As a freight broker or 3PL, few topics carry the weight of freight finance and freight broker margins. Freight finance is simply the process of getting paid for loads moved sooner than the typical shipper payment schedule. Unfortunately, there are very real risks that your shippers may take longer than usual to submit payment, payment may not be in full, and other issues could arise. That’s why more 3PLs and brokers are turning to companies who can aid brokers & 3PLs with cash flow that can alleviate these concerns. Moreover, as explained by Truckstop.com, “The fastest way to increase gross margins is to work more efficiently. Using load boards, analyzing rates, and posting loads for preferred carriers all increase the efficiency of that process. More efficient freight brokers earn more.” And while that’s valuable advice, there are five core considerations to take that will help maximize your profit margins on every load.
1. Diversify Your Lane and Modal Mix to Improve Your Freight Broker Profit Margin
The first consideration is all about branching out beyond your typical shipper-client profile. Diversity in your lanes and modal mix will help reduce your direct transportation costs. After all, knowing when to outsource is part of the hallmark of a great broker or 3PL. Knowing when to consolidate, switch freight to another mode, and how to eliminate all backhauls—all while continuously optimizing every leg of shipping—creates diversity that will go a long way toward increasing freight broker profits.
2. Accept Tendered Load With Rates Based on Current Market Dynamics
The next consideration is to think about current market dynamics. When a shipper tenders a load to your company, it’s easy to accept it immediately, especially if the load is easiest to pick up and transport. However, this is a carrier market, and in some areas, the pendulum is more closely aligned to shippers. Without considering the unique market dynamics in play in each O/D pair, it’s difficult to understand your true 3PL and freight broker margins.
3. Target Lanes With High-Profitable Needs
The next core aspect of increasing profitability is the simplest: target lanes with high-profitable needs. Now, this is more complex than simply targeting lanes with the least capacity. After all, not every move is as profitable as others, especially when dealing with high-value cargo. Instead, consider the full picture, recognizing the ease of loading/unloading, the risk of dwell time, whether the load will result in added emissions (such as increased cooling), and other factors. This will help to maximize your profitability by keeping an eye on the indirect costs associated with each move.
4. Eliminate Empty Backhauls
Another consideration is to eliminate all empty backhauls. With added pressure and demand for more capacity, there’s no reason to face empty backhauls. Some shipper, somewhere, has a need for your capacity, and rather than traveling empty, try to find loads within a given radius that fall within your predefined parameters for accepting a tender.
5. Know When to Say “No”
The last consideration is hardest for most 3PLs and brokers to apply, but it has grown easier as the market has been favorable for carriers for nearly 18 months. 3PLs and brokerages need to know when to say “no.” Offering more money for a load is great, but what’s the real cost if you have to travel empty? Have you thought about the potential emissions’ impact? Do your drivers really feel comfortable driving extra without any real meaningful impact to profitability? Now look at that last question, and think about this. Most carriers have five or fewer trucks, so empty miles are likely to amount to lost revenue for the driver, not just a carrier in the realm of logistics. It’s that reality that forces 3PLs and brokerages to think about whether it’s really worth the effort and time for a less-profitable load when there’s another option that may be better for freight broker margins.
Maximize Brokerage and 3PL Profit Margins With Better, More Efficient Freight Finance Options Through HaulPay
Freight finance is always a delicate subject. Without the right freight finance tools at your disposal, maintaining a positive cash flow while moving freight will be difficult at best. And your troubles will carry over into increased hostility or unwillingness to move freight for shippers that routinely take too long to complete payments. However, taking these considerations now will help your company, whether a freight broker or 3PL, maintain better working capital, get the funds needed for today, and seek out more profitable loads. Improve shipping execution by leveraging the above tips and putting the power of ComFreight’s HaulPay to work. Request a demo to see how the HaulPay platform works.