Spot or contract trucking rates? Neither – it’s the “market rate” you should be measuring

Adam RobinsonFreight Market Blog

Truck on highway

Trucking rates are subject to massive sways within the industry. Tariffs may arise. Storms may bring an immediate surge in demand for construction material supplies. The alternative forms of trucking  – including construction – have an impact on the market. How? The answer rests with the drivers. Without drivers, the trucking rates that are stable at this moment snap in an opposing direction. In late 2019, Entrepreneur.com reported an industry expert’s belief that the freight market and trucking rates would come crashing down in 2020. 

No one could have predicted what was on the horizon, and no one thought COVID-19 could become the massive beast of burden it is today. However, this is the situation. Companies that wish to stay relevant and competitive need to stop looking at the freight tendering process from a spot or contract trucking rates perspective. They need to look beyond those two values to understand the full scope and sheer volatility in both smaller and larger markets. They need to start thinking outside the box and following the newest freight analytics metric in town – the market rate.

Why looking solely at one rate dataset limits insights

Looking at a single rate for insight will inevitably lead to problems. Think about how a carrier sources available drivers. Assume the carrier has a list of available drivers and ample trailers. Even if a shipper has a contract with an appropriate carrier or logistics service provider (LSP), there is no guarantee of available capacity. The problem grows significantly worse when the capacity of the market itself grows in tandem. Given the current situation, the market is already tight, and peak season is knocking on the door. 

Unless the driver wishes to limit his earnings’ potential during times of uncertainty, he will likely work as a third-party owner-operator. You heard that right. Most drivers are not bound to a single carrier. As a result, the promise of contracted rates as the end-all solution is already doomed when the market experiences a severe capacity crunch. 

How SONAR enables market rate predictions for trucking rates

The market rate considers the whole view. FreightWaves’ SONAR is a software-as-a-service-based freight forecasting platform that identifies trends within trucking rates and data from both history AND real-time market reports. As a result, shippers are better equipped to plan routes and more to avoid those issues. 

Those same opportunities exist for freight forwarders, brokers, and carriers as well. Consider this point. 

If a smaller LSP can recognize that the market is moving and capacity is tightening in the Midwest, it would make sense to move more assets (drivers and equipment) to meet those demands directly. Applying the opportunities in big freight data makes this possible – continuously re-evaluating conditions to predict rates, capacity and more. As a result, companies can better plan accordingly.

The benefits of understanding the market rate

Recognizing the real status of the market is not just for those looking at FedEx live rates. Instead, it means looking at every carrier, every shipper, every lane, every dock, and every available data resource. By analyzing this information, advanced freight data engines can adapt to changing market conditions, reducing the margin of error for future freight forecasts

In turn, supply chain system users can recognize when a load is more lucrative for either the carrier or shipper. In a way, the most significant benefit of using current trucking rates to predict the overall market rate becomes setting the criteria for what’s expected across all transactions to be recognized as either shipper-of-choice or carrier-of-choice. It’s all about making the best decision based on the freight trucking rates and the millions of data points they encompass.

Additional benefits with an improved understanding of the spot market are significant and transcend modes, time frames, and even customer expectations. Shippers can work to improve procurement processes to save on raw material costs. Considering the full market view of rates allows a company to predict available drivers and available truck capacity. Instead of merely hoping for the best and thinking contracted rates will always save the day, an informed supply chain leader needs to recognize the market trends through predictive freight rates and secure capacity before the market changes.

Increase supply chain forecasting and planning with a world-class freight data engine

Improved freight forecasting rests on having access to readily identifiable trends and understanding the real market rate. Instead of relying on outdated assumptions about what goes into trucking rates, get access to the actual market data to make the most informed decisions with SONAR – regardless of how your contracts promise available trucking capacity. Explore the other values found by requesting a SONAR demo now.