Supply and Demand. If you have ever taken an economics class, then you are more than aware of the significance of that phrase. The economic phenomena dictate the value at which goods are marketed sold and purchased based on that goods availability and the consumer demand for it.
Supply and demand manifests itself in every economy, and in every industry, and the freight shipping industry is no exception. In fact, one of the critical components of the freight shipping industry, the freight market, operates solely on the principle of supply and demand.
The freight markets differ across the country and are driven by the various seasonal influxes that effect, not only the availability of trucks in a given market but also the rates at which that capacity is secured.
As a shipper, it is critical to understand there are not enough trucks on the road to service all the freight available in any given market. In North America there are only so many trucks, trailers and containers to service the vast amount of freight available at any one time. Exacerbating that issue is the fact that the trucking industry is currently experiencing the worst driver shortage in the industries history. According to the American Truckers Association,
“Since 2005, the freight driver shortage has grown from 20,000 unfilled positions to 70,000, and some reports suggest the shortage may worsen to more than 170,000 vacancies by 2025.”
Though this fact has a tremendous effect on the industry, it is the seasonal freight markets that dictate truck availability and cost. Freight is considered seasonal when the demand for, or the supply of, the freight surges in a specific market area of North America at a specific time of year.
This disparity between the sheer amount of available freight in North America compared to the overwhelming lack of driver capacity at particular times of the year is what is generally referred to as the load to truck ratio.
The amount of freight available at any one time compared to the number of trucks to carry that freight in a given market area is what is referred to as the load to truck ratio. Seen in the above heat map provided by the DAT.
Produce Season (April – July)
The produce season is characterized by the vast amounts of produce that become available to ship during the brief spring period. Carriers begin chasing down high paying produce freight while refrigerated capacity is quickly eaten up by high volume shippers who have the capital to secure refrigerated carriers at an increased rate, or who have secured year-long capacity through contracting carriers. Produce season can be felt across the country but hits the Southeast and California markets the hardest.
Peak Season (August – October)
Produce season wanes and the peak season begins as customer sales increase and schools are back in session. Consumers flock to the cash register, and the freight industry responds as dry freight volumes increase and refrigerated capacity begins to tighten up again as shippers prepare for the coming holiday season.
Holiday Season (November – December)
The holiday season is a shipper’s last chance to get their freight on the shelves for the holidays. Whether it be toys or turkeys supply runs low as demand increases and the same is true for the number of trucks available to ship it all.
Punctuating the various freight seasons are a number of smaller freight surges that drive down capacity and increase shipping costs in specific freight markets. For example, during the holiday season, when capacity is already strained, capacity drops to almost nil in the Pacific Northwest as that region is the primary source of Christmas trees for the majority of the country.
Hurricane season is another barely predictable variable that can have devastating effects on truck capacity in the South East, Gulf, and Atlantic markets. As was the case in Louisiana during the 2016 Hurricane season, where the DAT reported that flooding in affected areas hiked van rates a shocking 32% in just seven days. Winter can also play a role as heavy snow can close passes through the Rocky Mountains and winter storms can bring the Northeast at Midwest markets to a standstill.
If you’re looking for proof of the devastating power of winter on a freight market I challenge the reader to inquire from any shipper in the Northeast or Midwest markets about the “Polar Vortex” of 2014 which brought two entire regions of the country to a logistical stand still and drove carrier capacity into a record-breaking low.
Securing Your Capacity
A shipper faced with the inevitable capacity crunch has a number of options available to them to secure the much-needed capacity or at the very least secure it at an increased rate.
The best asset a shipper can utilize during a capacity crunch is flexibility. There is a lot more freight than there are trucks which gives the carriers the upper hand when negotiating ship date and rate. Carriers may not have a truck in the area to pick up a load today, but that doesn’t mean they won’t have one tomorrow. Shippers who work with the carrier in this regard will find that their tenders are accepted more frequently and at a more competitive rate.
Furthermore, during a capacity crunch, many shippers are willing to offer carriers vastly increased rates to service loads they typically run at a lower cost simply because the freight will spoil or won’t make it onto the shelf in time. Shippers who can offer their carriers a little more incentive than they typically pay to service their load will cover their freight quicker with more respectable carriers.
Preferably secured prior to an anticipated capacity crunch, spot capacity can be purchased from carriers at an agreed upon rate for a designated period or a specific number of loads. For example, a shipper with a volume of one hundred loads per week on a given lane would reach out to a carrier and purchase their capacity at an increased rate from August to October or until the anticipated capacity crunch has passed, therefore securing that capacity that would have otherwise been working against them.
Freight Brokers can be a powerful asset to any shipper during a capacity crunch. A freight broker works with a large number of carriers and typically have a carrier network far higher than anyone shipper has on their routing guide. Freight Brokers generally play the spot market matching loads that have been posted to load boards by shippers to carriers who have published capacity in a given freight market. Shippers who utilize a freight broker should be advised that the rate provided typically includes added incentive, as that is the primary method in which freight brokers bring in capital.
Savier shippers may wish to avoid brokerage by posting their available loads themselves on a load board. From there, shippers can post their available freight for carriers to “reverse bid” on and then pick from the carriers who have made an offer. Shippers who utilize this tactic should also understand the mechanics of a backhaul, as carriers will typically bid more aggressively on freight that gets them back to their preferred freight market.
Surviving a capacity crunch is a daunting task for any shipper, but those who understand the freight markets and the mechanics of carrier capacity will have a step up on the competition and a truck in their dock door when everyone else is left in the cold.