MORE THAN TWO years after the start of the pandemic, the U.S. freight economy continues its tumultuous ride. Just when spot and contract truckload pricing and volumes appeared to be falling in line with expectations, a sharp spike in diesel fuel prices injected more volatility into commercial transportation.
The retail price of diesel jumped almost 75 cents a gallon during the first week of March, and the average fuel surcharge for dry van freight on the spot market increased almost 12 cents per mile.
A sharp, sudden rise in fuel prices hits freight brokers and carriers in distinct ways.
For brokers, it can have a deflationary effect on base or linehaul rates. A broker-to-carrier spot rate has two components: a line-haul rate and a surcharge amount that varies with the price of diesel. Brokers may feel compelled to suppress the line-haul rate, so they can pay the fuel surcharge to the carrier and still be competitive with pricing to the shipper. Few brokers can afford this kind of pressure for a long period of time.
Small carriers and owner-operators are even more susceptible to price fluctuations. The carrier may not get paid until 30 days or more after their invoice is delivered. By then, the cost to refill the tank may have gone up substantially.
Carriers also feel pressure to reduce dead-head miles, shorten trips, slow down to improve fuel economy, and even park the truck for a period of time. Any one of these responses can affect available capacity and the distance a truck can cover.
How can brokers react? Better yet, how can they anticipate changes and compete for reliable capacity?
Small trucking companies—which don’t use fuel hedging, bulk purchases, or fuel cards—have a hard time managing costs when diesel prices shoot up and their exposure to big-ticket items like repairs or insurance increases. Invoice factoring and quick-pay programs are popular ways to help carriers speed up their cash flow. A carrier may be more likely to take a load that’s factorable, knowing that they won’t have to wait to get paid.
There’s nothing to indicate a surge in fresh truckload capacity any time soon. Order books for new equipment are full, and component and labor shortages at manufacturers have delayed deliveries until 2023. The competition for qualified drivers has pushed carriers to raise pay and prioritize customers that keep their trucks loaded and moving.
Brokers can become preferred partners to their core group of carriers by offering automated booking, allowing them to tender freight without ever having to post it to a load board. This technology frees brokerages up to focus on their customers’ more difficult shipments and allows businesses to move more freight with fewer resources.
100+ FREIGHT INTERMEDIARIES CAN’T BE WRONG
Over the years, Benesch has provided legal consultation and pragmatic business advice to well over 100 Transportation Brokers, Surface Freight Forwarders, Ocean Freight Forwarders, NVOCC’s, Air Freight Forwarders, Warehousemen, 3PLs, 4PLs, and other Freight Intermediaries of all kinds. They know that when it comes to corporate structuring, mergers and acquisitions, transportation and logistics contracts, best practices, regulatory challenges, insurance and risk management, freight loss and damage or freight charge disputes, catastrophic personal injuries, and independent contractor relationships — Benesch knows Intermediaries.
Counsel for the Road Ahead®
Benesch received the distinction of being named Transportation Law Firm of the Year by Best Lawyers®—Best Law Firms in 2022, 2020, 2017, 2016 and 2014. Only one law firm per practice area in the U.S. receives this recognition each year, making this award a particularly significant achievement.
Full-scale supply chain visibility is table stakes for shippers today, especially at the enterprise level. For a broker or 3PL, access to real-time visibility data can lower operating costs, improve on-time performance, and strengthen relationships with customers and carriers. Visibility also delivers massive volumes of freight data to those who desire to use it.
With spot freight, shippers have little insight into who is carrying their freight, let alone the status of the vehicle it’s riding on. Today load board services are making trucks that belong to leading real-time visibility platforms easily identifiable on their network. Brokers can have access to a large pool of “trackable” capacity on the spot market, and be able to give shippers a complete, near-real-time view into their loads.
Visibility data has been proven to lower organizations’ operating costs, improve on-time performance, and enable stronger relationships with shippers and contract carriers. Consider the benefits of predictive truck ETAs and wait-time information on non-contract freight.
Transparency Through Data
Everyone is paying more for capacity, and margins are dwindling despite high volumes. Market intelligence and forecasting tools backed by current rates improve your negotiating position with carriers, ensuring win-win scenarios for moving your freight. Meanwhile, with data-based validation for rates from brokers, you can ensure you’re not paying too much or too little while developing a sustainable, mutually beneficial partnership. The freight market will stabilize as soon as transportation supply catches up with demand. Until then, freight volumes and upward rate pressures will respond to familiar pain points. Fortunately, brokers have tools at their disposal to provide a higher level of service and secure the capacity they need.