How to Predict Truckload Rate Changes, Using the Load-to-Truck Ratio

Looking back at one of my blog posts from last year, I came across some analyses that apply surprisingly well to today's spot freight market. The blog post described different ways to use load board metrics to help understand and predict rate trends.

The statistics are not new, but the framework remains solid. It's easier than ever to implement these techniques now because DAT has made so many improvements to the tools in DAT Load Boards and DAT RateView.

Here is the blog post:

It's normal to have regional variations in freight trends -- but this year there are a lot of transitions in play, so you may find yourself wondering how your lanes can change overnight. One market is suddenly deader than a doornail, while some formerly quiet backwaters are seeing a burst of activity.

In the past year, the US economy has been shifting from a mostly import-based growth model with heavy freight at the ports, to a resurgence in manufacturing and energy. Industrial production is expanding, and the shale oil and natural gas industries are taking off. In recent months, housing and construction have revived.

Even at the ports, there have been shifts from heavy reliance on the West Coast, chiefly California, to a broader mix of venues. New highways in Mexico have effectively created a "land bridge" from the Pacific to the Gulf or directly to the Southwest and South Central U.S., bypassing California entirely.

The end result is change in freight patterns and cargo types.

LOAD-TO-TRUCK RATIOS ARE A DEMAND INDICATOR

I've been looking at load-to-truck ratios on the DAT Load Boards as a sort of barometer for freight availability on the spot market. The load-to-truck ratio tells us how many loads are posted compared to the number of trucks. Load providers post loads as a way of advertising, but trucking companies typically prefer to search for loads without posting trucks, so they can choose which loads they want to pursue. Think of truckers as the pretty girls at a singles bar. They're waiting to see which loads look good before they make a decision.(Okay, maybe that's a bad analogy.)

RATIO HELPS YOU PREDICT RATE CHANGES

The load-to-truck ratio may not seem like a big deal, but it turns out to be a reliable indicator of demand and capacity, and it's a great forecasting tool for changing freight rates. There are other influences, including fuel prices, consumer confidence, regulatory changes and the weather, but the load-to-truck ratio is a sensitive gauge in its own way.

Statistically speaking, if the load-to-truck ratio increases significantly in a particular market or lane, there is a high likelihood that the spot market rate will rise immediately in that location. If the changes are sustained for about 3 months, and it's not just a seasonal bump, shippers will likely raise the contract rates in that market.

Back to the load-to-truck ratio. Here is my scale for van freight:

If the load-to-truck ratio for vans is freight availability isExample (Jan. 31, 2013)Ratio
below 0.5practically nilChicago, IL 0.4
between 0.6 and 1.5very limitedDallas, TX 0.9
between 1.6 and 2.5moderate, but rates may be lowElizabeth, NJ 2.5
above 2.5robust, and rates are pretty goodMemphis, TN 3.7
more than double the national average terrific, brokers will pay top dollar Cape Girardeau, MO 7.1

Here is the map view:

This Hot Market Map for January 31 shows load-to-truck ratios are low (light orange) for vans on most of the West Coast, with pockets of high demand (brown) scattered through the inland areas and river ports noted in the regional analysis below. Hot Market Maps are a feature of DAT Power Load Boards and DAT RateView (formerly Truckload Rate Index.)

DOWN BY THE RIVER, FREIGHT IS TRENDING UP: As of January 31st, the hot spots are river ports that are also sourcing points for the industrial freight that is needed to increase manufacturing and oil production: Rock Island – 7.2, Quincy – 7.9, Cape Girardeau – 7.1, Memphis – 3.7, and Decatur, AL – 10.0. Because they are river ports, the low water levels, post-drought, may have an impact due to a shift in tonnage from barges to trucks. Freight is also doing fairly well at East Coast sea ports in Virginia, as both Richmond and Norfolk show a load-to-truck ratio of 3.5 and northern NJ is at 2.5.

SLOW IN THE GULF:The southern region is mixed. Along the Gulf of Mexico, things are looking pretty soft: Houston has 1.7 loads available per truck, New Orleans – 0.8, Mobile – 1.4, and along the Atlantic, Miami – 0.5, Jacksonville – 1.3.

AVOID MAJOR METROS AND WEST COAST: Major cities are also a bit slow: Atlanta – 1.5, Chicago - 0.4 (as cold as its weather), and Dallas – 0.9. Nationwide, van rates are low because these high-volume markets are pulling the averages down. Finally, there is the West Coast. Things look very slow there right now: Los Angeles – 0.4, Fresno – 0.3, Seattle – 0.6, and Stockton – 0.1. Ouch.

IF YOU MUST GO WEST, CONSIDER TUCSON: The interior, inland states look the strongest right now. Many of these same "cold spots" are likely to persist through the month of February but you should start seeing the major cities coming back in March. California will need produce to start flowing before rates pick up for vans and reefers,, but if you need to head West, keep Tucson in mind. Increasing amounts of fruits and vegetables are flowing in from Mexico to Arizona. These go into warehouses for inspection and then are trans-shipped across the U.S. Also, The Rio Grande valley in South Texas has been robust and has been a good source of long-haul freight.





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