The Dangers of Contract Rates

30 Jul by Stephen Estes

The Dangers of Contract Rates

Sure seems like a fantastic idea – negotiate a year around rate that doesn’t change to ship your freight from point A to point B!


You contact one of the big freight brokers and you tell them you have 30 loads a month from Los Angeles CA to Houston TX.  You are interested in securing a reasonable rate year around because you are trying to figure out your shipping budget for the year.  You don’t want to have to guess every week as to what the rate is going to be.


After some back and forth, you agree to a rate that seems reasonable to you and you start shipping loads with your broker.  All is going great for about 2-3 months…


Then there’s a hurricane.


All of a sudden your broker calls you and says that they can’t honor the pricing schedule they gave you.  They are extremely sorry, but due to the natural disaster that just happened, there just isn’t the capacity to move your freight at the rate that was quoted and there’s nothing they can do.


You have very little recourse here.


Now you’re back to square one again, looking for a new broker to quote out year around rates for your lane, but now you’re starting at a time when trucking rates are at an all-time high, so the yearly rate quotes are much higher than they were a couple of months ago.


You’re in a poor situation in this scenario.  You’ve already been moving freight at a contract rate for two months that was higher than market averages at the time.  You’ve lost money on every shipment since you started running freight with this broker in the hopes that it would even out when the markets went up, but you won’t have the opportunity to recuperate your losses because your broker can’t honor the rates he quoted.


This is not a hypothetical scenario.


When hurricane Harvey hit in August of 2017, the freight markets reeled.  Rates sky rocketed at unprecedented levels.  Capacity was a nightmare.  Contracts were not honored because trucks simply were not available, and there was no recourse for customers affected.  It was a real nightmare.


The aftermath of market turbulence and capacity shortages following Harvey are still being felt today.  Rates eventually came down and stabilized, but they did so at a higher average low and there is no indication that they will ever go down below 2017 lows.


Our customers fared far better than average.


PKI doesn’t do contract rates.  We have found that overall, a customer will do much better through the course of the year by following the markets in real time.  Our customers lost far less money on their shipping during and after the Harvey event due to the unique structure of our company.


Because we are flat-fee based (unlike brokers), we are motivated to find the absolute best rates to move our clients cargo.  We don’t make more money when the rates are higher because we don’t charge based on a percentage of the overall truck rate (unlike brokers).  We don’t have hidden fee’s (unlike brokers), and we are not tied to any particular carriers.


PKI is different.


Our unique business structure allows us to negotiate the best rates for our customers.  Because of the volume of freight we ship, we are also able to negotiate lower rates with some brokerages.  Time and time again, PKI comes out BELOW market averages.  And our unique billing structure keeps everything completely transparent.  The client knows exactly what is being paid to the truck and what the charge for PKI is.  They are billed separately, so there is NO CHANCE of fraud or dishonest billing practices (unlike brokers)!


If you have freight and you are truly looking for a different way to ship that will save you time and money, contact PKI today.  We will be happy to go quote your lanes for you and get your freight moving!