Has the time come for your micro- or small motor carrier to haul retail freight instead of wholesale freight? What’s the difference?
‘Wholesale freight’ is comprised of brokered loads wherein the company that selects the shipper’s freight also finds the carrier to haul said freight, with the freight broker receiving a percentage of the line haul and possibly other fees for services or fuel surcharges. The shipper pays the freight broker, who in turn pays the trucking company that hauled the freight.
With ‘retail freight,’ the motor carrier receives its loads directly from the shipper, invoices the shipper, and is paid directly by the shipper.
The majority of small and micro-carriers want to wean themselves from hauling wholesale freight and haul more retail freight. Why, then, do the vast majority of micro- and small trucking companies haul brokered (wholesale) freight instead of direct shipper (retail) freight? The answer is both time and money.
Time to call on potential shippers to see if they have any freight the trucking company could haul on a regular basis. Sounds simple until you realize it takes multiple phone calls to get a shipper to place you on their ‘approved’ carrier list. Once on the list and after the shipper makes a request for proposal, then a bid can be placed on the different loads. In other words, you’re bidding against every other approved carrier that shipper has listed for the lane being bid.
Sometimes you’ll win and sometimes you’ll lose. You have to look at the time required to find, land and keep a direct shipper and compare it to the convenience and ease of working with a good broker, one who spends time landing and keeping a stable of shippers available with freight to haul even though it’s wholesale freight.
Where is your time most wisely invested? Working with a broker or pounding the pavement, making phone calls and chasing invoices to get paid from a direct shipper?
Money is answer number two. You’ll either be paid a wholesale freight rate using a broker, or you’ll be spending money finding and retaining direct shippers. Again, each individual trucking company must decide what works best for their particular operation.
Many times it’s a combination of both answers. For example, if you’re dispatching and handling the trucking company administrative tasks after pounding the pavement for direct shippers, then doing the follow-up necessary to retain shippers specifically within a 100-mile radius of your office may make sense for arranging your outbound freight.
On the other hand, for inbound freight, if you don’t have a salesperson at each destination to which the direct shipper’s freight goes, it makes more sense to find multiple brokers who will work with you to get the best rate possible for the inbound freight.
While the inbound rates will most likely be lower than your outbound rates, it may be a better overall net revenue producer than if you had an office and sales staff at that destination point. (However, don’t presume that just because somebody wrote it in an article like this one that this premise is 100% correct.)
Always do a cost analysis comparative study to see which option will create a better bottom line. As your carrier grows from just a few trucks to 20, 30, 40 or more, at some point you’ll reach critical mass—where establishing a terminal and sales staff at a destination point becomes the smart move to make.
The secret to all of this comes full circle. You must know how to set competitive rates based on your costs (fixed, operational and load-specific) and have an established hauling-rate range (based on both costs and future capital needs) that ensures you’ll be at least break even (covering all your bills and salaries for you and your employees) at the absolute worst—ranging all the way to making a nice fat profit at the other end.
Next, you need to understand the complexities of getting set up with a shipper. Do you understand the lingo? What’s the difference between RFQ (request for quote) and RFP (request for proposal)? What’s meant by being on an approved carrier list? How does a small carrier find the correct person in a shipper’s establishment to become an approved carrier?
Other challenges occur when you are making the move from wholesale freight to retail freight. As there are costs associated with using a broker, there are also costs incurred by going direct through the shipper. Beyond the time and hundreds (and I do mean hundreds) of cold calls and call backs required to land just one shipper, finding out if the shipper is creditworthy and pays on a timely basis will very likely require you to subscribe to a business-to-business credit rating company.
Finally, there aren’t any fuel or trip advances, quick pay, or even ‘paid at time of delivery’ with the vast majority of shippers. The average time from delivery to paid invoice in the trucking industry is between 30 and 60 days. Unless you either have 90 days of operating funds in the bank, a cash flow credit line at a bank, or are working with a factoring company, it’s not recommended that a small carrier try doing direct shipper retail freight.
A final consideration is freight capacity. The smaller your capacity, the fewer available shippers that will be willing to work with you. For larger shippers, it’s far simpler and less costly to have a freight broker or 3PL bill their accounts payable department, which writes a single check covering multiple carriers, than it is to write multiple checks to several carriers.
It’s not whether you’re hauling retail or wholesale freight, it’s where your profit is at the end of each year. Retail has its drawbacks just as wholesale does.
So, the big question for your business is, which is going to generate the greatest profit for you and your company? Retail or wholesale?