Understanding Trucking Rates in US Market
The constant ups and downs of the transportation market can be a source of frustration for many people involved in the industry. Understanding the general trends that affect the US trucking freight rates will allow you to make better decisions that will benefit you in the long run. Below are some factors that influence US trucking rates in the spot market and in the contract market and how they are related.
Truckload Spot Rates - What is it?
A truckload spot rate is the rate that tells you the price right now to put your shipment on a specific type of trailer, for example: a dry van, reefer, or flatbed. Normally, this is expressed as cost per mile, but can also include other accessorials or services like drop trailer, layover, and detention. The spot rate for a specific vehicle/trailer can range throughout the year, ranging higher in a tighter market where the capacity to find a transport vehicle meeting your needs is more scarce to find and ranging on the lower end during the months where shippers are shipping less freight.
It has been shown to be a good business practice to secure a contracted rate with a carrier that you have had success with or enjoy working with. This allows shippers to disregard the times of uncertainty during hot markets and to exclude themselves from the group of competitors frantically searching for assets to secure their shipments to move.
Influences Affecting Rates
Many factors influence today’s rates and trends, with some being able to be predicted, and others not as much. Seasonality, mileage, and location will be the easiest predictors. On the other hand, the current transportation market’s capacity, change in fuel prices, and the attractiveness of a specific load or lane type will create tougher conditions to predict for. Below are a few things to know and understand when looking for the best quote for all of your shipments:
Are you moving a full load or LTL?
Full truckloads and LTL (less than truckload) are priced differently because requiring exclusive use of a carrier’s equipment will prevent them from consolidating other freight in order to increase their profit margin and maximize trip efficiency.
The weight of your shipment will affect cost depending on the carrier and the route. Fuel is burned at a faster rate when climbing the mountains of the US with 45,000 lbs of freight vs. moving a shipment that weighs 5,000 lbs. With a full load on the trailer, the truck accelerates slower creating a longer transit time as well.
In most cases, the cost of shipping will be higher the longer the distance for transit is needed. But not in all cases, because a shorter trip, let’s say less than 200 miles, might not be lucrative to owner operators that are searching for loads around 500 to 600 miles to maximize their day’s productivity and profit. A 500 to 600 mile run could come out at $2-3 per mile earning the driver a gross of $1,000 to $1,800; while a shorter run at 200 miles might come out to $4 to $5 per mile in order to generate attention from drivers that do not mind taking a shorter run for the day while making $800 to $1,000 instead of a higher gross revenue.
Do you need to use the carrier’s trailer for a longer duration than just the trip to get from the shipper to the consignee? Dropping a trailer or needing to keep trailers in rotation for your company to be able to store the product until it is ready to hit your dock will definitely increase your shipping costs.
Accessorials and Surcharges
Another factor that plays a large role in calculating US trucking rates are accessorials and surcharges, with surcharges primarily being a fuel surcharge. Accessorial charges usually include if a driver is needed to tailgate a shipment to the back of the trailer in order for the receiver to accept the shipment because their insurance policy might not cover accidents that happen to their employees on the property of the carrier, being the trailer in this instance. Another accessorial charge can come in the form of needing a shipment to be delivered to a restricted or difficult to reach area, like schools, prisons, and churches. Prisons, mints, and other government facilities require drivers to have a clean background check to enter the site and do not allow the driver to bring any firearms onto the property.
The Biggest Factor
The main factor that brings the most consistency when predicting rates and trends is a high or low load-to-truck ratio. The load-to-truck ratio is determined by dividing the number of loads to be shipped in your area by the amount of trucks nearby that meet your requirements needed to ship your freight. In times when there is an increase in shipments and the amount of available assets isn’t able to accommodate everything that needs to be moved, there is a high load-to-truck ratio, or an increase in supply of shipments and a demand for vehicles. This is the reason that we see an increase in shipping costs. Take for example: a seasonal hurricane has just landed in the US and the government is looking for carriers to hire to bring food, medicine, and shelter to the states affected. These trucks that were moving a shipper’s freight before the hurricane occurred are now hauling for the government and creating a lack of trucks available, which increases demand.
Significant Contribution to Lower Supply of Trucks
One of the most contributing reasons which creates a shortage of trucks ready to haul shipments is the lack of qualified drivers operating those trucks. With our technology-focused culture, the transportation industry is doing its best effort to encourage young drivers to become a part of a necessary industry at the same or equal rate that the industry’s veterans are retiring. The industry has also been keeping up with all of the technological advancements of the century from GPS tracking to electronic logging devices and this requires drivers to be able to have knowledge of this technology and to be able to utilize it seamlessly.
What You Can Do About It
Understanding and staying up to date on everything that affects the intricacies of the freight shipping market can seem complex and like a full-time job. For this reason, many companies prefer to work side-by-side with a logistics partner they trust to help them make the best decisions at any time of the year including the highs and lows of any market. At Migway, we have helped our customers find solutions that work for their budgets and timelines - even in a competitive marketplace. If you want to start a conversation about how we can help solve some of your most pressing transportation issues, we would love to talk.