As a freight shipper, you’re always running into transportation-industry-specific terms, jargon, and abbreviations. Even if you’ve been in the industry for decades, the constant barrage of lingo can be confusing at best — and downright frustrating at worst.
One term you might encounter in this business is the "right of first refusal." If you're unsure what it means (or why it should interest you), you're in the right place!
In the transportation industry, the right of first refusal is a contractual agreement between companies that guarantees the holder the right to accept or decline (refuse) a shipment before any other entity is given the opportunity to bid.
At Anderson Trucking Service, Inc. (ATS), our brokerage subsidiary has right of first refusal agreements with its asset-based sister companies built right into its process. By sharing our firsthand knowledge of this industry nuance with you, we aim to help you more fully understand the inner workings of the freight business and empower you to make the best, most informed decisions for your company.
In this article, we'll demystify the right of first refusal, explaining what it means and how it can benefit shippers, carriers, and brokerages alike.
By the end of this quick read, you’ll have gained valuable insights that will help you make more informed decisions about your transportation partners and optimize your shipping strategy.
What Does “Right of First Refusal” Mean?
As we explained above, holding the right of first refusal means a preferred carrier is allowed to review and potentially cover freight loads before these opportunities are offered to others. But how does the right of first refusal work in practice?
Let’s use ATS, Inc. (ATS Vans) as an example. As an assets-based company, ATS Vans has the right of first refusal over shipments arranged by its sibling brokerage company, ATS Logistics Services, Inc. (ATSL).
So, what does that look like? Imagine that ATSL, a freight brokerage in the ATS family of companies, has a customer that needs coverage on a load.
When that load enters its internal systems, ATS Vans has the right to be the first to review it and determine whether it can cover that load with its available assets.
If ATS Vans has the capacity to accept the load, it will do so. Whatever it does not have capacity to cover, it will refuse, freeing up that freight to be covered by ATSL’s trusted carrier network or via ATS FreightMatch, its load board app.
And voilà — the load is covered, trucks are moving, and everyone goes home happy. That’s the right of first refusal in action!
Of course, not every right of first refusal agreement is between sister companies.
Many right of first refusal agreements are between companies that are not owned by any of the same entities, but that have a vested interest in maintaining their mutually beneficial working relationship. Some examples of this include:
- Third-party logistics providers (3PLs), which handle logistics and supply chain management for other companies, may enter a right of first refusal agreement with preferred carriers to ensure a steady flow of business for both.
- Shippers may enter right of first refusal agreements with dedicated carriers to guarantee capacity for their freight during peak times or high-demand periods.
- Freight brokers might opt for a right of first refusal agreement with their network of independent carriers, giving those first-choice carriers the chance to accept loads before offering them to others in their brokerage network.
- E-commerce platforms with high shipping volumes might have right of first refusal agreements with specific delivery partners (both last-mile and long-haul) to maintain service levels and manage delivery times.
In all these cases and many others, the right of first refusal agreements at play facilitate more efficient, profitable operations for both participants.
How Does the Right of First Refusal Benefit Shippers?
In an industry characterized by tight schedules, changing variables, and fluctuating supply and demand patterns, the strategic alignment offered by a right of first refusal agreement can be particularly beneficial to shippers, carriers, and brokers alike.
How? It all comes down to resources.
Let’s look at our example again. Thanks to the right of first refusal, ATSL and ATS Vans can work together to meet their customers’ needs more quickly and reliably.
ATS Vans owns assets that it wants to keep loaded as much as possible. ATSL does not own assets — but it does have customers eager to find coverage for their freight.
By building the right of first refusal into the operational processes, we’ve optimized the value of the affiliate relationship between these two companies to the mutual benefit of both businesses and our customers.
From a business standpoint, the right of first refusal allows us to keep ATS Vans assets full and moving and ensure that ATSL loads are covered promptly.
Meanwhile, our customers can enjoy the peace of mind of having assets on hand and the flexibility of a brokerage when additional coverage is necessary.
Shippers enjoy the operational advantage of having their loads covered by the most reliable, trustworthy carriers in their broker’s network, ensuring that all parties have a vested interest in the success of each shipment.
They also assume much less risk than they would working directly with an assets-only provider that does not have a similar relationship with a brokerage.
Ultimately, a right of first refusal agreement supports a reliable supply of transportation resources even when the market ebbs and flows, allowing shippers to maintain smooth operations, find capacity quickly and easily, and respond swiftly to changes in demand.
Find New Supply Chain Efficiencies
As a contractual agreement between business entities, the right of first refusal represents a mutual investment in both parties’ success.
When used strategically, a right of first refusal agreement can support both companies as they strive to optimize their operations and provide prompt, reliable service to their customers.
This arrangement not only enhances operational efficiency but also offers strategic advantages for the participants’ customers, such as reduced risk and increased flexibility.
But the real winner in this agreement are the shippers, who benefit from the right of first refusal’s facilitation of a seamless and efficient process that keeps trucks moving and freight delivered on time.
Now that you have a better understanding of how a right of first refusal agreement allows asset-based carriers and brokerages to work together harmoniously, you’re ready to consider other innovative ways to find a truck fast each and every time you have a shipment.
Check out our Find A Truck Faster Guide, a free downloadable resource that provides 12 easy-to-implement tips for making your freight as appealing to carriers as possible.
You’ll walk away feeling empowered to put your shipments in a position to succeed, get the most out of your transportation budget, and foster carrier relationships that flourish.
