S hippers and carriers share certain goals when they negotiate contracts for over-the-road (OTR) transportation. Both want to manage expenses, operate ef ciently, ensure that loads arrive on time and safely, and protect against fraud. However, they tend to approach these goals from differing perspectives. “Shippers focus on cost ef ciency, reliability, and transit times,” says Jen Seran, director of business operations with Stallion Express, an ecommerce shipping service. Shippers need to know the transportation services they’re purchasing can meet their customers’ satisfaction and maintain supply chain uidity. “Carriers, on the other hand, focus on fair compensation, consistent freight volume, and manageable scheduling to optimize operations and pro tability,” Seran adds. Finding a balance in which both sides feel their needs are met is essential for a successful relationship. Reaching that balance requires both shippers and carriers to understand how the other side considers the provisions in many OTR contracts. RATES AND PAYMENT TERMS Carriers need to make sure the rate they receive for each load covers their expenses, and then some. To accomplish this, carriers must understand their operating costs per mile, so they can set rates that cover their costs and generate enough pro t that their business remains nancially healthy. The goal should be competitive, yet sustainable rates. “Pricing stability ensures pro tability and operational viability, crucial in a market known for uctuations,” says Robert Khachatryan, chief executive of cer and founder of Freight Right Global Logistics,
“Shippers focus on cost eciency, reliability, and transit times. Carriers focus on fair compensation, consistent freight volume, and manageable scheduling to optimize operations and profitability.” —Jen Seran, Director of Business Operations, Stallion Express
shippers, and carriers in the North American trucking industry. With transportation services, this approach can back re. Margins tend to be tight, and providing over-the-road services remains a cash-intensive business—carriers regularly need to buy gas, and maintain trucks with oil changes and new tires. Longer payment terms can wreak havoc on carriers’ cash needs, particularly for smaller carriers. Shippers who demand long payment periods may cut themselves off from carriers who aren’t able to wait for months to receive payment. “Their options are reduced,” says Rob Jaehnig, a former executive with several trucking companies. THE MARKET In addition to knowing their own costs and margins, shippers and carriers need some understanding of the broader over-the-road market. Shippers that understand market rates, global trends, and competition are better able to negotiate effectively. For instance, freight costs tend to rise during national holidays. “Not researching market rates and trends can lead to unfavorable terms and missed savings,” says Shaun Reeder, management consultant with TBM Consulting Group, a global operations and supply chain consultancy. Carriers that understand the market also are better equipped to highlight services that can set them apart, such as advanced tracking or dedicated support. DELIVERY QUALITY AND SERVICES Many shippers, particularly in the business-to-business space, care rst about quality service. Price remains
a provider of international freight forwarding services. With fuel prices prone to volatility, carriers often negotiate adjustable surcharge clauses that can shield their margins from unexpected surges. When setting their rates, carriers also need to consider extra costs such as tolls, assessorial charges, and whether they’ll need to hire a “lumper” to unload the cargo, notes Lewie Pugh, executive vice president with the Owner Operators Independent Drivers Association (OOIDA). Carriers that fail to account for these expenses may wind up negotiating contracts that leave them operating at a loss, eventually putting their businesses at risk. On the ip side, rates are an expense for shippers. “Shippers want to ensure their shipping costs don’t eat into product margins,” explains Anar Mammadov, owner, chief executive of cer, and technical co-founder of Senpex Technology, a provider of logistics solutions. Most shippers also want to know the nal price will be what’s negotiated up front, without unexpected additional charges. Some shippers, looking to boost working capital, ask their vendors for longer payment terms—in some cases, up to 90 or 120 days, says Josh Bouk, executive vice president and chief partnership of cer with TriumphPay, a payments network for freight brokers,
“Contracts that don’t specify what happens if a load is late or if fuel prices rise can trigger problems later on. It’s better to
have everything nailed down in detail.” —Josh Bouk, EVP and Chief Partnership Ocer, TriumphPay
128 Inbound Logistics • July 2024
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