Capacity is Up, Along with Freight Volumes, Rates

News headlines insist that capacity is tight, while a look at industry data often shows there is plenty of capacity. Which is true? Both, actually.

According to DAT’s numbers, overall truckload capacity—as measured by the millions of truck posts on DAT load boards—is higher than it has been in the past two years. Tight capacity still exists; however, it’s not a national issue. It’s a regional and local issue where trucks are hard to find in certain markets at certain times of the year. Here’s what capacity is looking like this year compared to previous years, and how supply and demand conditions have affected rates.

Truckload capacity Q1 2013--Q1 2015

Truckload capacity, as measured by truck posts on DAT load boards, has increased in the past two years. Notice the capacity shortfall caused by the Polar Vortex in Q1 2014.

Q1 2015 looks like Q1 2013

At the end of Q1 2015, truckload capacity looked very similar to Q1 of 2013—and very different from the capacity crunch caused by the Polar Vortex of Q1 2014. The map below compares capacity in Q1 for the past three years. This Hot Market Map shows load-to-truck ratios for dry vans in 135 metro-area freight markets across the U.S. The darker the red, the more loads there are vs. the number of available trucks.

In Q1 2014, most of the map is dark red because of the Polar Vortex that paralyzed trucks and disrupted supply chains, which led to a lot of re-scheduling. One result was that a bigger share of the re-scheduled freight became “exception” freight, handled by 3PLs, who in turn, found carriers on the spot market.

The Polar Vortex of Q1 2014 (center map) disrupted supply chains and caused a spike in load-to-truck ratios across the country. Q1 of 2015 (right) looks more like Q1 of 2013 (left).

On a national level, the patterns of demand and capacity in Q1 of 2015 look more like 2013, but demand is stronger in the upper Midwest and the Northeast. There was some bad weather in those regions during the first quarter, but the effect was localized.

As we head into Q2, we expect seasonal freight to pick up and, although there is more capacity available, your ability to find a truck will depend on which lanes you need.

Rates follow demand

Now let’s look at how all these factors have affected rates (see graph below).

The first half of 2013 was typical, with the rates peaking in June. This was seasonal, so the spot market rate increase was not followed by a contract rate increase. But then, the spot market rate rose dramatically and atypically in 2014 from the end of January through March as the volume of freight increased and the perfect storm began.

Contract rates are important because they help frame your customers’ expectations. They know what they’re paying their contract carriers, and when you add your commission or fee to the spot market rate, it’s going to be higher. At some point, they could push back—unless they understand what the going market rate is for available trucks on a given lane.

By January 2015, spot rates drifted down again, but contract rates were still trending up, which may reflect shippers’ willingness to pay a premium to guarantee capacity. These trends support other analysts’ predictions that contract rates are likely to rise in 2015. Spot market rates already headed back up in March, and will likely continue to trend up in Q2, following the typical seasonal pattern.

Capacity is local, directional and seasonal

While national averages are interesting and provide broad indicators, capacity is very much a matter of time and place.

Let’s take, for example, the #1 highest volume van lane in 2014, Dallas to Houston.

Freight rates - Dallas to Houston, Houston to Dallas

From Dallas to Houston, the ratio of outbound to inbound loads is greater than 2-to-1. So even though the Houston to Dallas direction is also a high-volume lane—#6 nationwide—it is predominantly a backhaul.

In 2014, more than twice as many van loads moved from Dallas to Houston than in the opposite direction. Over the past year, the Dallas to Houston rate averaged between $2.20 and $2.65 per mile (not including fuel), but going the other way, the Houston-to-Dallas rate peaked in July at $1.90/mile.

Rates from Dallas to Houston are well above average for two reasons: It’s a relatively short haul, only 241 miles. Your carrier might be able to do the whole roundtrip in a single day, if your customer can load and unload fast. The second reason is about capacity. It doesn’t just have a location and a season, it has a direction, too. There are plenty of trucks in Dallas, but they are all heading in different directions. That creates an imbalance. It’s not a problem to find a truck in Houston because they want to re-position to Dallas, where they can make more money. (For more information on the Dallas market, see our blog post.)

Keep your carriers happy

These insights can lead to new opportunities to keep your carriers happy. For example, you can offer to load your best carrier in both directions, with the rate based on the roundtrip average. Or, you can line up two regular hauls, create a relay, or design a triangular route—and you put yourself in a position to give both the shipper and the carrier this added value.

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