Monday, April 4, 2011

Truckload Freight Rates


Truckload freight rates have been going up - quickly. Since transportation costs are a large portion of expenses for most manufacturers, many shippers are wondering if rates will continue to increase or will it level off?


According to Mark Montague, a pricing analyst for TransCore, "While the spot market reacts more severely, the contract market has a lot of room for recovery of rates."


He mentioned that spot market rates have increased 8.9 percent year over year in January. Contract rates were up 3.4%


David Schrader, senior vice president at TransCore Freight Solutions stated "We've seen a material increase in the load-to-truck ratio. In December 2009, we had three loads for every truck posted, and by November 2010, it was about five loads for every truck. January was the strongest January in quite some time."


Longbow Research states that rate recovery is already underway and they predict that contract rates may rise up to 10% in the first half of 2011 - and that trucking companies may still come back for more.


Another part of the capacity crunch is that carriers are not willing to add trucks to their fleets. "There are a lot of barriers to growing capacity at the rate of a potential recovery, which means spot market rates could really climb." states Montague. "It will be more difficult given the tight credit markets to create capacity.


How Can Shippers Attract Trucks?


According to Tom Schilli, CEO of Schilli Transportation Services, Inc., "Other than price or rate, there are two ways that shippers can attract trucks - making sure your facility is driver friendly and carrier cash flow."


On driver friendly facilities, Schilli states, "No dispatcher wants to argue with his drivers to go into a shipper that fails to treat them with respect. On the other hand, if a shipper treats drivers with respect, has a place to sit down while waiting to get loaded, and generally welcomes drivers, the dispatcher's job is much easier. Given equal rates, that shipper will receive trucks over the shipper who fails to respect drivers and waste drivers' time. Most contracts allow for two free hours to load or unload. Since drivers are paid by the mile, delaying a driver costs him valuable driving time and hits his pocket. However, if a shipper can get a driver in and out in only an hour, that driver has effectively made another $15. That driver is going to want to come back."


Schilli continues, "We encourage shippers to spend a little money to create good, driver friendly facilities. If they do, the drivers will be more apt to represent those shippers in a way that the shipper's customers will also appreciate."


Providing a place that is driver friendly is a great way to help to attract drivers, but it still comes down to the "boss" making a decision to send a truck in or not. Another way that shippers can attract carriers is to provide better payment terms. "A company that takes 45 days to pay a carrier is at a serious disadvantage to a shipper that pays in 7 days," states Schilli.


Schilli continues, "Many companies don't realize that smaller carriers are still feeling the credit crunch of the recent banking crisis. Large, publicly held trucking companies can borrow money the same as large manufacturers. The smaller, entrepreneurial companies, however, still have concerns over cash flow. If a shipper is willing to step up and make a quicker pay to those small and medium sized carriers, those carriers are much more likely to send their trucks to them versus another shipper. If companies can figure out a way in which to speed up their payments, carriers will respond."


We hope that this article will encourage shippers to help themselves as the trucking capacity crunch continues and is likely to worsen over the next few months.


Photo from TransCore - click here to visit TransCore site

2 comments:

  1. Transportation costs are changing day by day. It is the only system which is directly affected by the economic structure of the country. Therefore we observe changes in its rates. Through the cost analysis of truck transportation an easy conclusion about the economic structure of the country can be made.
    TRUX International Inc.

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