7 major factors shaping carrier pricing
Carrier pricing strategies are a critical factor in supply chain management, influencing the costs for businesses that must transport goods. Pricing adjustments can appear sudden or arbitrary, but they’re typically driven by a complex mix of factors from market dynamics to customer behaviour.
Some of the major forces that shape carrier pricing is beyond the influence of carriers and their customers. Nonetheless, getting to know the main reasons for changing carrier costs enables you to plan around issues like fuel prices. Some aspects of carrier pricing, such as strong business relationships, are directly under your control.
1. Transportation market dynamics
External factors, such as economic trends, supply and demand, and fluctuating transportation seasons, can have a rapid impact on the transportation market. Demand for freight services will cause prices to rise, especially when limited capacity exists. When markets are extremely tight, carriers are much more likely to raise prices or prioritize high-paying shipments over existing, lower-paying contracts. In weaker markets, you may find that carriers lower their rates to attract your business.
Another market characteristic that can impact pricing includes available competition in your market. Choosing between several carriers, instead of relying on a few, gives you the option of shopping around for the best prices. For businesses, maintaining flexibility in pricing agreements and fostering loyalty with carriers during volatile periods can be key strategies for managing costs effectively.
2. Changes to delivery routes
Carriers work to maximize profitability and efficiency by planning profitable routes. Changes to these shipping networks and routes can cause costs to rise. When routes become more efficient, there will be less upward pressure of prices.
For example, if a carrier transporting freight from a port to a major city loses a customer in the city, the return trip to the port may end up with an empty cargo hold. Empty trucks, blank sailings, and vacant flights greatly reduce carrier profitability. As a result, a carrier can choose to increase the price to compensate.
3. Freight characteristics
Key physical and logistical freight characteristics that carriers consider for pricing include:
Mode of transport
A full truckload will often cost more than a less-than-truckload (LTL) or a shared shipping options. However, full truckloads can offer a faster and more secure delivery than LTL.
Cargo weight and size
Heavier or larger items will be more expensive to transport than lighter and smaller products.
Difficulty of handling
Freight that’s easy to load and handle will be less expensive than cargo that’s difficult or riskier to move.
Potential liability
Expensive and fragile goods can require extra insurance coverage or precautions for handling, increasing costs.
Optimizing packaging, securing freight efficiently, and choosing suitable transportation modes can help reduce shipping costs.
4. Fuel costs and delivery distance
Volatile fuel costs are inevitably passed along to businesses and consumers by carriers and even large transportation companies.
Rising fuel costs create the most impact on longer routes, in particular for rural deliveries. Low demand for rural shipping, extra fuel for long hauls, and multiple stops at smaller destinations can quickly add up to significant spikes in transportation costs.
Smart long distance transportation strategies can mitigate costs for long distance deliveries. Optimizing routes, consolidating loads, and planning well ahead can reduce the number of trips made and reduce overall fuel usage.
5. Shipping volume and predictability
Carriers prefer businesses that provide consistent, high-volume demand for shipments. with favorable rates. Predictable, high-volume shipping allows carriers to plan resource usage more efficiently, reducing downtime and improving the utilization of their equipment. Companies can negotiate more favorable rates by committing to predictable shipping patterns, especially for high-volume agreements.
6. External regulations
Government policies, trade agreements, and transportation regulations can play a massive role in carrier pricing. Some shipments, such as hazardous materials, require extensive compliance considerations, such as specialized equipment, restricted transportation windows, and special certifications to operate vehicles and machinery.
Staying informed about changing regulations, such as CARM and ELD requirements, can help businesses work with carriers to potentially mitigate additional costs. Knowledgeable freight forwarders can help businesses prepare for change regulations and manage costs related to oversized loads, dangerous materials, and restricted imports.
7. Relationship management
Carrier pricing strategies can be influenced by relationships built between carriers, shipping partners, and customers. and shippers. A strong, collaborative relationship with a carrier can result in lower freight rates, priority service during periods of high demand, and greater flexibility if disruptions occur.
A business that meets payment terms, provides accurate shipping information, and communicates issues proactively, will be much more likely to secure competitive rates. Shippers that cause operational inefficiencies like last-minute changes or detention times could face higher costs or reduced carrier support.
Take control of shipping and transportation costs
Carrier pricing strategies are influenced by a wide range of factors, from market conditions to the operational efficiency of business customers. Learning more about the way these forces work lets you take steps to reduce price fluctuations and maintain strong relationships with carriers and shipping partners.
Collaborating with an experienced freight forwarder and customs brokerage can help to optimize your operations and secure lower freight prices.
Freight forwarding. It's what we do.
