Truckload Capacity: Tipping the Balance in Your Favor

By Mark Montague

If there’s one takeaway from this eventful winter, it’s that truckload capacity is at a tipping point.

Weather-related delays and low inventories, combined with an improving economy, have increased the demand for available trucks. At the same time, the growing driver shortage and decreased productivity due to new HOS rules and other factors are reducing supply.

With more predictable weather on the way (I hope), we’re already seeing strong demand for truckload capacity across all equipment types.

In March, the DAT North American Freight Index, a measure of demand and capacity on the spot market in the United States and Canada, was up 56% compared to the same month in 2013. In the U.S, van freight was up 63%, flatbeds up 58%, and refrigerated freight up 70% year-over-year in March.

Compared to February, freight volume increased 17% in March. Much of that was in the flatbed segment, where load availability jumped 38% compared to February. Van freight rose 10% while reefer loads increased 7%.

Increased Spot Rates

While spot-market rates are expected to increase at this time of year—for reefers, of course, but also for vans and flatbeds—the capacity squeeze sent rates higher sooner than usual.

In March, the national average per-mile rate was up 25% for vans, 13% for flatbeds, and 20% for reefers year-over-year. Compared to February, the national average spot rate increased 6.7% for vans, 4.8% for flatbeds, and 3.6% for reefers.

By April 16, with available capacity improving, the national average rate settled in at $2.06 per mile for vans, including fuel, and $2.26 per mile for reefers—very close to the March average in those segments. Meanwhile, the average flatbed rate was $2.35 per mile, 5 cents above the March average.

Advice for Shippers

With tight capacity also comes opportunity. My advice for shippers: make your freight as attractive as possible. Manage your loading times—sometimes an extra 30 minutes can enable a carrier to complete a run or avoid a costly delay. Unitize freight as much as possible, meaning avoid loose cartons or anything that creates unloading delays, like shifted pallets. Resolve to pay your carriers within 30 days and, if possible, offer faster pay terms.

Also, put data to work. Tighter capacity may cause rates to rise, but you need to know what rates are doing today in order to negotiate with confidence. If you use load boards to find capacity on the spot market, take a hard look at the analytics tools available, including ones that let you access real-time spot market rates and current contract rates.

Advice for Carriers

Reserve capacity for the spot market. Load volume and rates typically hit a peak in June and, in some lanes, spot market rates even exceed contract rates. If you are able to free up capacity in your fleet that you can dedicate to the spot market, you can take advantage of a market that will likely be strapped for trucks. Depending on the lane, you may want to reserve capacity for the spot market even before the June peak.

Avoid intermodal competitive lanes. As capacity tightens, more and more freight is moving to rail-intermodal for long-distance transportation. The weather this winter only accelerated shippers’ demand for rail intermodal services. In intermodal-competitive lanes with commoditized cargo, all-truckload fleets will need to cut costs to the bone in order to remain profitable.

Small, over-the-road fleets can be successful if they are able to handle longer-distance drayage operations, or if they focus strategically on lanes and cargo types that don't lend themselves readily to intermodal. There are plenty of ways to get from Los Angeles to Chicago without going head-head with intermodal service. For example, haul a load from Los Angeles to Fayetteville, Ark. (or anywhere within 150 miles of Fayetteville), and then enjoy a quick reload to Chicago as Fayetteville has a surplus of loads. For an extra 200 miles, you can earn about $1,100 more than trying to move freight where shippers have a strong intermodal alternative.

Whether you’re a shipper or a trucker, make sure you’re poised to take advantage of a busy second quarter. If capacity is indeed at a tipping point, tip it in your favor.

Mark Montague is the industry freight analyst for DAT Solutions, which operates the DAT® Network of load boards. He has more than 30 years of experience analyzing rates and routing in the commercial transportation industry. He is based in Portland, Ore. For information, visit www.dat.com.