Freight Negotiations: How Much Volume Do You Need?

In the complexities of international freight, understanding the dynamics of negotiation can be a game-changer for businesses seeking optimal shipping solutions. Nic Smith, the distinguished international freight expert, lends his expertise to decode the role of negotiation, volume, and partnerships in the freight industry in a conversation with Aaron Alpeter, the founder of Izba.

Leveraging Volume: The Power Play in Negotiation

The intriguing question of how volume influences negotiation sets the stage for our conversation. Nic Smith’s insights resonate as he shares, “Yeah. I definitely think the higher the volume, the more leverage that you have to negotiate.” The conversation revolves around how a brand’s shipping volume becomes a bargaining chip, a fundamental aspect often overlooked.

Nic continues, “Clearly, you don’t have a lot of leverage if you have one to five shipments a month.” As the video accompanying this discussion illustrates, negotiation prowess is closely intertwined with the magnitude of cargo a brand is moving. Higher volumes translate to increased clout during negotiations, affording brands more favorable terms and pricing structures.

The Strategic Partner Approach

Nic’s perspective takes a collaborative turn, emphasizing the value of seeing logistics providers as partners rather than mere service providers. “But at the end of the day, you want to see your logistics provider as more of a partner. So it’s not a ‘you and I’, it’s more of a ‘we’, how can we deliver our cargo to X, Y, Z as quick as possible, as efficient as possible,” Nic articulates, underscoring the significance of forging partnerships built on shared goals and mutual growth.

Spot Rates vs. Contract Rates: Navigating the Negotiation Landscape

The intricacies of negotiation extend to the type of rates being discussed. Nic’s insights reflect the complexities of spot-based approaches and contract negotiations, stating, “There’s a time and a place to go back and negotiate a specific spot, quote or contract rate.”

As the video visualizes, contract negotiations involve multiple rounds of deliberation. In contrast, spot rates require a more nuanced approach, where understanding market rates is crucial to prevent undermining the relationship with freight providers.

Read More: Freight Rates: Pre-COVID and Post-COVID Differences

Balancing Profit and Negotiation

The symbiotic relationship between negotiation and profit becomes evident as Nic delves deeper. “And then they’re just gonna agree on the thousand because it’s not like you have the analytics, the DAT analytics to determine, okay, this is really going for $800,” Nic observes. The dynamics of negotiation involve a balance between fair pricing and preserving the profitability of freight providers.

The Bottom Line: Finding the Sweet Spot

As the conversation draws to a close, Nic and his host dissect the profit margins that pique a broker’s interest. “And just doing the math there, in your example, if the broker’s making 200 bucks, off the spread of that truck, it sounds like they need to be making 10 to $20,000 a month in profit for them to sit up and be interested. Is that fair?” the host inquires.

Nic’s response resonates with clarity, “Yeah. Absolutely.” This succinct affirmation encapsulates the delicate equilibrium between negotiation, volume, and profitability in the intricate tapestry of the freight industry.

In Conclusion

Through this conversation, Nic Smith not only deciphers the intricate negotiation dynamics of the freight industry but also emphasizes the role of collaboration, strategic partnership, and profitability. As brands navigate the complex landscape of shipping logistics, the insights shared in this dialogue provide invaluable guidance, equipping businesses to make informed decisions and foster prosperous relationships with logistics providers.

Listen to the whole conversation and more Freight Hacks.