Although freight rates may seem like one of the most basic elements of the entire transportation process, many companies struggle to stay on top of their freight charges as, naturally, the process relies on many moving parts.
Freight rates are ever-changing as they depend on the supply, demand, variable freight charges depending on the freight being transported and the distance, and the political, environmental, and economic turmoil. That’s why logistics companies must understand these factors to know why freight rates change as much.
Let’s start at the beginning to understand the changing nature of freight rates.
What are freight rates?
The freight rates are the price at which specific cargo is shipped from one place to another. This price, as mentioned above, depends on various factors.
- Type of cargo
- Mode of transportation
- Cargo weight and size
- Distance traveled
- Points of pickup and delivery
How are freight rates calculated?
Most companies are now using freight rate tools to provide instant customer quotes. Clients need to ship their freight fast and are always looking for competitive pricing. Therefore, companies are now utilizing tools that instantly calculate freight quotes, considering the general specifications of the load that needs to be transported.
Why do freight rates fluctuate?
There are many reasons why freight rates fluctuate. Let’s discuss the most essential ones:
- Fuel costs
- Demand volatility
- Surcharges and accessorial fees
- Contract changes with carriers
Common freight surcharges
- Basic Freight (BAS)
- Cargo Insurance
- Terminal Handling Charge (THC)
- Bunker Adjustment Factor (BAF)
- Warehouse Fees
- Bill of Lading Fee
- Winter Surcharge (WSC)
- Peak Season Surcharge (PSS)
- Deliver Fee
How to manage freight rate fluctuations with customers?
The key is communication. Customers are not always aware of the amount of surcharges freight has. Therefore, you must showcase your industry knowledge and communicate the prices and why rates may vary. By communicating with your customers and being transparent during the entire process, you’ll be able to meet their expectations.
How do you know if freight rates are fair?
As freight rates change so often, you may wonder how fair they are. There are many ways to ensure you’re accessing the most competitive and reasonable rates according to your type of cargo and destination, sifting through historical lane data. By searching through your previous shipments and comparing them with the current ones, you’ll find an average price that works well for your business. So, instead of just relying on the carrier quote, you can have backup information that allows you to choose the most competitive and fair rates.
Unfortunately, we can’t say freight rates will, at some point, be stable as they depend on many external factors. But there are ways in which you can manage freight rate volatility and access competitive and fair rates, like understanding the industry and how it works, having trusted and reliable logistics partners, and sifting through your historical data.