Spot Market Pricing For Freight Brokers | Final Mile 138

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

💰 Carrier rates, margins, shipper pricing basics

⏱️ Handling unexpected 24-hour trailer drops

🔍 Alternatives to Highway for carrier vetting

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Transcript

Pricing, Margins, And Value Add

SPEAKER_01 0:19

All right, we're back with another edition of the final mile. We've got your QA. This comes from YouTube comments, from our Facebook group, which, if you haven't joined it, go to the show notes. There's over a hundred thousand of you in there asking questions all day long. We're gonna need some more moderators in there too, because we get a big backlog of questions that come through. But um, and I will say there's a lot of answering between the like between the uh members in there, which is helpful. Not all of it is extremely accurate, but you at least get some opinion, you know, opinions from all of all different angles. And I think we snagged one from Reddit today as well. So um check out all the other content on our website, freight360.net. You've got the searchable library and the freight broker basics course. If you're looking for an educational option, you can find that in there. And check out the sponsors of the show that will help support this channel. All right, Ben, I'm gonna get right into our first question here. Uh, hi, all. I'm just learning and brokering, and I'm just learning about brokering and had some questions. How are the rates to the carrier calculated? How do I know how much to pay for a load? How do I know how much I should get from what the shipper is paying? Um, so basically, I'm gonna boil this down to pricing, right? Like, how do I know how much to offer the carrier? How much should I quote the customer? And how much should my margin be? That's kind of the questions that came up. And I will tell you that this is very dependent on the market and the specific lane that you're dealing with. So um supply and demand is really the name of the game when it comes to pricing. And I will tell you as far as like the final question is like how much of the rate should I be getting? The that's your margin. It depends on a lot of factors. Like industry average is somewhere like in the 14, 15, 16% range. But for high volume, easy, low touch freight, you might get nine, 10%. For high specialized freight, you might get 20, 25. Um, it just depends on how much involvement and value add you're doing on that load. Now, where does the pricing come in? So supply and add one last thing. Yeah, go ahead.

SPEAKER_00 2:32

It's it's like the work that goes into the load. That's what you're getting paid for, right? So tracking, service, how many updates the customer needs, expects, how much that should cost you. Just look at from like a general business perspective. And then I think like the subjective one is also like your ability to negotiate with the shipper. Because if the market is$1,000 for the load and I pay a carrier$1,000 for a load, but I can get my customer to pay me$2,000, then like that's my skill and added value to the rate and has nothing to do with the other side of that transaction. Which again, very subjective, very hard to calculate, but is definitely an influence, a factor. I don't know. It's included in there somewhere.

Supply And Demand In A Lane

SPEAKER_01 3:14

Yep, for sure. Now we're gonna talk specifically spot market here, which is, you know, we're not talking about rates that were contracted out months in advance. This is just strictly the here and the now, right? So I get a load that's got to move today or tomorrow. I gotta find a truck, etc. So what we're looking at is supply and demand. So what I mean by that is your supply is how many trucks are available to do this load, right? Demand is how many shipments need to get moved in this specific lane. So if I'm looking at um, let's say we're going from Florida to Charlotte, North Carolina, and it's a reefer load and it's happening in May. Okay. And I picked that out for a reason. Um the supply or the demand is very high at that time of year because you've got peak produce season coming out of the southeast, demanding a lot of reefer freight. You've got citrus, you've got melons, you've got uh even earlier in the year when you've got all the flowers coming up from um the ports in like Miami and whatnot, you have a big, you start to see a big surge of demand for reefer units to move things north out of Florida. Um, now the supply is typically lower because you don't have a lot of trucks just hanging out in Florida. They have to get down to Florida based on its geographical restriction of being a peninsula that sticks out into the Caribbean. Um, so we've got an imbalance there where the demand is high versus the supply, which drives prices up high enough to encourage the capacity to come down to Florida and pick these loads up. Okay. If I were to what do you got?

Produce Surges And Rate Spikes

SPEAKER_00 4:59

I was gonna add something just so that people understand what happens, like practically speaking, right? Like because what you said for sure makes sense. But for people that are like really trying to understand this, is like, okay, I'm a shipper and I'm in Florida and you're in Florida, right? So, because I just explained this for somebody yesterday that was like, I'm not really understanding why they go up and how they go up. And I was like, okay, so say you have a company and you and I are both in Boca, right? You ship on reefers, but you ship the same thing all year round up to Buffalo, right? Or wherever the lane is, right? Literally the same week, same place, and you need a reefer, and like your stuff's not time sensitive. So like you're paying like$2 a mile, right? Then my watermelons come to harvest like literally today, and they go, hey, we're gonna start harvesting them this morning. And I go, hey, I now need 10 trucks this afternoon I did not know I needed yesterday. And everybody else in our area or city that also ships watermelons, they all of a sudden need 10 trucks that they didn't know yesterday they were going to because the harvest just is decided now, right? So all of us get one or two or three or whatever available trucks are there immediately. And now there's not enough reefers. So then I go, Well, I got to get my watermelons shipped. And everybody else that ships watermelons today and Orlando or whatever goes, we got to get them. So then I call my broker and I go, Well, pay$250 a mile. And then my the other guy that chips watermelons in Orlando goes, I'll pay three bucks a mile. And then the other guy goes, I don't have any trucks, I'll pay$350 a mile. So little by little, as everybody goes, I have no trucks and they have to ship, I start offering more money until somebody takes my load and you that ships the same thing on the same lane in a reefer all year, you're like, oh my God, I was paying$2.50 a mile yesterday. Why is somebody want$6 a mile to run my load today? It's because we need the trucks and are willing to pay more than you are, because if we don't get our watermelons shipped today, they might spoil, or we have too many to ship tomorrow and we won't be able to do it. So it's like that sudden immediate demand that produce creates. And then everybody having to pay or not being able to move it is literally what happens immediately, which drives the rates up. And then all the carriers go, Wow, they're paying six bucks a mile out of Florida, and they start coming down from Georgia. The rates go up, and carriers that need to get down here start doing the opposite, calling brokers and going, I'll take your load for a dollar a mile. Just get me down there, pay for my gas because I'll make seven bucks a mile leaving, and that's why the rates fall on the other end, like practically from a transaction point of view, right?

SPEAKER_01 7:31

Yeah, it's just competing. Like I always go back to like COVID, and we people you saw like price gouging. Um, and it's very different when you're dealing with a product versus a service, like a service, yeah, absolutely supply and demand is gonna come into play. Whereas like in COVID, um people would like like if it was toilet paper, like, oh, I'm gonna charge more because there's so much toilet paper available, right? Like um, whereas like services though, like there was there were certain services that got shut down. Like, I'll give you a great example. At a county level in my area, there was one rule in one county and a different rule in a in a neighboring county. And when you couldn't do something in one county, it was a like service related, whether it's restaurants or the gym or a haircut, whatever, but the county north of you could, they're gonna charge more because they can't, because they're gonna pull up everyone that can't get it done in their in their own town. They're gonna drive 20 minutes and get it done, and they're gonna pay more for it.

SPEAKER_00 8:29

Another thing kind of made me think of this is like that happened in Austin during COVID. And that, like, you'll hear a lot of the comedians and podcasters talk about like how and why they moved to Austin. They're like, We all lived in LA forever because that's where show business was. They wouldn't let us perform, but we could in Austin. So, like, we just moved to Austin because like after three or four months of not being able to do the thing that is our profession, we went to the place that allowed us, and then Austin's real estate market changed. Why? Because where they were, they couldn't do what they needed to, so they went where they could, and that changed the demand.

SPEAKER_01 9:01

Yeah, Joe Rogan broke that down really good on a uh podcast I listened to recently. That's what I was thinking.

SPEAKER_00 9:06

Because I'm like, you just said that, and that's why in the back of my mind when you're talking about the Wasn't the him and Gary Bracca one? It might have been. It's kind of it comes up frequently because like they're like You're right, everyone did.

Drop Trailers, Layovers, And Fair Pay

SPEAKER_01 9:17

They all they all moved. So all right, next question. Uh, this is from a carrier, I believe. Is there anything I yeah, definitely is there anything I can do about not being told that I would have to drop my trailer for 24 hours for an unload? So basically, carrier probably thinks they're gonna be going for a live load, maybe drop their trailer for a little bit, and now they're being told it's gonna be a full 24 hours. Um, well, to the broker out here, um, I hope this was extremely accidental and not pre-planned that you just plan to drop this on the carrier because that's very dishonest and not a good practice. Um, so let's say this happens. We think I would consider this a layover. Um, like let's say any type of load, right? The the carrier shows up, the product isn't ready. Um, you know, whatever the case might be, I think you have a couple options here. You could say I don't have 24 hours, I would like a truck order not used. And I think that's a very very very valid Tony right there. Or um it's 24 hours, I can do it. That's a layover, it's an entire day's worth of work, and depending on your equipment type, it's gonna typically demand a different amount. So I've seen I have seen layovers range from like 500 bucks for a dry van to like$2,000 for a very specialized heavy haul trailer because they are missing out on very good paying freight um with their specialized equipment.

SPEAKER_00 10:51

I've seen as low as$350 on shippers' RFPs where they're like, this is all we're paying for 24-hour layover. And like to me, now that I've been involved on both sides, right? Like literally operating a trucking company and a brokerage, I'm like, that's bullshit. I'm like, do you I'm like, if you were you're trying to say you can't go to work for a whole day and I'm only gonna give you$350, I'm like, that is not even close to what a trucking company needs to make per day to even pay their bills. And I'm like, the fact that anybody's even offering$500, right, for a whole day to me also is not fair to the carrier side of things. Again, things that happen, they're unexpected, or if it's not a full 24 hours, it's just the night, then maybe$500 to me is reasonable. Like, hey, you're supposed to get unloaded by four, we'll get you unloaded at six in the morning. That's also a layover. To me, that's$500 reasonable. But if it's a full 24 hours, to me, like you should be paying closer to a thousand dollars for that carrier.

SPEAKER_01 11:52

Yeah. And you gotta think about it too, like they're not incurring their fuel costs um that they normally would be, but they're still incurring you know opportunity costs. Well, there's opportunity cost, but the equivalent of a day's worth of insurance, right? All the things that go into a day a day's worth of their truck or lease payment if they have one, like this stuff all factors in. It's not just hey, what you're operating margin.

SPEAKER_00 12:18

This is a really good example of why communication can be really expensive to different people, right? Because if I'm a shipper and I always have drop trailer unloads that are 24 hours, I'm always telling my carriers and I'm always telling my brokers, so if they plan for it, usually a carrier that is local doesn't mind dropping that for 24 hours because they run back to their yard, grab another trailer, make the money on the trailer sitting there, don't lose the money and labor in the tractor, right?

SPEAKER_01 12:45

Or they stage one while they do their weekend reset. Yeah.

SPEAKER_00 12:49

Which again, now 350 is pretty reasonable, or even maybe 250 because like that's just commonplace. And like I've had shippers and receivers that don't pay anything for drop unload, and that's really common in Dreage. Like you just drop a container there and pick it up the next day or two days later. So like there's not usually additional fees. Where it becomes, I think, egregious is when the broker doesn't tell the carrier because the carrier can't plan for it. Now you got a driver with a tractor and no trailer in the middle of wherever has no ability to get another trailer, and you're trying to give him whatever 250 to 350. To me, that could have been solved with better communication and planning. The shipper shouldn't pay for that, the broker should pay for it because they're the one that didn't communicate it correctly or accurately to the carrier.

Carrier Vetting Tools Beyond Highway

Final Thoughts And Sign-Off

SPEAKER_01 13:33

Yep. Agreed. All right, last question. What are some alternatives to highway for carrier vetting? So I will rattle through the ones that I have used and seen. Um so highway is becoming arguably like a leader in the industry. Um it's pricey. Um, but I I will say highway has they're really the ones that are like spearheading a lot of new features and whatnot. Um, so alternatives. My carrier portal, which was recently called My Carrier Packets, it's a Descartes product. Um I've seen it, it does a lot of really good things with carrier onboarding. You can set your rules and you can um do all the good vetting things. It's less expensive than highway. I think its functionality on some of the more advanced features is not there yet, but that's an option you could look at. RMIS, which is owned by Truckstop. Um they were like a big leader years ago, and I haven't used them recently. Um, I do remember the last time we looked at switching providers or just kind of like exploring it, RMIS was very expensive. Um but uh that's another one. You've got carrier sure, which I don't know how much steam they're still chugging forward with. That came out maybe five, six years ago. Um carrier 411 is kind of like the old school archaic uh that's like your freight guard, like you can get some basic FMCSA data um and some complaints about people on there. Uh FMCSA has their their search carriers. Oh, yes, so there's search carriers, right? Um gen logs, and they've got some stuff coming forward as far as um they've got some basic rules you can set in place now. Check out Ryan's videos on LinkedIn, like and YouTube. He's constantly putting out stuff there. There's stuff's really good. Um, and then some of your TMSs have internal carrier vetting stuff that's you know in there. You might be able to set your own rules. So those is what I would say. I'm trying to think if we missed any search carriers, RMIS, MCP, carrier share, highway, gen logs. There's so many out there. So many out there. But yeah. One thing I'll always say is like you get what you pay for. So if you go with a really cheap option, you probably get a cheap product. With the exception being, and this is like really cool, like we had Tim Hyam from Ascend on uh Ascend TMS on in the past, and he has been able to get highway full functionality for the Ascend TMS users for a very, very low, it's like 300 bucks a month add-on. Um so and you can get Ascend three months for free if you use the referral link, referral code in our show notes. But uh that's kind of like your hack to get highway if it's if you're using Ascend. But um, that's what I got for vetting platforms. I don't have anything to add. All right. Good deal. Final thoughts, Ben.

SPEAKER_00 16:44

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

SPEAKER_01 16:48

And until next time, go bills.