Buying goods at an online auction nowadays is very convenient, exciting, and secure. Whether we talk about machinery auctions, truck auctions, or antique options, we refer to a vastly growing business that tens of thousands of people around the globe make a full-time living on. Unfortunately, competition is becoming a battle field which scam artists benefit from. For the purpose of this article, we will be expanding on three major hidden costs of an online auction that very few people are aware of: seller verification, shilling, and shipping estimate.
Seller verification is not free
First of all, seller verification is what makes an online auction site reliable or not in the eyes of a prospective buyer. Without seller verification, you, a potential buyer, would be very reluctant registering for an account or providing personal information. Seller verification is usually done by third party research company that are, obviously, not working for free. Sellers, on the other hand, would not agree to a verification fee without having some kind of assurance that their merchandise will be sold at a reasonable price. As a result, at this early stage of an auction, the auction manager is faced with the obvious situation: pay the verification fee from its own pocket or just hide it and reveal it later to the buyer after the item was sold. Most auctions would just hide the fee and refer to it as a deposit fee; however, since competition among auctioneers is fierce, some have decided to further hide this cost by involving more third parties that are, again, not performing work for free.
Shilling services markup
Second, we will be discussing about how shilling came by and why we see it as a direct result of seller verification. Shilling is the art of artificially inflating the price of an item by use of fake bids from phony users IDs or accomplices. Since the auctioneer has most likely paid the verification process from its own pocket, it will now need to get that money back. The only way this can be accomplished is if the item sells at a price that now has to satisfy the seller, covers the seller verification fee, covers the auctioneer’s markup, and also covers the costs for either a human being actually making the fake bids or the automated software doing that. So, let’s take for example a forklift auction: the seller wants $2,000 for it, auctioneer pays $50 to get this seller verified (not the item), the auctioneer pays in a way or another for shilling services another $50, and has a markup of 10%, which is another $200. Bottom line is that buyer has to pay $2,300 for the item otherwise the sale will not happen. In an ideal world, if a seller wants $2,000 for an item and the buyer comes close, there is a very high probability that the forklift will sell at $1,800 – $1,900. So far, we are talking about some hidden fees, but they are not as dramatic as the last one to come.
Hidden costs in shipping
Lastly, after money exchanged some hands, item is sold, the real hidden cost kicks in: shipping of the item. Right after full payment, you would probably get a receipt which states that the item should be removed in a certain number of days otherwise storage fees kick in. Normally, items are to be removed within 5-10 business days and the storage fees are usually about $30-$50 / day after that period. Most likely, upon payment, you will receive an email from the auctioneer recommending you certain shipping services, shipping estimate, shipping quote, shipping rate, and the list can go on. At this moment, as a buyer, you would feel very pressured to remove the item as soon as possible in order to avoid the storage fees. If you have done your homework prior to bidding and you send in dry van trailer, a flatbed trailer or a step-deck trailer, the next day or the day after, you should be good and you will not be seen as prey; however, if you haven’t done some research regarding auction shipping prior to bidding, you will most likely pay twice as much. You will basically embark in a vicious circle and in the end you need to pay the whole bill to get out of it. The more people get involved, the larger the freight bill will be.
Online auctions can be very rewarding if enough research and caution is applied to the whole process. Our advice is not to take everything for granted. Every time you will see the word “free”, there is a very high chance that the cost of making a service free is hidden further down the road. Seller verification, shilling, and shipping wars are all made to distract you from reality and make you dive deep into your pocket. We recommend you to make a budget prior to buying something and respect it to a teeth. Please follow our future articles in order to get insights and developments into this growing industry which is online auctions.
Today, more and more companies are in a dilemma because they do not know what to choose between spot rates and contract rates. It seems to be a hard choice, but, in fact, it is not. You just have to take into consideration all the details of each one and to learn some secrets. We will discuss about these two types of rates and about the advantages and disadvantages that they bring to the table. We hope that you will have a better perspective of them at the end of this article and that it will be easier for you to make a decision.
First of all, the spot rate, or the “spot price”, is the immediate value settled for a given service. When we talk about shipping services, it is based on the value of that specific lane at the moment of the shipping quote. Spot rates are influenced by some specific factors which affect the entire process. Spot rates depend on how much shippers are willing to pay and how much transport carriers are willing to accept. Also, current and future market value has a huge impact on the result. It is very common to see rates go up and down depending on the supply and demand. Let’s take for example a retail chain that needs to haul 100 truckloads from San Jose, CA to Lexington, KY in one week. They come in and offer twice the market rate to carriers, just to have their merchandise hauled and have it in store as soon as possible. All of the sudden you have 100 less trucks in San Jose, but 100 more trucks in Lexington, KY. The supply of trucks in San Jose goes down, while the supply of trucks in Lexington, KY goes up. It is very obvious that the price in San Jose will go up and those trucks stuck in Lexington, KY would haul anything just to get out of there.
Secondly, the contract rate is a price reduction applied to customers. However, in terms of shipping, it means a smaller shipping rate offered by a transport carrier for a longer period of time, in exchange for certain commitment from the shipper. The contract rates are a little bit (or more) different and they can be seen as a strategy which is usually implemented when the competition is high and the companies must differentiate their freight services. Contracts usually bring sales personnel to the table with persuasive and closing skills. This kind of rates usually happen at a corporate level and, most of the time, whenever a salesperson is hand in hand with a corporate decision maker. In most cases elements like driver fatigue, driver shortage, stringent legislation, and maintenance fees are not taken into consideration. If we go more in depth and talk about flatbed trailer services, RGNs, step-decks, we can see that all the extra work that has to be done (tarping, chaining, strapping) cannot be quantified in a contract. Some loads are secured in as little as 10 minutes, other take more than four hours which affects driver fatigue and driving time.
At last, that we defined both terms, allow us to do a comparison. Although contract rates may seem very appealing for both shippers and carriers, spot rates will always take prevalence. It will always be someone to disrupt or disturb even the best written contract agreements. Whether we are talking about drivers going independent, salespersons switching companies for better payouts, or financial advisors throwing some revolutionary theories, everybody involved in the shipping business is there to make money out of it. In an ideal world, contract rates would make life easier for everyone involved in the industry, but we do live in a practical world which requires maybe more than ever a very sought skill: adaptability. Being able to adapt gives you an edge over your competitor whether you are behind the wheel or not. On the other hand, having locked in an agreement, gives you that peace of mind that all of us seek naturally. It is a lot more convenient to go about your day without thinking about the demand for transportation services, the availability of truckload capacity, or the seasonal variation.
To summarize, we think spot rates and contract rates are both beneficial and disruptive at the same time for the industry. If you are unsure, we can only throw in an advice: go with what suits you better at any given time. There are times when spot rates are a win-win situation for both shippers and carriers and there are times when everyone is happy at the end of the day after signing a contract, so try finding a balance. The major difference appears when you chose to go exclusively with one option. While dealing with spot rates exclusively is very stressful and nerve wrecking, basing your business on contract rates only is the “safest” road to bankruptcy.
Shipping is a common thing nowadays, but, even so, a lot of people are not accustomed with some of its most used terms. Do not worry, it is normal not to know everything and you are lucky to have us. We are here to help you with anything regarding the freight field and this article is going to make your life a little bit easier by explaining 15 of its most common terms.
1. ETA = Estimated Time of Arrival is the period of time in which a vehicle, a ship or a plane is expected to arrive at a specific place. It can be calculated by taking into account some aspects, like the speed of the transport means and the traffic intensity.
2. BOL = A Bill Of Lading is a document written by a transport carrier to a shipper in order to acknowledge the receipt of the goods. It specifies, also, the terms of the delivery. Bills of lading are crucial in the international business because they ensure that the shipper receives its payment and the receiver has the merchandise.
3. Carrier = A carrier is a person or a company that takes the responsibility to transport goods or people by air, sea or land, in its own vehicles or equipment. The same word can be used to name the vehicle which makes that transport.
4. Loading dock / ramps = A loading dock is a zone in which trucks and other vehicles are loaded and unloaded. We can find them especially on warehouses, but also on commercial and industrial buildings. Loading dock and ramps facilitate the access to some storage rooms or freight elevators.
5. Prepaid = This term means that the shipment was paid in advance or before the due date. We usually see it on bills of lading, because many manufacturers or shippers prefer to pay the costs of transport instead of letting that weight on the receiver shoulders.
6. Collect = Collect is another word used on the bills of lading and we can consider it the opposite of prepay. What does it mean? Well, someone has to pay for the delivery and, if the shipper does not want to pay, the receiver must do it.
7. Freight Class = In order to establish standardized freight prices and fair measures, the National Motor Freight Traffic Association (NMFTA) made a classification system based on four characteristics (density, stowability, handling and liability) for all the commodities. There are 18 freight classes, from Class 50 to Class 500. A higher class means a higher shipping rate.
8. Shipper = A shipper is the person who delivers a package. That person may be a manufacturer, a distributor, a reseller or a onetime seller. It does not really matter which his / her activity is, as long as he / she sends the merchandise through a carrier.
9. Receiver = A receiver is the party that completes a shipper and makes a shipment possible. If someone sends an item through a freight company, there must be at least one person who waits for the delivery. Other words that can be used for the receiver are buyer and consignee.
10. Deadhead = We use this term in trucking to describe the situation in which a truck driver is traveling with the trailer empty. Of course, during that period the vehicle does not bring any revenue to its owner.
11. Pallet = In general it is a framework made from wood on which goods are stacked. The design of the pallets facilitates their movement with the help of forklifts. Also, the term refers to a flat base for combining multiple items in order to make a unit load easier to handle, storage and transport.
12. Log Book = A log book is a record in which the drivers write the most significant events. It contains information such as the address of the carrier, the address of the dispatcher and breakdowns or accidents. These logs should be completed daily.
13. LTL = The the abbreviation of the Less Than Truckload and is considered to be the shipping for relatively small loads. It means that many people share the space of a truck because they have a small amount of merchandise that needs to be shipped and each of them pay the transport for its own volume of goods.
14. FTL = FTL stands for Full Truckload and means that a shipment needs the entire truck for itself. This type of shipping is mostly used when we talk about a large quantity of goods. However, there are other particular reasons for which FTL shipping is preferred, for example when the shipment is high risk.
15. Spot Rate = The spot rate, or the “spot price”, is the immediate value settled for an asset (commodity, security or currency). It is based on the value of that specific asset at the moment of the shipping quote. It mostly depends on how much shippers are willing to pay and how much transport carriers are willing to accept.
Now that you know more things about freight, it will be easier for you to make a shipment. We are at your disposal for any need you may have and we would be more than happy to work for you. Please do not hesitate to ask us any question, because only together we can improve ourselves.