What is the first bit of information you require to ensure you're getting the best hauling rate on a load? Many small motor carrier owners say knowing your market is No. 1, while others indicate having an established hauling rate range is first on the list.
In my book, No. 1 is knowing your cost, that break-even point plus what you need in capital to sustain and grow your company. No. 2 is having an established rate range along with definitive revenue goals. Once you have these numbers, then you can look at the markets and lanes you want to serve. Knowing your numbers and having an established rate range is really the only strategy by which you're assured of getting the necessary revenue on each shipment. Otherwise, it's like trying to play basketball without a hoop; all you can do is dribble the ball a lot.
Why would your carrier want to enter into a hauling arrangement that is a money-losing proposition? You'll do just that if you don't set a profitable rate range. A rate range, which covers from the break-even point to full capitalization, provides the carrier with a target area. While the market does determine hauling rates to some extent, other things determine the range of a rate. Any market is going to have multiple factors influencing its rates, which will range from low to high. Is this a one-shot spot-market load? A long-term hauling contract? Or something in the middle? What type of product is being shipped? What is the final destination of the load? The level of customer service required is another determination that can either raise or lower a rate.
Knowing your costs and capital needs gives you the ability to pick and choose the most profitable lanes. If you're looking at a particular lane and your rates are too high, then you need to cut costs, take a lower profit margin, or not haul that freight. It's impossible to make those decisions without knowing your rate range.
Finally, with all that said, the objective is to be in the mid to high portion of a rate range when all loads in a lane are calculated together. In other words, some loads may not meet the low end of the rate range or may even be below the break-even point, but when averaged out with all the loads being hauled within that lane, your carrier will show a profit for that truck and lane.
Know your costs to develop your rate range first, and then look at the market. Too many carriers, particularly the smaller ones, jump into a market and try to match their rates to that market. Instead, do a proper market analysis with your rates in hand to determine if it's the correct market (lane) in which to be operating.
While knowing your market is extremely important, knowing what rates will produce the required revenue to sustain and grow is of primary importance.
Contact Tim Brady at 731-749-8567 or at www.timothybrady.com