Factoring Fees, Fuel Surcharges, And Freight Weight | Final Mile 134

Nate Cross & Ben Kowalski answer your freight brokering questions and discuss:

💳 Best factoring companies and typical freight broker factoring rates

⛽ What happens to fuel surcharges when diesel prices rise

⚖️ Why shipment weight matters so much to motor carriers

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Transcript

Kickoff And QA Format

SPEAKER_01 0:19

All right, it's the final mile. That's our QA session here every single week. These questions come from you, the audience, and we're gonna get right into it. Uh, but first, if you're brand new, like us, share, subscribe, share with your friends, check out the sponsors to support the channel as well. All right, first question. Can anyone please recommend a good factoring company? And what percentage are you being charged? Thanks. All right, so we like it's interesting because we just did recently our finance lesson with the TIA new brokers um group. And we get new students like every couple of months to come through and you know, we go through live coaching with them, and finance is one of them. Um and factoring is always very interesting because like people think they, you know, they think factoring is like very straightforward and simple, and there is a ton that goes into it. We're not gonna break it all down today. We've got other content on it. But um, I will say this to answer the question up front, and I'll explain why. Um so if you're a new broker, right, we personally recommend Operfy, right? They're a partner of the show. You probably heard their their content read by us and discussed before. But the reason that we have decided that that's who we recommend is they don't just work with new brokers, they they have an educational focus with new brokers too. So, like, you know, they're not charging you more for that. Like that's just that they want to see their their uh broker customers succeed. And for that reason, they want to educate them on um you know finance overall and how to best manage your business. So as far as percentages go, it depends on the volume that you're moving. Um, the more you factor through a factoring company, the lower percentage you're gonna get. And you'll tend to see um rates usually around like the two to three percent range. Um, Ben, what have you seen in different like if you're new, I'm assuming you're probably gonna pay closer to 3% with a lot of factoring companies. You get a lot of volume, like at you know, one point something. What have you seen?

Rates And Volume Tiers Explained

The Real Cost Of “3 Percent”

SPEAKER_00 2:25

That's pretty close. Like the thing, again, just to reiterate, why we really like OperFi is that like one, they're gonna help on the education piece, which means for like newer companies, they're not just gonna offer the factoring service, but they're also gonna help you establish your credit so you can work your way towards a better position, which is either lower rates or eventually no factoring, right? Most factoring companies, that's how they make money. So they have no incentive to help you establish credit and could care less, right? So that is a big differentiator, right? And again, yeah, newer brokers closer to 3%. Um, existing brokers that are doing even 50 grand a month in total invoices, which sounds like a lot, really kind of isn't. I mean, if you're doing 15 loads a month, you're probably close to that. Um, that gets you in with the larger factoring companies, the Triumphs and whatnot, OTR. Again, you'll probably get closer to 1% when you've got that much volume and you've been in business at least a year or most of the bigger factoring companies. I would also say that to just add to that, like the 3% or 1% are deceiving because it's not actually 3% of the money the brokerage makes.

SPEAKER_01 3:40

It's some of the entire invoice. Yeah.

Cash Flow Holds And Reserves

SPEAKER_00 3:43

So again, just for round numbers, say you have a thousand dollar bill to your customer for a load. Say you make 10% on that load as a new broker. So you pay the carrier$900.$100 is what you earned on that shipment. Okay. 3% of$1,000 is$30. Okay. But you don't get$1,000. You got$100. And 30% or$30, right, is$30 of your$100 you made. So 3% seems very minimal, and I would agree, except it's actually three, it's 30% of the money your brokerage earned for arranging that. So it can be deceiving when you've got low margin freight. When you're running higher margin freight, 15, 20, 25%, like it doesn't have as much of an effect, but it's still impactful. So I do think they're super valuable. You absolutely almost definitely need one when you're starting out for a number of reasons. No credit, establishing credit, carrier access, and a larger access to more trucks, all drives down rates, because those two things offset each other. If I can only work with one of 10 trucks on a given day for a load, I'm probably going to pay more than if I could literally get rates from all 10 trucks that are there, right? And again, it kind of plays out that I feel like when you've got no credit, you're probably paying around eight to nine or 10% more than a brokerage that has established credit, because you just have a smaller number of trucks you can work with. So you don't get to choose from even the very expensive and the cheapest ones sometimes. You will typically pay less once you've got that credit established. But it's super important to understand how that affects the actual cash flow of your business. Because I've seen a lot of brokers that have even been in business that for their first two, three years, they're not looking at this at all because they're running 15%, 20% margins for sure after COVID. And then when the margins got squeezed and they're looking at their customers and they're making nine, 10%, they're like, wait a minute, my TMS showed we made 20 grand last week, but my factoring company only gave us five. Where's all my money? Well, it's the money they hold, which is typically 5% until the customer pays the bill. And just our example, the other 3% or 30% of your margin went to the fee on a$100 margin on a thousand dollar load. If you factor that, like you're gonna get 20 bucks. You're gonna be like, wow, I made 100 bucks this week. Next week the factoring company distributes 20. And you're like, where's all my money? Like, well, we held 50 until your customer pays the bill. 30 bucks was our fee. Here's what you got left. And it's like, wait a minute, what's going on here?

Evaluating Factoring Partners

Fuel Prices And Surcharges

SPEAKER_01 6:20

Yeah. Good questions to ask when you're evaluating a uh factory company, but definitely check out Operify. There's a link in the show notes. Um check them out. All right. Next question with fuel prices rising, what happens with the fuel surcharge? Are brokers keeping it for themselves? I have seen this talked about the last like two weeks. Carriers are I shouldn't say every carrier, but a lot of carriers or smaller owner ops are like, and the brokers are keeping the money. So this this depends on how you're as a broker, right? The way that your customer pays you and the way that you pay a carrier aren't necessarily the same. So I always prefer all in rates all around, right? But if you're on a contract basis with a shipper, you're gonna typically have a fuel surcharge. They're gonna have a line haul rate that you agree to, and they're gonna pay you a fuel surcharge per mile based on what diesel costs that week, right? And as fuel has gone up, those fuel surcharges, it's a table. It's basically like a chart. Hey, if diesel costs between this amount and this amount, we're gonna pay you, you know, 40 some cents a mile or whatever, right? Um, if it goes up, it's gonna go up a penny, you know, or down a penny if it goes down. Um, now if you're paying a carrier an all-in rate, then the question doesn't even really make sense here. The broker's not keeping the fuel surcharge, they're just paying market rate all in to a carrier. And if an all-in rate to a carrier is more expensive in one instance, it's gonna be more expensive. If they can find a less expensive truck and you know, in another case, that's just market rates all in. It has nothing to do with a broker keeping the fuel surcharge. Um now, if you're a carrier and you're paid with a fuel surcharge from a brokerage, then you should be getting passed through the exact fuel surcharge that the shipper is paying. And if as it goes up, it should go up on your end. Um, anything to add on that? I mean, usually like if you're just most of the time in the spot market when we're we're booking a truck, even if we're getting contracts rates with fuel surcharges, we're just paying it all in and all in rate.

Spot Vs Contract Fuel Practices

SPEAKER_00 8:32

You know what I mean? Like, I and again, I it's very uncommon for a broker to do fuel surcharges to the carrier. Like, I've just not seen it.

SPEAKER_01 8:42

Unless you've contracted a carrier correct um for a like you know, a long period of time for six months. Exactly.

SPEAKER_00 8:49

The only time you typically see fuel like calculated is between is in contract situations where it's the whole period of the bid. So the shipper's like, it's a three-month bid or a six-month bid, here's our fuel table. So when brokers do that, the only time we're not paying all into the care is because the carrier's like, I'll take this load every Monday for the next six months. Here's my line haul, and here's what I want in fuel, then you would break it out. But most of the time, the carers don't want to do that. They just want to look at the all-in rate because it's just easier for accounting. Most brokers just do that all in. And also, if you take the load twice this month as a carrier and I use another carrier twice this month, that's a spot load. Like you're not contracted with me. So I'm just negotiating how much do you want today to run this load? And I think a really important takeaway for carriers that are thinking this way is everybody thinks about it in that direction, but you don't ever hear carriers going, well, you're gonna pay me less because fuel got cheaper this month, right? Oh, hey, are you gonna reduce my rate because fuel was cheaper for the past two years? Like, no, it's when fuel goes up that everybody looks at it, but nobody wanted to negotiate the fuel when you started working with them. And it's like, well, okay, we can change these things, but like they're not the same things, right? Like fuel is a dedicated contract. You're taking this load every time it's available for an extended period of time. You run this load today. That's why spot rates go up with fuel. Like literally the spot market, they they should go up because they're included. And you'll see that in national averages typically.

Why Shipment Weight Matters

SPEAKER_01 10:26

Yeah. Yep. Exactly. All right, our last question here. Why do carrier why do some carriers care so much about the weight of a shipment? Well, on the point of fuel, um, the heavier a shipment is, the more fuel it takes to haul that shipment. So that well, that's one reason. Also being able to scale their truck within the legal limits. Um, because there's a limit to how much weight you can have over each axle, and if they are not loaded, if they're over those limits, they're they can get um when they hit a waste station, they're gonna get fined for that. Um but here, like so. Here's here's a common one when it comes to weight or even the size, is if I've got a partial, and to me, I don't think about it as a partial. I'm just thinking like, oh, you know, it's 20 feet and it weighs 18,000 pounds, right? Um, the carrier might say, Well, this is important because I'm I've got another shipment to put on my trailer. I'm gonna if I if they're gonna allow you to partial it, like I need to make sure that the weight will match up with what I've got from my other shipment. That's one example. The fuel thing is another one, right? If it's 42,500 pounds versus you know, 10,000 pounds, it's gonna burn more fuel hauling the heavier shipment.

SPEAKER_00 11:46

And wear and tear on your vehicle, your tires, your brakes, everything else, the difficulty in driving it. If you're going through the mountains, very different. Sometimes a heavier load is better in the snow.

SPEAKER_01 11:56

Sometimes, like if it's heavier, like sometimes people want heavier shipments if it's in the snow because they get more traction. So um, but that's pretty much it. Nothing really else.

SPEAKER_00 12:06

Time to load and unload sometimes, but yeah, it's typically fuel, wear and tear in the vehicle, and just the difficulty in driving, depending on figure, yeah.

SPEAKER_01 12:13

Figure more more weight, you're gonna pay more. Less weight, you might be able to pay less, but not guaranteed.

SPEAKER_00 12:19

So, and you know it's funny, like I've definitely never driven, obviously, CDL, but I remember even when I was like early 20s with like a pickup truck, and my dad had a stick shift. When we would get firewood, right, and you'd fill the whole thing up, like it was very different to drive. And that is nowhere even close to the difference between a CDL and like a half-ton pickup truck. But dude, when you fill that thing up, like shifting gears and the braking is very, very different, right?

SPEAKER_01 12:48

You ever drive a pickup truck like hauling a boat or anything like that? Yeah, another good example.

SPEAKER_00 12:53

Very, very different.

Practical Driving And Load Examples

SPEAKER_01 12:54

Uh yeah, it's it's a it's a but it's a good analogy. Like if you're just driving your car down the road versus like driving an empty, I did this like a month ago, driving my truck empty and then having a trailer with um even with a UTV, like I have a Polaris Ranger, like the trailer and the Polaris Ranger on there, like just a few thousand pounds extra being towed versus just the truck by itself. Um, and the way that like they're connected, right? When you break and everything, and when you start driving, and it's got to like you know, it tightens up and it is very, very different. Um, but then I've hauled like a boat before, like a full-size boat, and like this is on an old truck um years ago with a my old ram with a hemi in it, like it could haul it, but man, like you it that was like dog. I think my miles per gallon there was probably under 10 miles per gallon.

SPEAKER_00 13:47

So uh even my even like and like I have a new SUV that is like has significantly more horsepower than anything I drove 20 years ago. Dude, when I go and buy like polar water for my house, like the big five-gallon jugs, and fill up my trunk, like I can tell in the two or three miles I drive from Home Depot, just like stopping and starting at red lights, I'm like, wow, like that is significant, right? And it's like you think when you're talking like 10,000 pounds and 5,000 pounds, like, yeah, just because you don't see it doesn't mean it is not more difficult and very different to drive and very different on the vehicle wear and tear.

SPEAKER_01 14:19

Yeah. So keep that in mind next time you're um arguing with a driver. Well, even like if you're driving down the road and you get to red light and then it turns green, and the truck in front of you, the tractor trailer, takes a long time to get going, that's why. So like they literally have to go through all those gears with all that weight on there, and it takes a while.

Aligning Pay With Shipper Terms

SPEAKER_00 14:39

So well, and I think uh one tie back into the question before this is like how and what you want to do to pay. Like when you've got shippers that absolutely are trying to max every truck they load and they pay by weight, you want to also pay the carrier by weight in the same way. If you're dealing with a fuel surcharge from your customer, you kind of want to include it if you got a dedicated carrier. You want to do your best to whatever is coming in, do it the same way of what you're paying out. Because like onions are another great example of like if you're getting paid per hundred weight and you negotiate a flat weight, flat rate with a carrier and you tell them, oh, it's 42,000 pounds, and the shipper's like all the way. Yeah, I put another 2,000 pounds in there, all of a sudden driver's yelling at you and the customer's yelling at you. And like you just missed that one small detail of like you tell the driver, like, hey, it's per hundred weight. They're probably gonna try to max you out. Are you okay with that? I will pay you all the way to the max weight. Driver sometimes, like, well, hey, I only want to take 43.5. I know I can get 44 or 44.5, but like I don't want that. Then, like, these are those things that like you can get ahead of and save yourself a lot of headaches just by being transparent instead of trying to get away with it and then dealing with the issues later.

Closing Thoughts And Signoff

SPEAKER_01 15:47

Absolutely. Well, good questions. Send them our way in the future. We'll continue to grab some good ones and answer them every week. Final thoughts, Ben.

SPEAKER_00 15:55

Whether you believe you can or believe you can't, you're right. And until next time, go bills.