A carrier facing a shipper's rate-reduction demand does not have to choose only between accepting lower rates and abandoning the customer; lane-level network analysis can support a more precise negotiation.
The balance of power had shifted after a period of tight capacity. Capacity began to exceed demand, giving shippers more choices and greater leverage to recover recent rate increases from carriers.
In many cases, relationships that had looked like partnerships a year earlier had returned to traditional vendor relationships.
A Third Response to a Rate Cut
When a shipper says that rates must fall for the carrier to keep the freight, many carriers see only two choices:
- Haul the freight at the lower rate.
- Stop hauling the freight entirely.
There is a third option: discuss the customer's lanes and prices individually, explain which freight works for the carrier, and show why.
That discussion requires precise knowledge of:
- The carrier's costs
- The carrier's rates
- Market rates
- How the customer's freight fits the full network
Freight network engineering provides that information.
Start With a Freight Network Assessment
The first step is a freight network assessment. It creates a clear view of profitability and breaks the relative value of a customer's freight down lane by lane.
With that analysis, the carrier no longer has to treat the customer's entire book of business as an all-or-nothing decision. It can see which lanes fit the network, which do not, and what price each lane needs to be profitable.
Instead of agreeing to an across-the-board reduction, the carrier can address each lane separately and negotiate from evidence.
Some Freight Should Be Abandoned
The desire to preserve business is strong, but a carrier must be willing to leave unprofitable freight. Repeatedly hauling loads that lose money will eventually put the company out of business.
A credible willingness to refuse the freight may also be the best way to persuade the shipper to pay the required rate.
Use Data to Strengthen the Discussion
Freight network engineering gives the carrier a deeper understanding of its own operation and a stronger negotiating position. It can show a customer why particular arrangements work or fail and direct the conversation toward more profitable lanes rather than simply conceding to the customer's demand.
The information can also strengthen the carrier's brand. Many competitors do not know the profitability of individual lanes. A carrier that brings that knowledge to a negotiation can distinguish itself as a partner that understands its own business.
An Edge in a Shipper's Market
Surplus capacity was expected to keep negotiating power with shippers for the foreseeable future. Until that balance changed, carriers needed a way to respond to adverse market conditions without sacrificing the economics of the business.
Lane-level freight network information provided that edge by giving carriers a factual basis for defending profitable rates and reshaping customer freight.