Trucking is one of the most volatile markets in the economy. The spot market rate for trucking freight from point A to B changes daily on all lanes. For lanes with low load volumes, trucking spot freight rates can change significantly from day to day and week to week.
This creates a challenge for freight brokers to accurately price trucking spot rates. It is important to understand the key variables that determine the stability or volatility of spot market rates for each lane.
The three most important variables are detailed in this article. Once you understand what drives changes in spot market rates, negotiating with carriers and shippers becomes more manageable.
#1 — Size of the freight markets
Trucking spot rates are all about the volume of loads between the origin and destination. In financial jargon this is often referred to as liquidity. Each truckload lane has its own liquidity levels. Some lanes are very liquid and others are not liquid at all.
Load volumes or liquidity for a lane are based on the size of the freight markets for both the origin and destination. Freight markets are measured by both outbound and inbound load volumes. Higher load volumes mean more liquidity, which leads to more stable trucking spot rates. This is why spot market rates for dry van loads from Atlanta to Chicago are more certain than Atlanta to Albany.
To gauge the size of a freight market, FreightWaves SONAR subscribers can use the outbound tender market share (OTMS). This ticker measures the changes in the market share or size of 135 freight markets.
#2 — Headhaul or backhaul lanes
While the size of both freight markets matter, the relative size of the destination matters more when predicting spot market rates. The reason? It is where the carrier ends that matters the most for trucking spot rates. If the destination is in a backhaul market where there are more inbound loads than outbound loads, then there will be fewer carriers interested in going to that freight market.
This restricts supply and increases the spread in quoted rates from carriers. If the destination freight market is larger than the origin, then there will be more opportunities for the carrier at the destination, which increases the number of carriers that will be interested in the load. An example of this would be the day to day change in spot market rates from Chicago to Albuquerque, compared to the stability of rates from Albuquerque to Chicago.
Headhaul scores for 135 freight markets are calculated daily in SONAR with the HAUL ticker. Users can track each freight market’s haul score over time to gauge the volatility between inbound and outbound tender load volumes.
The shipping industry needs
a new metric – the Market Rate –
to end the spot vs contract battle
#3 — Volatility in trucking spot rates
Volatility in any market measures price or volume changes over time. Trucking spot rates in are some of the most volatile for any economic market. Supply and demand change daily, which creates spot market rates that can change by 20% or more on some lanes on any given day.
While lanes with the most load volumes or liquidity have the most stable spot market rates, daily volatility based on truck capacity is still significant. The daily change in spot market rates, even for the most stable trucking lanes, means you must have a method for measuring this volatility to accurately predict spot market rates.
The most effective measurement of freight market volatility is SONAR’s outbound tender rejection rate (OTRI). By measuring daily volatility in truck capacity, freight brokers can predict spot market rates much more accurately than with any other tool.
How SONAR aids freight brokers
FreightWaves SONAR provides the fastest freight market data in the world, across all major modes of traffic. The SONAR platform is the only freight forecasting and analytics platform that offers real-time freight market intelligence driven off actual freight contract tenders.
SONAR has proprietary data that comes from actual load tenders, electronic logging devices and transportation management systems, along with dozens of third-party global freight and logistics-related index providers like TCA Benchmarking, Freightos, ACT, Drewry and DTN.
Whether you’re working from the office or from home, SONAR can provide you the data and intelligence you need to stay ahead of your competitors.
Find out more about FreightWaves SONAR for brokers.
You can find more information on freight brokerage sales on the popular FreightWaves sales show, Put That Coffee Down.