3 Aug 14

We spend a lot of time at DAT Solutions trying to understand truckload rate trends and how they relate to load board behavior. In that regard, 2014 has been an amazing year with available loads and truckload pricing at record highs. It’s my job to try and make sense of it all.

One of the keys to understanding truckload spot market pricing, which has been running 9-12% higher in 2014 for van freight, lies in looking at its composition. Traditionally, load board freight has been associated with so called "backhaul" freight. This simply isn’t true any longer.

As brokerages evolve into full service 3PL companies, capable of managing a client’s supply chain, they are increasingly covering the front end or headhaul freight. This makes a lot of sense as capacity is as tight as it’s been since well before the Great Recession. The larger motor carriers are reluctant to add capacity because productivity took a hit with last year’s implementation of revised HOS rules.

While 2014 contract rate increases are running in the 4-6% range as reported by numerous sources, this simply isn’t enough to generate much additional capacity. Shippers have turned to rail intermodal in some cases, only to see rail transit times deteriorate as grain trains and oil trains compete for track and terminal capacity. A study of AAR data shows those trains are enjoying boom times.

Truckers have been hit with higher costs for everything from tires and equipment, to healthcare premiums. Thankfully, fuel although high, has been stable and below the $4.00/gallon threshold. The next hurdle will be how to actually increase the driver supply. While I have heard that higher wages are not the answer, more companies are deciding to do just that.

Meanwhile, DAT Load Boards are overflowing with both headhaul and return freight. Our RateView™ product has logic which suggests triangular routes to carriers in order to keep away from those imbalanced, nasty backhaul lanes. Generally, two shorter trips back-to-back pay much better than a long-haul move from places like New Jersey, Miami, Denver, or Seattle. This is because regional supply chains emphasize trips under 500 miles. Until U.S. manufacturing comes back, if ever, longer haul traffic is increasingly rare.

As for rates, check out these current national averages:

  • Van at $2.00/mile and likely to go higher as we move into retail season
  • Flatbed at $2.45/mile staying rock solid since June
  • Reefer at $2.26/mile despite the California drought and with ample freight from other origins and regions

 
You can find more examples in our weekly Trendlines update.

If you have been chasing contract freight for your core business needs, consider strategically entering some spot market lanes, as a preferred partner with a brokerage/3PL that enjoys a strong reputation.

In June, I completed a study that shows 45% of U.S. lane pairs actually pay more to the truck for spot market freight than long-term contract rates. This capacity situation isn’t going away and a mix of contract and spot freight can be shown to provide the optimal operating mix, because spot freight doesn’t require the same rigid conditions as a contract customer. I sometimes found this to be true years ago, when I was with a small carrier. It’s even more true today.

Comments (3) -

Chad Boblett
Chad Boblett

I am a huge fan of Mark Montague. I read everything he writes about. Mark Montague's work and knowledge in rates has got to make him they most informed person I know when it comes to rates. This is a study that Mark completed in June that shows 45% of U.S. lane pairs actually pay more to the truck for spot market freight than long-term contract rates. I get asked all the time about why I don't talk about and work more directly with shippers. Here is your answer, The %45 that Mark is talking about that pays more then the contract rate in most cases comes from the brokers. Now if you take advantage of running the lanes that are %45 higher then you can beat the contract rates everyday. This is why I stress to others in building relationships with brokers. They can and will pay you more if you know where the demand is for your operation.

Reply

There are a few key items that carriers should take note of before putting all of their stake in this article. First, it references a study on rates from information compiled in June. We all know how much better the spot market was in June as opposed to just one month later. Additionally, everyone must first understand that every load is under a contract rate, either the contract is through a broker or directly with the shipper. Brokers rarely lose money on a load, which means their contract rate is higher than the spot market rate that they pay out. Also, if 45% of the spot market rate pays better, that means 55% of the contract rates are still more profitable.

The problem with brokers inching their way into the "headhaul" market is it may well drive down rates in the long term. Many carriers are currently bidding lanes with a "deadhead" rate negotiated into the total. That leaves open an excellent opportunity for the brokers to slash the rates and offer one-way lanes to their book of approved carriers. The market is shifting the profits away from the carriers and into the brokers pockets. Now is the time to strike and make moves toward direct customers. Building those relationships now could be the difference between success and failure down the road. Once the brokers have all of the contracts locked in it will be much more difficult to make the connections. It's also an excellent time to become a broker!

Reply

I disagree with some of these points.  In regards to contracted rates, brokers do have rates at times with the customer. There are also many customers in which you work on a transactional basis, in which you will be subject to quoting off spot market rates.

I disagree with the comment that brokers rarely lose money on a load.  With the lack of capacity in the market carriers know that their trucks are needed, so they can pretty much charge what they want. If a carrier asks for $4 a mile, you then as a broker have to assess if it is worth the cost-do I ask the customer for more money because this load really needs to move, do I eat the loss, should I work with another carrier etc.  

Hopefully this $4 mile option only comes up after you have assessed all of the carriers that you work with on a consistent basis-the carriers that you have built a relationship with and who are dedicated on particular lanes with you.  

At the end of the day it is a balance between keeping both the customer and the carrier happy.

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