Freight rates have been decreasing for the past year, and many carriers and owner-operators wonder if the rates will turn around and rise again. During the pandemic, shippers paid higher than normal rates to move their products. Most of these new businesses relied on the spot market.
Since the number of loads has decreased for different reasons, including inflation, reduced customer spending, and lower incoming ports, shippers can lower rates because of the competition of trucks for the same loads. The excess capacity is helping contribute to the reduction in rates. However, as rates remain low, many small carriers and owner-operators around when the market was high may need help surviving.
Freight Rates Impact on Owner-Operators
There are several issues owner-operators see as the freight rates decline. Some of these include:
Revenue and Profits
Freight rates affect the revenue of owner-operators. When the rates are high, owner-operators can earn more income per load. However, owner-operators need help covering expenses and getting higher profits when the rates are low.
Operational Costs
Owner-operators are responsible for several expenses, including fuel, maintenance, insurance, permits, taxes, and other costs. When the rates change, this can impact the owner-operators’ ability to cover these expenses and make a decent income.
Negotiation Ability
Owner-operators often need more bargaining when it comes to being able to negotiate freight rates with brokers and shippers. When the market is competitive, owner-operators are under pressure to accept lower rates to gain loads and, in return, can affect their profits.
Market Instability
Freight rates often see market instability which can be difficult for owner-operators. Quick rate changes can mess up their revenue and make it difficult for them to plan for their future.
Plans To Navigate Through Freight Rate Instability
The freight rate changes are no stranger to owner-operators. However, you must know how to navigate these changes to continue to build your business and be profitable.
Expand Client Base
Relying on a single client for loads can expose an owner-operator to higher risks during periods of instability. However, expanding your client base can help lessen these risks.
Plan and Stay Informed
Owner-operators should monitor industry news, market trends, and economic signs that give valuable insight for owner-operators. Planning, adjusting business strategies, and anticipating market changes can help reduce your impact on freight rate changes.
Build Healthy Relationships
Developing a strong relationship with brokers, shippers, and freight negotiators can help enhance the negotiating power and help owner-operators land more secure and favorable rates.
Enhance Operational Efficiency
Expanding operational efficiency by enhancing routes, reducing idle time, reducing fuel usage, and improving load merging can help balance the impact of lower rates.
Load Boards and Technology
Using a load board or different technology platforms that give you real-time insights on the market, load matching, and rate optimization can help you find higher and better-paying loads.
Freight rates are an important feature of the trucking industry, impacting the success and profitability of owner-operators. Being able to understand the factors of freight rates and setting up strategies to get through these changes are important for owner-operators. Some owner-operators who have their own equipment and little debt need help to stay afloat in this market. Some owner-operators are even considering retiring their trucks. They do not see the benefits of being away from home and putting wear and tear on their equipment for a low-profit margin.