As capacity tightens, carriers need to understand the yield of their customers and lanes so they can allocate trucks according to their own required rates rather than simply following market averages.
Economic indicators were beginning to look favorable for trucking in 2017. Commodities were strengthening, oil rig counts were rising, the housing recovery continued, and small-business optimism was improving. Low unemployment also pointed toward higher wages, more consumer spending, and more goods moving by truck.
Positive Indicators, Depressed Rates
Those indicators did not immediately translate into stronger pricing. Stifel analyst John Larkin reported from the Truckload Carriers Association's 79th Annual Convention that most shippers were not ready to accept rate increases. Many would let carriers retain existing lane awards only if rates stayed flat at depressed levels or moved lower.
That observation matched what our clients reported and what I heard at the convention. Truckers are optimistic, and many expected the combination of improving demand, the electronic logging device mandate, and continued driver constraints to move capacity closer to demand.
As that balance approaches equilibrium, carriers have more options when deciding which freight to haul.
Freight Selection Is Not Simple Arithmetic
Numbers rule trucking, but selecting the most valuable freight requires more than comparing rates. Information, technology, and data analysis become more valuable as carriers decide which shippers should receive their trucks regularly.
Analytical tools can evaluate a carrier's revenue stream through price, cost, velocity, time, and flow. That analysis identifies the yield associated with a particular load, shipper, or lane.
Whatever technology a fleet chooses, its network strategy must be deliberate, consistent, specific, and actionable. Trucking leaders need to manage customers the same way sophisticated shippers manage carriers: by the numbers.
Market Rate Is Not Required Rate
Price is the common language between carrier and shipper. Yet many sophisticated trucking owners confuse the market rate with the rate their own business requires.
The market rate is the statistical average received by carriers reporting to an index for a lane during a particular period. Hauling at or above that rate does not guarantee a profit; it only means the carrier is beating the index.
An informed carrier understands both its costs and its freight network. It calculates a yield-based rate to determine the price required for a piece of business to be profitable. Comparing that required rate with the market rate, the current shipper rate, and the rates paid by other shippers on the lane creates useful pricing intelligence.
Loyalty Must Work Both Ways
Truckers tend to be loyal to customers, but the relationship can become one-sided. In our consulting work, we often saw misguided loyalty to longtime shippers even as those shippers used highly trained teams and sophisticated models to manage transportation spending.
Carriers should continue to provide excellent service and respect their customers, but they also need sound mathematics for pricing and capacity allocation. Shippers that focus only on obtaining the lowest rate may pay a price when demand exceeds capacity.
Shippers can strengthen their position by supporting drivers, reducing delays, and improving efficiency. Those actions become important when fleets use analytics to decide which freight to accept and how to price it.
Prepare Before Capacity Tightens
The good times in trucking are infrequent. Carriers should prepare for tighter capacity with a plan grounded in relationships, analytics, and profitability.
There is no magic answer. Fleets need to educate themselves about their full network and consistently execute the strategies that improve yield. A general revenue increase will not replace the opportunity to choose the right customers and deliberately engineer a more profitable freight network.