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What Drives Freight Pricing? (HINT: It's not your great negotiating skills)

Posted by George Muha on Jan 10, 2017 10:51:03 AM

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The above Transportation Services Index measures the movement of freight in the U.S.  This data is collected by the U.S. Department of Transportation (DOT) and put out by the Bureau of Transportation of Statistics to give insight and visibility to the public about the transportation climate.  

Why This Data Is Vital For Shippers

There are a few reasons this data is extremely important for shippers to be in the know about; one of the most important being carrier pricing.  Freight costs are typically one of the highest percentages of a sale for a shipper and one of the least controllable costs.  A big fact that shippers need to know is freight costs are dictated by things outside their four walls - driver shortages, capacity constraints, government safety regulations, etc.

Depending on what's going on with these outside factors will dictate if a shipper or a freight carrier has the edge at the negotiating table.  As an example, in 2008 and 2009 when the economy got slammed (see above index) the amount  of freight getting shipped took a big dip.  Essentially there were a lot more trucks on the road than there was available freight.  So motor carriers did everything in their power to keep their trucks moving and it was an all out race among the freight carriers to be the first to get those shipments on their trucks.   

During that period shippers found themselves in freight rate heaven because motor carrier after motor carrier would outbid each others pricing so aggressively that shippers literally couldn't believe how cheaply they were able to move their goods.

The Changing of the Tide

However, as lucrative that period was for shippers, it didn't sustain.  In 2012-2014 the market rebounded.  Motor carriers started to get their legs underneath them again and the ratio between available freight and available freight carriers evened out.  When that happened the motor carriers started to get more selective in the way they priced the movement of freight.  Many of the carriers imposed heavy increases or simply stopped handling unprofitable freight.  

Where Are We Now?

As you can see from the above chart, the motor carriers are in the driver seat more than they were before the Apocalypse (the Great Recession).  The big reason they are driving price is because there is basically more freight than there are trucks.  

However, there are also a few other reasons why shippers may notice their freight rates going up.  One is there is still a driver shortage.  The current average age of a truck driver is 49 and there are not a ton of young people flooding the job market to be truck drivers.  This is hampering the carriers ability to add capacity to their fleets.

Another reason freight rates are going up is technology is allowing carriers to cube out their trucks better than ever.  This is giving them great insight to maximize profitability on each truck, shying away from less lucrative shipments.  Many of you reading this may have been noticing carriers issuing rate adjustments as a result of "weight & inspections" mid-transit.  You can thank these tech advances for that.  

How KDL is Coming to the Aid of Shippers

Some of the main reasons KDL is able to help shippers navigate the complicated nature of this industry is that man companies cannot employ the talent, technology, volume and resources to manage these outside factors as quickly or cost effectively as they can by partnering with KDL.

KDL works with clients in a myriad of ways - with the end goal of making them more profitable than they were without KDL.   

Here is a case study to see an example of how we help shippers to remove logistics costs, gain visibility to their supply chain and maximize their ability to be as competitive as possible in their given industry.

Download Case Study: Cost Savings Achieved by Partnering with KDL

Contact Us

Feel free to reach out if you have any questions regarding some of these areas outside your four walls or how KDL might be able to help you gain better control of this volatile market.

Topics: General Rate Increase, Less-than-truckload pricing, KDL Logisitcs, logistics savings

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