When developing a contract to haul freight, you need to develop pricing guidelines. One pricing structure is One-Way lanes. A lane represents a unique pairing of origin and destination points. Lane types include city-to-city, city to state, state to state, state to city, zip code to zip code. It is appropriate to use a county qualifier if one state has multiple cities with the same name.
Factors to consider when developing one-way pricing: Cycle time, capacity and balance, seasonal activity, stops and unloading, empty miles, length of haul, market types.
Guideline Pricing Matrix
This is an internal rate per mile established for any possible lane combination. This is your starting point for developing lane rates. These rates are established based on carrier-defined pricing zones where states are split into strategic regions.
It is important to avoid rate conflicts. The city-to-city rates must be consistent with the city to state rates. If you have a Grand Rapids, MI to Green Bay, WI rate of $1.95 per mile, you cannot in turn list a Grand Rapids, MI to Wisconsin rate of $1.80 per mile rate. There may be exceptions to this rule if excessively high toll charges will be incurred in a specific city to city pairing.
Reach more effective pricing by breaking a state into distinct zones. For instance, Michigan could be broken into three zones. 1) Upper Peninsula. 2) Top half of Lower Peninsula. 3) Lower half of Lower Peninsula. Specifically the pricing zone needs to be designated by zip code for easiest reference.
This is the total time a tractor and driver spend picking up and delivering. Cycle times begins with the driver waiting for dispatch, then continues on during the empty miles to the pick up, the dock time at the pick up, the driving time/loaded miles to delivery spot, and the dock time at delivery.
Waiting for dispatch may also be called dwell time. The longer the driver has to wait to be dispatched the longer the driver and truck go unutilized thus raising carrier costs.
The carrier minimizes the empty miles to the pick up by making sure where the driver is dispatched from is in close proximity to the pick up location.
Dock time at the pick up may be considerable. Factors to consider include whether the pick up is a drop trailer or a live load, does the driver need an appointment or are drivers received on a first come first serve basis.
Includes drive time and mandatory break time.
Dock Time Delivery
Same as dock time pick up.
Establish minimum charges on lanes so that you do not sacrifice profitability. If you have a rate of $1.90 per mile from Michigan to Michigan, but the load is only going from Grand Rapids, MI to Muskegon, MI (a 30 mile trip one-way) then the trip will only cost $57 for your customer. That will not cover the cost of the driver, the equipment, and the fuel. Therefore, charging a minimum charge is appropriate. The carrier wants to be able to always cover all costs involved and at the very least break-even (of course, making a profit is the ultimate goal).
List accessorial charges such as stop offs, unloading, truck ordered not used, layover, detention. These are extra costs that are passed on to the customer if the cost of such is not included in the basic pricing matrix.
Backup rates are for shipments not covered under lane pricing. Backup rates are only used when specific lane pricing is not present. The purpose of the backup matrix is to cover all other scenarios so there are no delays in load acceptance.
Questions to Consider*
- What are the origin and destination points for the lane?
- What is the loaded mile and billed mile length of haul for the lane?
- Will there be any toll costs incurred?
- What types of roads will be traveled on the trip?
- What is the average miles per hour and transit time for the trip?
- Does this lane offer the opportunity to profitably expand the network?
- Does this lane flow through existing company maintenance facilities?
- Is this a new lane or customer with significant future growth potential?
- How many trucks per week are currently available in the origin market?
- If the capacity is not available, how will trucks be sourced to this customer?
- Is any additional capacity needed in or near the destination market?
- What rates are being charged to current customers on this lane?
- Do any current customer have substandard rates on this lane?
- Is this lane currently profitable with existing customers?
- Is the origin or destination a head haul, backhaul, or intermediate pricing market?
- How many empty miles will be incurred to pick up and/or deliver these loads?
- Does this lane facilitate the need to get drivers home?
- Will this lane provide reasonable income and productivity for the driver?
*Truckload Transportation: Economics, Pricing & Analysis by Leo J. Lazarus, M.B.A.
When considering pricing a lane you might price high or decline to price at all if the lane does not fit with business model. If there is an opportunity for growth, you might be a little lower in your pricing in hopes of gaining the customer and established long-term profitability.