Freight's Dirty Little Secret

Spot rates are low, we all know this. One major reason spot rates are so low, however, is not front of mind to many participants and almost never publicly acknowledged; small carriers have no direct access to the higher priced contract freight, they are subject to loads from freight brokerages and paid as if the loads were spot in nature. 

According to FMCSA data, the number of one to six truck fleets grew 69.3% from 2012 through May 2018 to stand at 184,555 by that month’s end. These are the companies that are feeling the pain of current rates. If you’re John Q. Public, owner of JQP Trucking in Lancaster, PA, you’re not getting loads from Procter & Gamble, Johnson & Johnson, or Mondelez. You’re getting loads from the brokers that service those companies and those brokers certainly aren’t paying you the contract rates they receive. What’s your recourse? Well, you can either haul the load for the currently depressed rate they offered, look for another low rate from another broker, or idle your truck(s) that you bought with rate per mile figures from 2018. Unfortunately, this is the current evolutionary environment and only those well-capitalized carriers with lower borrowing costs, drivers already in the seats, and firmly negotiated insurance premiums will survive.

The latest DAT National Average rate per mile for contract freight was 2.23 versus spot at 1.79, some $0.31 wider YoY. Obviously, these two averages will converge at some point but that will not happen overnight nor any time soon. This large spread is being pocketed by freight brokerages and without a significant unified policy or stance by carriers, why would this change? Even as capacity begins to shrink, truck by truck, rates will not change immediately. As an industry, we don’t have an accurate process to measure these business fatalities. There is no central clearinghouse of listed capacity providers and there will not be any news coverage of the small carrier closings.

Without anyone knowing just how many carriers have fallen off the grid, it will be business as usual until an exogenous event disrupts the status quo. It will take something like an import tariff race, or a severe weather event, or a social media post from an elected official to upset the current price equilibrium and push the market to a path of rebalancing and repricing supply and demand. Thankfully, instead of conducting this operation hand to mouth and reacting to moves in price, we have a transparent, publicly traded marketplace to provide not only advance warning but also a tool for the reduction of this risk so that when the inevitable turn does come, price is no longer an issue.