our listeners in regards to our content Said Hello, I was watching today's episode and I have some feedback to give because I lived it.

Speaker 1: 0:59

When the brokerage stopped paying carriers, or simply they go out of business, the shipper is 100 percent liable for the amount agreed with the carrier, even if the shipper paid in full. We've seen this with like a double broker and stuff like that. I have the letters from the attorneys harassing the shippers with full law, with full law arguments, charging the shippers. The factoring companies are the ones who hire the more aggressive attorneys to do it. The company that I worked for, they calculated it for months and make the hit. They stopped paying carriers. They stopped paying carriers late November collecting shipper invoices until January 18th 2024. No-transcript all invoices or they will hear from them. To the carriers. They sent a letter telling them the company is going to get dissolved and we will pay you once we collect from our customers and it will be pro rata, meaning if they owed 100K and they only collected 45, they'd pay 45% of the rate. Con Guess what. The carriers and factoring went directly to the shippers to collect. Many of the customers did pay the extra 55% of what the brokers did not pay.

Speaker 1: 2:14

At the end some agents lost customers. I did lose valuable carriers and a big portion of my reputation. At some point a customer at Atlanta Farmer's Market tried to threaten me for the money and I had to show my contract as an agent, All right. So that was one of my first times reading through that, so I might have stumbled a little bit, but basically the takeaway here is that's a real-world situation where if a broker doesn't pay a carrier either anything or the full amount, that carrier I think this is under MAP-21, right can go directly to the shipper for payment. We've seen this in double broker situations where there's a second carrier being two carriers being paid for the same load, and oftentimes the broker eats it and if you don't, you're going to likely lose a customer over it, because that carrier can by law go right to that shipper for payment and that shipper is obligated. So that's the big takeaway, I think, on this one.

Speaker 2: 3:05

It is, and I also want to point out the other issue here is that, like when shippers have a preference to working with carriers directly over a brokerage. This is one of the reasons Because if there is a party in the middle, any freight broker and the freight broker goes out of business, even if the shipper already paid the broker, the shipper still owes that trucking company, right. It's also a reason why for newer brokers it's hard sometimes to get in with a factoring company until you've got some credit established, because that risk is there If they can't verify that the payment that came from the shipper went to the truck that actually performed the work. Everybody's still kind of on hook for that money. If for some reason it didn't go the way it was supposed to or the broker just goes bankrupt and goes out of business, right. So again, I know that makes it a little harder for newer brokers to enter the market, but these are one of these things that you want to be able to understand when you're talking to a shipper. As a newer broker, you need to be able to have these conversations as to why you're going to be in this for the long term, why you're solvent your operations and how you're going about these things, that you're managing your cash flow differently, that you're vetting your carriers, that you're verifying the carrier that performed the work is the one that got paid, that you can show them proof or verification if, at any point in time, they want to see this right.

Speaker 2: 4:28

It's a risk. I don't think you need to bring this up in every conversation, but I think understanding how the industry functions and where the risk is allows you to overcome these objections, because a shipper might not tell you this is the reason we're just not working with brokers. I always ask a few more questions like hey, is this a policy? Is this temporary? Is there a reason? You might find that they ran into this situation and it might have been a large brokerage they worked with that went out of business and they ended up on the hook for this right Like you just don't know until you can dig a little deeper to understand why that hesitancy is there, and understanding how the risk center industry works allows you to help educate that customer as to why you can have their back in these scenarios, right? So I think it's really important to understand these things if you're going to be in this industry.

Speaker 1: 5:15

Totally. That's a. That's a good explanation, All right, Well, we'll get into our first question here. One of our I think this is a email sent over said how do I understand spot rates? What determines a spot rate and a contract rate? Some lanes are $2.50 a mile on 300 miles, but then the spot rate will show $1,000. How is that calculated? And please help me understand this. Okay, so in this example, 250 a mile times 300 miles obviously does not equal 1,000. That would be what is that? 750? Yes, Well, I think if you look at the rate per mile or the all-in rate, they should line up. They're different.

Speaker 2: 6:01

So the contract.

Speaker 1: 6:03

So if I'm on rate view.

Speaker 2: 6:04

Contract versus spot is what he's asking.

Speaker 1: 6:06

Oh yeah, okay, I was thinking he's saying the spot rate, like the history on spot rate shows.

Speaker 2: 6:12

He's saying the spot rate, the rate per mile times the distance should equal what they're giving you.

Speaker 1: 6:15

But yes, the spot and contract rate are different. Do you want to?

Speaker 2: 6:18

explain why you explain that and I'll explain why they end up being different. But you can explain how, the numbers, where they come from, and then I can.

Speaker 1: 6:34

So, yeah, these are, these are. If you go on DAT or on RateView, you'll see spot versus contract. And you know, in a normal world which we haven't really been in the last couple of years a spot rate will typically be more expensive than a contract rate. Spot rate means hey, this is like kind of like a last minute. I'll just kind of generalize it like that. Like, hey, we need to pick up today or tomorrow. Here's the current rate in the market right now. That's what a spot rate is. Where a contract rate is, hey, we're under contract for a certain period of time. This is predictable. Repeat business we're locked in at a certain rate. Typically, that contract rate is going to be usually lower because it's more predictable, et cetera. Where the spot rate is tends to be more expensive, because if you want something and you want it now, you usually have to pay a little bit more money for it. Ironically, it's been flipped the last couple of years, but that's that is why they're different. What do you got?

Speaker 2: 7:27

It's like we were talking about this in the podcast. It's like an inverted yield curve, when long-term and short-term risk are priced upside down. Okay, so to your point. If you're a trucking company and Nate, you're a shipper and you're across the street from my yard, you might say I ship from Buffalo, new York, to whatever Cincinnati, ohio, three times a week. Can you pick up Monday, wednesday and Friday every week? And I go OK, great, if you give me those three loads every week, all year, and normally it would cost a thousand dollars to run that load, I'll take those loads for, call it, 900 bucks. I'll give you a bit of a discount so that you can give them to me.

Speaker 2: 8:08

So you get a little benefit. And then I benefit as a trucking company by knowing I've got the same loads all year, I can predict my revenue, I can predict my driver hiring, my equipment usage, the mileages they're going to run, and that's why I'm willing to run it a little bit less than what I could get just grabbing a load that day. Right, long term all year, I guarantee it. I get a little bit cheaper but I have lower risk over the long run of volatility going up and down and then in a spot market. To your point is what should it cost for me to find somebody today? Like that should be more expensive. Yeah, now what?

Speaker 1: 8:43

happened. By the way, they're getting really close to each other again.

Speaker 2: 8:45

yes, they're very close and sometimes already going back over in certain lanes. But during covid it was so hard to find trucks that shippers went to carriers and brokers the whole market and said we will pay you above the spot market to guarantee us pickups on all our freight. So it was an intentional move by all of the shippers in the market because they couldn't get things picked up enough that they called it like guaranteed or assured capacity. They paid a premium to make sure that the trucking companies didn't just go take the next best rate and still prioritize that company's business. So it happened for so long that it moved the market literally upside down in what shouldn't have happened. Now it's moving back to where it should because the supply and demand is equaling back out.

Speaker 2: 9:33

But to Nate's point, the spot rate should be higher than the contract rate, which is what creates the spot market in the first place.

Speaker 2: 9:40

Now, when there's a higher need for a shorter period of time like a whole lot of produce is coming out for two months that's why the spot rate jumps up, because that company's like hey man, I need to get a bunch of watermelon loads picked up today I've got to pay above what everybody else in my city's paying to get my load picked up or nobody will pick it up.

Speaker 2: 9:58

So then they offer that higher rate to a broker that puts it on the open market and the trucks go. Wow, I was getting two bucks a mile contract, I can get 250 a mile to pick this load up today. So they incentivize the carriers to come work with them in the short term when the season's over, the market goes and changes back again. And where the numbers come from is the numbers come from the contracts, like if they look at the BOLs and that rate is reported by the same company, the same shipper, over and over again. It's a contract rate. If it's one transaction, a one off, it gets determined to be a spot rate. That's how they determine which or which in the bucket.

Speaker 1: 10:33

If you want to go the specifics of DAT, they're looking at shipper to carrier contract, meaning that a carrier has probably through a bid, RFP, whatever, has contracted for a set period of time with that rate where the spot is going to be the shipper to the or, I'm sorry, the broker to the carrier right, which makes sense. The brokers are really the ones that are massaging and working that spot market on those short time frame period loads to get moved and a lot of times it's going to be a load that was probably under contract and the carrier fell off. They rejected the tender. That's your tender rejection and it falls down to the spot market for a broker to help get covered.

Speaker 2: 11:15

I'm going to point out one other thing, right For everyone out there that argues we should just eliminate brokers, and carriers should work directly with shippers. Brokers create the spot market. These are where those loads come from. If you take the brokers out, a shipper does not have either the software, the tools, the training or the ability to vet a carrier and onboard them to pick up a load in a few minutes and onboard them to pick up a load in a few minutes. Shippers aren't built that way. So the reason brokers are needed is because anytime a carrier has ever picked up a load a day, they needed it that they didn't know about. If there wasn't a broker, that load wouldn't be there. There would be no open market without brokers.

Speaker 1: 11:55

Brokers in general in business make sense.

Speaker 2: 11:58

Any business.

Speaker 1: 11:59

Think about real estate. If I want to buy my house or sell my house and there's no brokers, if I'm trying to sell my house, like well, I got to just go out there and try to find a buyer right.

Speaker 2: 12:08

They create the market. They create and they also deal with, like the short-term volatility where, like again, one city has a whole bunch of freight that needs moved a lot more than normal for a few weeks at a time. If you had the shippers doing it, it would disrupt all of their pricing models for all of the rest of the year. So it allows the market to adjust to short-term volatility without disrupting the long-term rates and contracts that are in place. That's exactly right. All right?

Speaker 1: 12:34

our next question is on cold calling. So what are the pain points that you aim to hit and what do businesses appreciate in a broker? How can I sell my initial contacts without having a book of business to begin with? So the middle part, like what you know, what does a business appreciate with a broker? Listen to our episode that came out on Friday. It's episode 277, about how to have hard conversations.

Speaker 1: 12:59

I think your value add as a broker is what a lot of customers want. Now, every customer is going to be a little bit different what they prioritize, but I think a lot of your customers that are long term success. They want someone that's going to be, that's going to make their job easier. Right, good communicator, getting good updates, a pleasure to work with. For some customers they don't care about that at all. They're just transactional. They want the cheapest price and it's got to go. It can go whenever it can go. So, and those are great questions to ask.

Speaker 1: 13:31

So when you're, when you're talking with a customer, you know there's a bunch of different ways to ask these questions, but you want to figure out what is most important to them and what are the consequences if those important things have some sort of failure, right? For example, is it service and delivering on time? Okay, what happens if it doesn't pick up on time? What happens if it delivers late? What happens if it gets damaged en route and there's a claim? If it's price sensitive, right, what happens if the rate I agreed to is not possible anymore? Do you have flexibility or is it just? You know, sorry, that this is the right we're going to pay take it or leave it.

Speaker 1: 14:16

So pain points and I'll let you take it away after this but I think some of the common ones are we just mentioned on, like price and service. But other pain points too are you know, hey, my last broker promised X, y and Z and didn't deliver on it. My last broker lied to me about this. My last broker wouldn't give me updates when I, you know, when I needed them and in turn, I couldn't give updates to my customer. So what do you got for some of those pain points, other value adds and whatnot I'll do bigger, simpler.

Speaker 2: 14:49

There's three categories price, service quality. If they don't, they're always going to ask I want all three, I want cheap, I want good and I want it fast, right. So, for an example, say you have a shipper that needs food grade trailers that need washed out, right. They're going to tell you they want it cheap, they want it on time and they want that carrier to show up with a clean, washed out trailer, right? Well, if you aren't paying enough, the likelihood is whether any broker works with that company. You're not going to get 10 out of 10 trucks that are washed out, clean and food grade because you're paying too low, right? So shippers always ask for all three. Our job in the conversation is to make them pick two of those three and then of the one they're not going to prioritize over the other two. Ask them the consequences of it.

Speaker 2: 15:36

What happens when a food grade trailer doesn't show up and it needs washed out? Well, it gets rejected. Well then what happens to the load there? Does that create issues for your supplier you ship it to? Does it create issues for your warehouse and your dock? What are the consequences of you not getting the quality of the trailer or the equipment showing up? Okay, great. What are the consequences of the service not showing up? If I get you the quality of the trailer and your rate, but I need flexibility to pick it up, like a few extra hours or another day, what does that mean for your operations?

Speaker 2: 16:08

Now the third one, which is price. Okay, well, what are the repercussions if you have to pay a little bit more because I need to get your load picked up in two hours and the only truck available that has a food grade trailer is above the rate you want to pay? What happens on your end? Right, you're literally taking them one of those three paths all the way to. What are the repercussions if they don't get one of them? And then, if they tell you their repercussions of all three, now you got to get them to tell you which are the worst. Which one are they willing to give up to get the other two? Because it's true in all business. Right, there's three things everybody asks for. You've got to take them to a hard conversation of making them pick. They all ask for all three. You've got to lead them to the path to make them tell you out loud which one is the one they will sacrifice for the other two.

Speaker 1: 16:55

Yep, yeah, those are good conversations too. Keep in mind, like you, the first time you talk to a shipper, you might not be able to have a super in-depth conversation, and get into this, but you need trust before you can get to that point.

Speaker 2: 17:08

You got to get them to know you a little bit and get comfortable.

Speaker 1: 17:12

Very likely that the first time or first few times you talk with a shipper, it's probably going to be a price sensitive thing if you're having those conversations early on. So I mean, unless the market's super tight and you can just get them a truck, like we saw that in 2020, 2021, right, all right. Last question for today is what do I do when my factoring company won't approve my customer? So we're talking credit here. Well, depending on your situation with your factoring company and then I'll let you kind of take it, since you have probably some more experience working with factors I want to go back to the thing you just said, real quick, before we go there.

Speaker 2: 17:50

Sure, and 2021 is a great example, because what happened was service went to zero. And when service goes to zero, price then becomes the least priority, because if your loads don't pick up, you have no influence over price as a shipper, right, and that's the thing that's interesting. Normally the market cycles and at some point this year or probably in the next 12 months, the market will get tight and all the shippers that tell you price is the most important price is the first one that starts to fall, because when their loads stop picking up on time often enough and their suppliers start calling and going where are my shipments, then all of a sudden, their ability to tell you what they want to pay becomes the least important Yep.

Speaker 2: 18:32

Good point.

Speaker 1: 18:33

All right, factoring company won't approve the customer no-transcript. But if you still want to work with that customer, you can choose like any other brokerage that doesn't use a factoring company to do it yourself and cashflow and take the risk. Just keep in mind, when it comes time to pay that carrier, you're on the hook and if they want to quick pay, your factory company is not going to be part of that. So I would say there's also alternate options for giving yourself peace of mind with credit. Like you can find receivables insurance from certain companies.

Speaker 2: 19:27

Cofas is a pretty good one I've looked into that I have a couple of clients who use COFAS C-O-F-A-C-E it's like a tenth of a percent, depending on your brokerage's size. That'll insure your receivables up to 90% and if you are going to cashflow them, I would sincerely look into have insurance receivables Interesting, Not insurance receivables insurance.

Speaker 1: 19:47

Receivables, yeah, air insurance. I actually have a meeting this afternoon with a or no, it might be tomorrow, no, it's this afternoon with a company that does receivables insurance. So but yeah, I mean, at the end of the day, if you have a reputable factoring company and they're refusing to give credit, probably take that seriously though.

Speaker 2: 20:09

I would add this too there were times where I've seen factoring companies decline a shipper's credit and I've seen factoring companies give too small a line than what was needed. Asking more questions also helps, right, because you're either going to learn that there's a very good reason they won't give it at all. Sometimes we found that, like they just accidentally looked up the wrong company. Sometimes we found this, yeah, and sometimes we found that, like once we were able to like dig into some privately held companies, they just kind of didn't have enough information and they said, hey, if your customer is willing to send us over some balance sheets and accounting and income statements, we'll review this and see if we can provide them some credit. And in those cases sometimes we'll just start with a small line of credit and then let them build up. So there are avenues, when you get the first denial, that you can sometimes push a little bit further to get those done.

Speaker 1: 20:59

Yep, all right. Final thoughts.

Speaker 2: 21:03

Whether you believe you can or believe you can't, you're right.

Speaker 1: 21:07

And until next time go Bills.