UTS Blog

The Downside to Guaranteed Rates

Dec, 13 2019
Guaranteed Rate Graphic

Shippers sometimes ask for guaranteed rates when evaluating transportation management partners or conducting an RFP. For a good reason: Guaranteed rates remove uncertainties from the budgeting process. But they also come with unintended consequences.

Rate guarantees usually force the provider to place your shipments with economy carriers. This is the only way to earn a margin on the business. (See the chart above.) Guaranteed rates ensure that your freight will be moved primarily by carriers with the longest transit times and lowest reliability scores.

If cost is your top priority, this trade-off may be acceptable. But if factors such as transit speed and reliability are also important, guaranteed rates will lead to delivery issues. You’d be better off with a program that gives you the flexibility to select different types of carriers. Economy carriers can still be used when service is less important, while other types of carriers can be used as service becomes more important.