Trucking is a commodity, service is not

I’ve been in trucking for 42 years – literally my entire life. My grandfather and my father started trucking companies. I started learning trucking when I was very young, because I grew up in a trucking family. Family dinners and vacations revolved around trucking. It would be unusual for my family to go through a single dinner without something trucking showing up.

I learned economics from my dad, but rather than talking about economics in general, his lessons on economics were all grounded in the trucking market. When I was in college, I started learning more about broader economics, economic theory, and financial markets. I also learned the meaning of goods.

The definition of a commodity, according to Investopedia, is:

A commodity is a basic good used in trade that is interchangeable with other goods of the same type. Raw materials are most often used as inputs in the production of other goods or services. The quality of any given product may differ slightly, but is essentially uniform from producer to producer.

In terms of trucking, if trucking service providers are “interchangeable”, it means that comparisons between one trucking company and another are nearly impossible; it therefore meets the definition of interchangeable. Or to borrow a market term – “fungible”.

A variety of trucks. (Photo: Shutterstock)

No trucking executive wants to admit it – including my father – but trucking is a commodity. There is no way around it. Price is strictly determined by the fundamentals of supply and demand, nothing else. Players in the trucking industry are beholden to the market and have limited control over one of the most important drivers of profitability: pricing.

Investopedia goes on to describe that there is little differentiation between a producer of a commodity and another producer. The basic idea is that there is little differentiation between a commodity from one producer and the same commodity from another producer.

It looks like trucking.

The reality is, whether it’s an orange truck, a blue truck, a white truck, or a red truck hitting a dock, they’ll all perform almost identically, as long as the driver is qualified for the assignment and the truck is maintained in an acceptable manner. so that it can go from point A to point B.

If trucking is a commodity and the market sets rates, what can a carrier do to avoid being caught in massive rate cuts?

Class 8 tractors ready to roll… (Photo: Shutterstock)

Market rates

The first thing is to keep in mind that you cannot control the market rate.

You can tell your friends and brokers that you “won’t haul cheap freight“, but in the end, as long as someone is willing to haul that load cheaper than you, you’re going to sit tight. If that’s your game, take an extended vacation and park your truck. You deserved it!

Also, all other trucking companies will appreciate that there is one less truck on the market chasing a declining freight market.

The use of trucks is essential

The second thing to keep in mind is that utilization is the most important factor in profitability. You can’t control the market, but you can control the lanes you take and where your truck is. Look for markets that have more freight volume compared to trucks. FreightWaves calls them the “head carrier markets.”

Head-haul markets are areas where you can be sure there are loading opportunities. In a slowing environment it will be more difficult to find transport markets, but in FreightWaves SONAR we have a transport indicator that shows the relative balance of trucks versus loads in a market. It is based on actual contract loads and the number of trucks in a market. Head transport markets are colored blue on the transport map below.

We have a saying for hauliers – “run from blue to blue” which means keeping a truck moving between stronger freight markets and avoiding markets where you will struggle to find loads.

In the SONAR headhaul map, the best markets for carriers are deep blue. The worst markets for carriers are dark red. The blue ones represent “head haul markets” or markets where there are more loads than trucks. Red markets mean the opposite.

Currently, Dallas is the best head-end transportation market in the country.

Keep in mind that national and individual markets change daily and this map is updated daily. Since the map is built using actual load and truck data, it is not skewed like load chart data, which can have “phantom loads”.

Find the “best” fillers

Finally, the best loads will not be found on the load tables. Cargo boards tend to be the subprime part of the market, where freight ends up after being scooped up by private broker markets.

Newer digital brokerage apps like JB Hunt 360, Convoy, Loadsmart and Uber Freight tend to have higher quality loads. Carriers are controlled by the market. If you want a more open marketplace, but not a load chart, check out Trucker Tools, which is a private marketplace for 3PLs, but since it offers built-in tracking, loads with a visibility service attached tend to be preferred over a post on a load board that does not offer an onboarding data feed for premium freight.

Relationships Generate Income

The best way to get a premium over the market rate?

Build a relationship with a shipper or broker. Those who move freight, whether with a broker or a shipper, are busy with many tasks. Become their supplier of choice. Get to know what they offer on the market and offer to take the load at those levels, but ask them to provide more than just one load. Ask for additional loading possibilities.

If market rates go down, it’s best to lock in a decent rate today, which in a month may seem like a good rate.

Additionally, you can negotiate with the broker or shipper.

Sure, they don’t want to pay more than they have to, but an even bigger headache is dealing with service outages from an unreliable carrier.

Offer them a service guarantee and ask for a bonus in return if you are ahead of schedule. I used to do this all the time. This gives the broker peace of mind, so they can worry about carriers not guaranteeing service.

Ask the broker what he is willing to pay and answer “If I guarantee the service, can you add another 5% on top of the rate?” »

Move to a less commoditized part of the market

Parts of the trucking market are not hypercompetitive. This may include specialist, military, hazardous or petroleum services. The dry van market is the most brutal part of the truckload market because anyone can participate in it. If you enter a market with fewer competitors, you will be much better off.

Want more information? Get the latest market data. FreightWaves SONAR offers the fastest, most in-depth perspective on freight market trends. Sign up for a demo at https://sonar.freightwaves.com/.

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