HOW TO SAVE MONEY ON FREIGHT RATES IN AN INFLATIONARY MARKET
Updated: Apr 21, 2022
Understanding the freight rate food chain of an LTL (Less Than Load) or FL (Full Load)
Looking at reducing shipping costs in a whole new way? If so, you need to understand the current system for shipping freight. Currently brokers control the food chain of a load. Shippers contact their favorite broker to get a freight rate on a load. Brokers quote the freight rate based on current fuel costs, and mileage.
Eliminate the middlemen and develop direct contracts between shippers and carriers.
“Freight broker commission is calculated on the gross margin (total charged to the shipper minus the amount the carrier is paid) of a booked load. You can determine gross margin by subtracting the amount the shipper is charged from the amount you (the broker) pay the carrier. The margin left over directly impacts what a freight broker earns.” https://truckstop.com/blog/freight-broker-commission/
“General freight brokers usually get paid per load, which is around 25-35% of the load, though it can depend on the broker.” https://www.a1autotransport.com/how-much-does-an-auto-transport-broker-make/
According to the above, brokers are capturing 25-35% of all freight transported across the United States.
Once the load has been contracted with a broker or multiple brokers, the load is posted on a load board.
Truckers find it very hard to find loads while driving down the road. Most carriers, drivers or owner operators end up hiring a dispatcher to find loads for them and keep them moving. Carriers with multiple trucks hire multiple dispatchers to keep trucks moving and manage drivers progress. Dispatchers spend their time searching load boards and negotiating freight rates to keep their trucks on the road.
Independent dispatchers, typically receive somewhere between 5 and 10 percent of the freight invoice, though some are paid a flat fee per load. https://www.google.com/search?q=how+much+of+a+load+rate+do+dispatchers+make
“Load boards often require that you purchase a monthly subscription to view the information posted there. Each load board monthly subscription costs anywhere from $35 to $150/month/per user ($100 average X #of Users X # of Load boards). If you use five or six load boards at a time, those monthly subscription fees can quickly add up, which can affect your profit margins.” Jun 9, 2020 https://www.google.com/search?q=what+is+the+average+monthly+fee+for+a+loadboard
The numbers below are the touchpoints between parties in a load. Watch how many times someone in the process makes a contact on a load. Remember there are 2 parties included on each touchpoint.
(1-5) Once the brokers load is posted on multiple load boards, the (6-10) carriers will go to the load board and search for loads. Often the same loads are posted multiple times giving the appearance that there are many more loads available than are actually available. Brokers are slow to remove covered loads making it harder to find loads. Very little information is available, most load boards give a carrier a starting city and state, a drop off city and state, a trailer type, a load broker phone number and maybe a freight rate.
Eliminate monotonous or mundane tasks that take up energy and resources with automation.
(10-15) Carriers then take that information and try to negotiate a freight rate with the broker that they can haul the load for. Many times, the carrier contacts the broker the broker (15-20) calls the shipper and finds out the load has already been contracted. (20-25) The broker then calls back the carrier and reports the load as covered. (25-30) Once the carrier finds a load that is not contracted already, the carrier and the broker will negotiate a rate/price for the load. Brokers over the years have figured out how much a carrier will haul loads for and will work hard to keep the carrier at that freight rate or lower.
If you calculate the calls or touchpoints required to contract a load remembering that each call has 2 people involved so that it doubles the amount of time required, we calculate that each load requires at least 1 hour of time per dispatcher to negotiate an acceptable load rate. The same principle holds true on documentation below.
“The average salary for a dispatcher is $32.22 per hour in the United States. 16.7k salaries reported, updated at April 1, 2022.” https://www.google.com/search?q=how+much+are+dispatchers+paid+per+hour
If a dispatcher has up to 30 touchpoints and can negotiate 1 load per hour, at $32 per hour automation of the negotiation process can be substantial for shippers carriers and brokers alike.
Once the load has been agreed upon, (1) the broker will request a carrier packet. (2) Onboard the carrier, verifying liability and cargo insurance coverage, MC and/or DOT numbers, (3) request a COI (Certificate of Insurance) and (4) get a load confirmation from the shipper, (5) give a load confirmation to the carrier, and (6) establish a pickup date, time, and location. (7) The shippers will produce a BOL (Bill of Lading) to be signed by the receiver. (8) The carrier then transfers the information to the driver of the truck, and the load is then hauled.
When the load is successfully hauled to the drop off location, (9) The driver collects the signed paperwork and delivers it to the carrier by electronic or physical delivery. (10) The carrier then sends an invoice and copy of the signed BOL (Bill of Lading) to the broker. (11) The carrier then sends the information to their factoring company. (12) The factoring company in turn sends a reduced payment to the carrier. (13) The carrier then receives the check and processes the payment. (14) The broker then reviews the information and sends a copy of the signed BOL and an invoice onto the shipper. (15) The Shipper will then go over all the details and documentation and send a check to the broker. (16) The broker once again reviews the information and processes a check to be sent to the Carriers factoring company.
“It's a simple AP calculation: the industry average AP clerk can process 5 manual invoices per hour (12 minutes per invoice). This includes data entry, proofing the manual entry, correcting 'fat-finger' mistakes and processing the invoice.” https://www.google.com/search?q=in+accounting+how+many+minutes+does+it+take+to+process+a+bill
“Invoice processing is one of the most important things your Accounts Payable department does in their day-to-day to keep your company running. So, how long does it take? and, how long should it take?
The truth is, most companies are processing invoices manually, or mostly manually. Manual processing requires a lot of human involvement and multiple touchpoints. Because of this, the transaction cycle and process of paying an invoice can take weeks when it actually shouldn’t take any longer than a day or two to complete. The average small-to-mid-sized company takes about 25 days to process a single invoice manually from receipt to payment. That means more late payments, high processing costs, missed pre-payment discounts, and many more issues.
AP automation software can greatly improve invoice processing times with more efficiency, streamlined processes, and better workflows.” https://www.ascendsoftware.com/blog/how-much-time-should-it-take-to-process-an-invoice-with-automation-software
So according to calculations above the industry has up to 16 individual touchpoints in processing documentation for a single load. 16 touchpoints times 12 minutes each is 192 minutes or 3 hours and 20 minutes of employee resources that can be saved through automation. “The average Principal Secretary makes $32,485 in the United States. The average hourly pay for a Principal Secretary is $15.62.” https://www.google.com/search?q=what+is+the+average+pay+for+an+ap+secretaries
According to calculations, if we can automate 10 of the 16 transactions per load, the savings would be $150.62 per load. Calculate how many loads per year a company moves, and the savings would be enormous for everyone. Even if a single company in the process can save 2 to 3 transactions, the savings would equate to $5 to $10 per load.
Time savings alone in processing documentation and speeding up the payment process is reduced from 30 to 90 days down to 48 hours.
A reduction in office supplies and phone charges can also be calculated into the savings produced by automation of the load process.
To make money, factoring companies charge factoring or factor fees (sometimes also called discount rates). These fees tend to fall anywhere between 1% and 5% of the total invoice amount. Mar 14, 2022 https://www.google.com/search?q=What+do+factoring+companies+charge
Factoring companies make money by charging a fee, usually a flat percentage of each invoice you factor. Generally, fees range from 1.15% to 3.5% per month. https://truckstop.com/blog/factoring-company/
Most carriers cannot afford to wait 30 to 90 days to receive a load payment. Cash flow is king, and carriers are usually forced into giving up another 1 to 5% of their profits to keep drivers in the seat and tires on the road.
What fees are associates with 30-day accounts or delayed payments.
No matter how diligently you do your research, in reality, you’re going to have delinquent accounts. Late payers create a lot of extra work and even with all of that extra work, they still may never pay. And as a business owner, you have to be prepared for that. https://www.fool.com/the-blueprint/net-30/
It does take more work and time to invoice a customer, post a discount (if offered) and record a customer payment. You may also be tasked with following up with late-paying customers and even handling collections. https://www.fool.com/the-blueprint/net-30/
What does all this mean?
If a carrier contracts a load for $1000, and the broker takes 25 to 35%, that is $250 to $350. If the dispatcher takes another 5 to 10% that is an additional $50 to $100. If the factoring company takes 1 to 5% that is an additional $10 to $50. In total the carrier losses $310 to $500 on the load. Not to mention the additional monthly costs of load boards ($1500-$2500), secretarial staff ($10,000 to $30,000 per year) and supplies ($500-$1000 per month) associated with the shipper, and the carrier.
Cashfreight.com is the solution for the transportation industry.
Cashfreight.com eliminates the middlemen allowing shippers and carriers to negotiate electronically and directly. Cashfreight.com greatly reduces the need for dispatchers. Cashfreight.com eliminates the monthly load board fees, reduces secretarial staff, and reduces office supplies for documentation and payments.
For instance, a shipper and carrier contract a load for $1000. If the shipper posted that same load for $1000 using OfferUp OfferDown. The shipper pays 14.83% fee to cover the freight rate and software use fee totaling $1148.30 and saves dispatcher wages of $32 per load or $256 per day, documentation processing of $15.62 per load or $124.96 per day, supplies can also be a relevant savings depending on the amount of loads transported.
A carrier on the other side of the transaction contracts the same load for $1000.
The carrier pays the same fee of 14.83% or $148.30 and takes home $851.70 saving (making more on the load) anywhere from $161.70 to $351.30 on the same load.
Additional ways to save.
Speed up the contract process and guarantee the load is contracted immediately.
If the shipper also posted the load using LoadItNow with a posted freight rate of $900, the Carrier would most likely pass $100 worth of saving onto the shipper just to be able to contract the load immediately without waiting for the OfferUp OfferDown process to end. This would make the shipper pay $1033.47 minus the additional savings discussed above, and the carrier would take home $751.70 plus additional savings discussed above.