Negotiating a good freight rates is often a key factors in success of a business. Skill of freight negotiation is rarely taught in business schools and yet it is the one of the most important skills for managers doing international business. In the below article, you will learn secrets of freight negotiation which will give you an edge to negotiate best freight rates.
Although we will focus on negotiating ocean freight rates but the same skills can be applied in negotiating air freight or road transportation.
The key steps in negotiation best freight rates are:
Before approaching a forwarder (NVOCC) or a shippingline for a freight rate, it can be very helpful to gain knowledge of the current market rates. If you approach a logistics company without any knowledge of current market rates they may charge you a higher market price and on the other hand if you give them your freight rate indication which is too low then they will not take your enquiry seriously. You can often check rates from your friends, business associates, blogs or from logistics group in LinkedIn.
Identifying market players
Approaching more companies can increase your chance of getting better freight rate. However, you should only approach companies that cater to markets where you want to ship. Often the carriers specialize in certain trade lanes or between specific regions. Gather contact detail of key shippingline or forwarders sales people. This information you can be procured from logistics company’s websites and online logistics directoy.
Networking with liners/forwarders sales team
Broadcasting emails to a large number of freight companies or cold calling will not get you a good a freight quotation. It is worth keeping good relationship with the sales team members of logistics companies. Airline passenger rates are primarily managed by computer algorithm and there is very little human factor involved in determining airline fares. However, fortunately the ocean freight rates are still decided primarily by humans. Therefore, personal repo with the sales people of logistics company can substantially increase your chances of getting sweater freight rates !
Consolidating volumes & selling future projections
You may not have a large volume for immediate shipment but it is better to mention your yearly projection in your freight request. Also it is useful to negotiate your monthly, quarterly or yearly volume together. The rule of thumb is that if a shippingline knows that you have a fairly large potential volume of business then they will offer to you a better rate to grab your business, even if the current shipment in hand is a small volume.
Once you gain knowledge of approximate market freight rates and you have identified logistics companies that serve your trade lane, now you should start sending out emails to logistics companies with your current and yearly business volume. Never ever make a mistake of broadcasting one email many different companies and keeping them all in Cc (carbon copy). It is advisable that each email should have name of concerned sales person. If you don’t know the name of a sales person then call the logistics company to find out first. A generic email without any name is often not taken seriously.
There are some online freight market websites that allow users to post their freight request and then the logistics companies given their freight quote. One of the biggest freight market website is ShippingExchange.com, posting your request is absolutely free and they also have many features like online tracking etc. Once you post your freight request they broadcast your request to a large number of forwarders and shipping lines registered with them.
Keep dropping the anchor
When you start receiving the freight quotes do not react immediately, patiently wait for 1-2 days till you get freight quote from many different logistics companies. Find out the lowest freight quote and then negotiate with one company at a time. As you negotiate with one company at a time, use the lowest freight quote as a bench mark to negotiate your freight downwards with the subsequent companies.
Save the best for last
If you have a preference to move your shipment through a specific company (due to better transit time etc) then it is better that you negotiate with them at the end. Once you have come towards the end of negotiation marathon, only then you should start negotiating with your preferred logistics company. This way you will have a backup and you will be in a better position to negotiate with your preferred carrier.
Don’t be penny wise and dollar foolish
Often the logistics manager forgets to take a holistic approach in comparing the freight rates. You shouldn't compare freight rates alone without considering the transit time, port charges and other ancillary charges at both origin and destination. Depending on the cost of your cargo and the payment terms with your buyer, you should factor in per day interest cost of you goods and offset it with the longer transit time. Sometimes, paying higher freight with a shipping line with a shorter transit time is overall more economical than paying lower freight rate with a much longer transit time.
Contract – Does & Don’ts
For a long term contract (half-yearly or yearly), often shipping lines enter into a term contract. When you receive the freight quote or freight contract you should read between the lines to know your contractual obligations. Freight rates are only valid for a fixed duration and in some cases shippinglines put a penalty clause if you are unable to ship certain committed volume. Read the freight contract very carefully before signing the freight contract.
By learning the above skill you are now a well-qualified freight negotiator.
Happy negotiating cheaper freight rates !