Jadd Freight Services

During the first quarter of  2011, both United States and Canada climbed out of the recession.  Freight volume started to increase substantionally in February 2011 but so did the price of fuel.  I get many customers stating that the price of freight in April and May 2011 is much higher than the increase in the price of fuel, why is that?  There are several factors that affect freight prcing but everything boils down to the required revenue for the carrier on the round trip.  The freight being discussed is Full Truckload for both Vans and Flatbed trailers and the information applies to shipments within the United States/ Canada and cross border shipments.

Lets take a look at what carriers calcuate to determine freight rates:

• Mileage from start point to end point.  Carriers use practical miles and base miles on highways that are legal for their truck and trailer to travel.

Availablity of freight from the end point, if freight is low, how many dead head miles to next major location with good freight.

• Fuel Costs = Fuel Surcharge. Contact Jadd Freight if you have questions about how fuel surcharge is calculated.
• Potential rate/ mile for outbound freight vs potential rate/mile for inbound freight.
• Current price of the USD vs. CDN dollar has an impact on price to a certain degree.
• Carriers fixed costs, including but not limited to: Insurance/ Registrations/ Adminstration/ Truck & Trailer Payments/ Staff, etc. Basically any cost they have to pay on a monthly basis regardless if trucks are moving or not.
• Variable costs, including but not limited to: Permits/ Tolls/ IFTA/ truck & trailer depreciation, maintenance cost, tire replacement, driver pay, etc.  Any costs the carrier will have to pay or account for due to wear and tear and usage of their trucks.

Carriers determine their cost/ mile to operate + cost of fuel for both the inbound and outbound lane.  They determine their total round trip cost and required revenue on the round trip + fuel surcharge.  Based on the required revenue, the carrier looks at what rate per mile the market is paying for outbound freight and what the market is paying for their inbound freight and hope the two lanes will provide the revenue they need to remain profitable. 

Carriers may take a load from Vancouver, BC to Los Angeles, CA for half the revenue they get come from Los Angeles, CA to Vancouver, BC.  This explains how supply/demand affects the rates.  Vancouver has been a market with more trucks than loads for several years but during the peak season in California there is not enough trucks to supply the amount of freight, thus higher prices. Same goes for shipments from Atlanta, GA cost almost double to ship to FL vs. rates coming out due to lack of available freight in FL.  The point is a truck can travel the same highway from one city to another and then return back to the same starting city but the rates each way are substaionally different. The carrier has the same costs for each direction but the available revenue is paid acording to the supply demand of the lane which ultimatley makes the freight rate very high for one direction.  

To answer the question why freight rates are still high:

1. Fuel represents 40%-50% of the freight costs.  To see current fuel average costs in the united states, visit the U.S Energy Information Adminstration site: http://www.eia.gov/oog/info/gdu/gasdiesel.asp.  For local pump prices visit: http://www.pilottravelcenters.com/Locations/Travel_Centers/Complete_Pricing_List.aspx. If you want a more detailed explanation how that fuel percentage was determined, contact anyone at Jadd Freight Services. 

2. Supply demand of lanes for freight availablity vs. truck availability.  There is a truck shortage coming, and many lanes are starting to feel the crunch when it comes to truck availalbity.  As an example, if you need a flatbed or van out of East Coast (USA) back to Western Canada, book early and be patient when it comes to getting a truck into that area.  For expedited shipments, be prepared to pay the carrier dead head miles to the pick-up location.

3. During 2009/10 carriers were taking lower than desired rates and when fuel prices jumped in 2011, carriers are watching every dollar and are pushing to increase rates where possible.  When carriers are pushed to take lower cost freight going one direction, they are forced to charge extra going the opposite direction to ensure they remain profitable on the round trip, otherwise carriers will continue to close their businesses. Thus, truck shortage will become a bigger issue than fuel prices.

The intent of this blog was to provide a basic explanation and some understanding from a carriers point of view regarding freight costs.  Feel free to contact me or anyone at Jadd Freight with questions about freight rates for the lane(s) you need something shipped.

In Part 2 I will provide suggestions how to reduce wasteful freight spending and how to get the most for your freight spend.

Rob Kowton
Sales Manager
Jadd Freight Services Ltd.