Explore Secrets to Negotiating Rail Freight Rates Smoothly
The global COVID-19 pandemic has adversely impacted all industries. While the United States of America’s supply chain had been encountering setbacks and disruptions, the railroad shipping industry demonstrated reliability and resilience during the global pandemic. Understand the way the railroads opt for pricing your commodity if you wish to negotiate railroad shipping rates. Railroad pricing has consistently been cyclical during the last few years.
Moreover, they have been fluctuating between private contracts and public tariffs. Thanks to differential pricing, there is every possibility that different shippers will be provided different rates by the railroad freight agency. Irrespective of the pricing approach, the goal of railroads is the maximization of profits always. Here are some tips for freight rate negotiation for lowering rates in the industry and gaining a much better picture of today’s market.
Railroad Shipping Rate Negotiation
Understanding Ways Freight Rates Are Determined
While setting rail freight rates, usually, the railroads opt for marking up their expenses by varying ratios based on commodity. Knowledge of pricing behavior would successfully provide the framework that is required to analyze rates both your competitor’s and yours.
Revenue-to-Variable-Cost Ratio
RVC is the most critical ratio in terms of understanding the ways rates are determined. The RVC is supposed to be the revenue of railroads divided by your operating expenses for a lane. We understand that railroads try increasing their RVCs while negotiating freight rates. If you get an opportunity to have access to this information and data, you could use it as a starting point. Get more at trade poe.
Tariff versus Contract
Your RVC may be incredibly high. However, it may not necessarily imply the railroad will be negotiating. We have two more critical aspects of the determination of the freight rate structures. Competitive versus Captive and Tariff versus Contract pricing! Remember that tariffs are supposed to be public rates; hence, they can be compared easily. Contract rates are supposed to be confidential; hence, you would be requiring more data for knowing if your rates are sensible.
Focus on Identifying Opportunities
Once you possess sound knowledge about the way railroad freight rate structures work, you should focus your attention on identifying the right opportunities to enhance your rates. Once you have easy access to in-depth and detailed data relating to rail rates across commodities and distances could prove to be useful for you in benchmarking your rates. Thanks to these estimates, it becomes easier for you to determine where to initiate negotiating freight rates. We know that data visibility is instrumental in demonstrating precisely where your rates seem to be astronomically high and know you are, in comparison, to your competitors.
Conclusion: Remember to Evaluate All Your Options
It could be a challenging task to go about negotiating railroad shipping rates with only a few options. It is imperative to have a comprehensive knowledge and sound understanding of all available options so that you may be in a much stronger position. In several cases, it could prove to be quite a difficult task. However, keep in mind that pricing data is your greatest asset while negotiating railroad shipping rates.
