Historic trucking rate disparity could cripple service in late ’24
https://www.freightwaves.com/news/historic-trucking-rate-disparity-could-cripple-service-in-late-24Truckload contract rates (VCRPM1) continue to show strong elevation in relation to spot rates excluding estimated fuel costs above $1.20 a gallon (NTIL12). This historic spread — currently about 30% versus about 12% in 2019 — suggests there is an extraordinary amount of potential disparity among rates in the truckload market that could leave several shippers without a truck when the market inevitably shifts.
Contract or long-term rates are generally negotiated on an annual basis between shipper and transportation service provider.
In an erratic capacity environment, these rates are subject to midterm renegotiation, both higher and lower. This is where the term “paper rates” originates, because they are as thin as paper in terms of reliability.
On the spot
Spot rates are negotiated on an ad hoc or transactional basis and are typically only good for a matter of days.
The spot market is a place where shippers look to source capacity when they either do not have a contract carrier or their existing carriers do not have availability. In loose capacity environments — such as the current one — it can also be a place to get immediate cost savings or try other carriers to deepen their lists of potential providers.
From the carrier perspective, the spot market is a place to fill gaps in their networks — aka backhauls — or haul more profitable freight. The former is more the use case in a market like the one that we are currently in, though there is always this potential.
Technical article. There is a huge disparity between shipper and transportation service provider. This could have serious implications for logistics.
