Headhaul Freight Lifts Spot Market Rates

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.