What Shippers Need to Know About Cheapest, Lowest & Best Freight Rates
November 10, 2020 •Rick LaGore
The two highest searched topics on freight rates are “best freight rates” and “cheapest freight rates”.
While we understand the importance of price, there is more to the story many small to medium sized companies often miss as they scour the internet for the cheapest transactional freight rate to move their business.
To help shippers uncover what the cheapest freight rates often have within the fine print or not published within the freight quote we’ll spend the next several paragraphs discussing what is behind the cheapest freight rate advertisements and how to obtain the best freight rates and service you are looking for to be successful with your business.
Before starting we do want to say our intent is not to push people to the highest freight rates either because price and service do not necessarily increase in lock step with the various freight providers in the market. As long as everyone goes in with open eyes on their freight procurement they will be able to find the best fit on service and price for them.
With the introduction behind us we’ll start by saying cheapest and best often translates to problems and issues when there is a hiccup in service. When everything is flowing without a hitch the cheapest rates make us feel like we made the correct choice, but when an issue arises it often comes as a surprise because the freight buyer was not aware of the fine print and the problem becomes all encompassing and devastating.
With that in mind, let’s get started looking at the details often associated with the cheapest freight rates, so you can make sure you are going into your freight and logistics buying decisions with the full set of facts.
Facts Behind Cheapest Freight Rate
Freight Broker Solvency
The first issue to cover is the situation shippers find themselves in when unknowingly working with an insolvent freight broker. In this case the shipper is opening itself to pay for the shipment twice. The first payment is to the freight broker and the next is to the underlying motor carrier.
Title 49 of the US Code is a section of law covering transportation that includes many provisions, with one that assigns the ultimate liability for freight charges to the shipper not the freight broker.
The majority of shippers print their bill of ladings (BOL’s) to include the Shipper’s Name and the Freight Broker as the contracted carrier picking up the freight.
Having the Shipper Name is perfect, but having the Freight Broker on the BOL as the carrier is what causes the problem. The reason for this is that the freight broker is not authorized to perform actual transportation, therefore there is no contact between the shipper and the carrier. The result is the carrier does not have a contractual call on the shipper for the money and the shipper has no contractual obligation to pay it.
This opening is enough to cause issues in the courts and ultimately push the shipper to pay the underlying motor carrier because the freight broker failed to do so before filing bankruptcy.
Cargo Liability Coverage
Quite often lower rates also means lower cargo insurance coverage or limited contingency cargo liability coverage when working with a freight broker. The liability shortcomings play themselves out depending on the freight mode.
For LTL shipments, a salesperson may try to force your business into a lower NMFC classification, which is a great way to reduce the freight rate, but with the lower NMFC classification also comes a reduction on the cargo liability coverage. So, under this situation you are a hero up to the time a freight claim is filed.
For truckload shipments, the thought is often that a carrier has a minimum of $100,000 cargo liability coverage and when working with a freight broker they have contingency coverage to be the lower of the underlying motor carrier or $250,000. While this is often the case, we highly recommend not making assumptions around cargo liability. It could cost you your job on the way to saving a few cents a mile because one claim can wipe out a year’s worth of freight budget savings.
Legal Liability Coverage
The topic of legal liability coverage is one that should have you thinking to never put a stick of freight on any truck until you know what you are getting with cheap freight rates.
Where a cargo claim could wipe out an entire year of freight cost savings, a legal liability claim can wipe out the company. What has now become common enough to have a name put to it, a “nuclear ruling” can mount to tens of millions of dollars to cover loss and suffering from a fatal injury caused with a shipment that company places on a carrier that is not fully vetted for safety and insurance validity.
Another in the list of issues to watch for in sorting your freight selection by price on a spreadsheet is around claims on over, short and damages (OS&D).
We have received numerous calls over the years looking for other options to move a company’s LTL freight because the claims continue to push upward, while also driving down customer satisfaction scores needed to hold shelf space and the business with a particular customer.
More times than not, the reason for the high claims can be traced directly to the lowest freight rates a company was quoted.
Not only are OS&D claims an issue with cost and customer service, but the amount of administrative effort and loss of cash flow in the process can be just as much as the LTL claim itself.
Freight Provider Has No Understanding of Your Business
Freight is more than a cost to a company. When done right, freight and logistics decisions can and will drive a competitive advantage for your company, but this comes when a company makes a conscious decision that freight is considered to be more than a transactional cost to the business.
To help with the point of transactional business, I ask you to recall the Bob Seager song entitled Feel Like a Number. As the song goes, you are “a statistic on a sheet”; “a tiny blade of grass in a great big field” where at times “you want to scream out to the ocean hey it is me”. Well that is exactly what a company is when they post their need for freight capacity to an anonymous person that does not comprehend their business beyond making a profit.
So if you find yourself talking to a chat bot, calling into a 1-800 line or just getting the run around on where your freight is when an issue arises, well then you are a profit transaction and not getting the full value you and your company require to make your supply chain drive a competitive advantage.
Often in the process you also end up paying quite a bit more for the quoted rate also because the specs of the freight changed from what was input into the fields provided online.
With the “right” freight provider a shipper gains tremendous value in risk mitigation, pricing, capacity and service. Time and again we talk with shippers that stumble across our site to just find a “cheapest freight rate” and they end up staying for years because of the service and price is significantly better than they ever imagined. We are not the only ones that can do this. There are literally thousands of freight providers that provide this value for its shipping clients.
The reason the best logistics companies perform so well for their clients is they learn the specifics of their business beyond commodity, dimensions, weight, available to pick-up and required delivery time.
By understanding the people, processes and the docks a freight provider bumps in a particular business the freight provider gains insight into a company’s business that allow them to bring solutions to improve cost and service that cannot be touched … and yes the overall cost will be less and the value will be at its highest.
Conclusion on the Cheapest Freight Rate
Again, this article was written not to steer shippers to higher rates, but instead to understand the fine print often behind the “cheapest freight rate” searches done online.
All in, we recommend shippers get out of the transactional freight market and into a full fledged logistics and supply chain relationship with one of the 17,000 logistics companies, 700,000 motor carriers or combination of the two to bring the most value at the least price for your company.
Given the challenging freight and logistics environment, partnering with an experienced freight provider will help turn an inefficient and costly supply chain into a competitive advantage. The key is finding the one that is the best for your business.
Last, but not least we hope that this article helped in your understanding of what can be behind cheap freight rates. If you find yourself looking for another freight provider option, we'd love to be part of the conversation so please do not hesitate to reach out and contact us.
Additional Resources to Help with Your Logistics Challenges:
- The Comprehensive Guide on Managed Transportation Services
- Best Managed Transportation Companies (And How to Choose)
- Top 20 Freight Brokerage Companies (& How to Choose The Best)
- The Complete Guide to Freight Management Service Solutions
- How Much Does Managed Transportation Cost? A Comprehensive Guide
- Freight Costs: An Insider’s Look on Freight Pricing Buyers Should Know
- Freight & Shipping Costs
- Freight Broker
- Freight Forwarder
- Intermodal Transportation
- International & Cross Border Logistics
- Logistics & Supply Chain
- Logistics Service Provider
- Managed TMS
- Supply Chain Sustainability
- Transportation Management System
- Warehousing & Distribution