As the U.S. economy goes up or down, the routes that fleets use often remain the same, as does the price structure of spot rates.
A trip into Florida will usually cost more not because the freight going in is worth less, but because truckers and fleets know they will likely leave the Sunshine State — not known as a manufacturing center — with little or no freight to haul back to base, Truckstop.com, a digital load board, Chief Relationship Brent Hutto told Transport dive in an interview.
Yet today, COVID-19 has changed how fleets and independent truckers choose delivery routes, in only a matter of weeks. Trips out of big port cities, such as Los Angeles and Chicago, are now competing in spot price with trips into those cities, a sign of the market disruption COVID-19 has caused. It isn't just because the ports are closed, though. Demand for freight services has shot up during March, a time of panic buying and another e-commerce boom.
The average van load-to-truck ratio was 3.5 for the week ending March 22, up from 3.2 for the week ending March 15, according to DAT Solutions, a load matching firm. The plenitude of loads meant price per mile has gone up 12% since March 1, according to DAT.
"The carrier has the advantage," Hutto said. "The load-to-truck ratio favors the truck."
Spot rates rise on backhauls
Some truck drivers are anxious about driving into COVID-19 hotspots, such as New York City, according to Bloomberg. They are preferring to take loads along what are called backhauls — the return trips, in which a trucker or fleet would seek freight, usually at a discounted rate, to cover the cost of driving back to base, Kyle Lintner, managing director of freight intelligence firm K-Ratio, told Transport Dive in an interview.
Backhaul routes are now more attractive routes to some drivers and fleets, if only because of the increasing spot price, Lintner said. Port cities, such as Los Angeles and Chicago — usually premium routes packed with freight ready for inward locations — are seeing decreasing volumes leaving those cities, he said.
"The carrier has the advantage. The load-to-truck ratio favors the truck."
Chief Relationship Officer, Truckstop.com
One example Lintner gave is the Los Angeles-to-Dallas route. Los Angeles and Long Beach, California, are the largest combined port operation in the U.S., and freight from Asia filters through Los Angeles County, making it the starting point of some premium routes. The backhaul from Dallas to Los Angeles was usually the lesser spot rate. Now, because of the COVID-19 crisis, the spread is narrowing to record levels, Lintner said.
Peggy Dorf, a senior market analyst for DAT Solutions, reported on her blog that Dallas to Los Angeles was up 13 cents to $1.52, for the week ending March 22, "which is not a great rate." But Los Angeles to Dallas stood at $1.48 for the same time frame. For the week ending March 29, Dallas to Los Angeles again jumped to $1.64, Dorf said.
The higher prices are an odd situation for backhaul routes to be in, Dennis Brown, former CEO of Logistic Dynamics, told Transport Dive in an interview.
"They don't want to run empty miles. It's just too expensive."
Former CEO, Logistic Dynamics
Usually, the backhaul freight routes don't bring in as much money per mile. And even though the routes generate less revenue than the initial freight route, the money is vital to small fleets, Brown said. Fleets or drivers returning to home lose money for every mile they travel with no freight, an exercise known as "deadheading." It's usually better to make the trip home a backhaul.
"They don't want to run empty miles," said Brown. "It's just too expensive."
Backhauling is often done through a freight broker, and it "repositions your fleet back so you can support your primary customers," Brown said.
The coming overcapacity
Now the primary customers' business plans may be on hold. Factories are closing temporarily. Restaurants are not ordering fresh lobster and meats. Fleets and drivers who usually move such freight are now looking for alternatives, and seeing it ready in routes less traveled.
Complicating the issue is the possibility that a trucking overcapacity will occur. Many drivers and fleets, including private fleets, may have trucks they need to either pull off the road or put on the spot market.
"We're really in a new world," Gary Petty, president and CEO of the National Private Truck Council, told Transport Dive in an interview. "There's a great deal of competition for the freight."
Petty said even private fleets, owned by companies such as Walmart and Pepsi, prefer not to run empty miles. About 29% of such fleets run empty miles after making deliveries, Petty said. Private fleets are considering reducing those trips by changing the distance and the way they run freight.
"There is a movement to find opportunities for their medium-duty equipment," said Petty. The private fleets could make shorter runs and more frequent stops to help customers restock, he said.
Brown said he believes more private fleets will do backhauls. "Maybe not Walmart, but fleets like Walmart," said Brown.
How long, backhaul?
Lintner does not expect the current logistics situation to last, and backhauls will return to normal price structure.
For one, grocery stores are finally being restocked, Lintner said.
But the second reason for a return to the basic price structures is not comforting: economic fallout. The idled factories and closed restaurants will shrink trucking demand.
Even when goods begin to arrive at ports from China and elsewhere, they could likely sit at the docks or in warehouses for a while, Lintner said, awaiting U.S. consumer demand to catch up.
And data shows the price peak is ending. Lintner said overall volume is down 2.7% since March 23. Dorf told Transport Dive her data for the week ending March 29 saw load-to-truck ratio shrink to 2.81. That's because retailers that saw demand go up during the COVID-19 crisis rose to the challenge of filling up their stores and nearby warehouses and won't need above-normal trucking business. "We are starting to get replenishment in stores that need it," said Lintner.