The term **freight** refers to goods transported through the supply chain via truck, train, ship, or plane. **Freight rates** are the costs that shippers pay carriers for transporting their cargo, especially within the truckload (TL) market. These rates are influenced by a variety of factors, including economic demand, fleet availability, fuel prices, weight, distance, and the nature of the goods being shipped.
Negotiations between shippers and carriers determine freight rates, either through long-term contracts or on-the-spot agreements. During peak times, such as request-for-proposal (RFP) season, shippers often rely on data from sources like ACT Research and DAT to make informed decisions when submitting bids. This helps them stay competitive in a constantly shifting market.
Understanding current freight rate trends is essential for businesses to adapt to market fluctuations and plan effectively. The truckload market is highly dynamic, and staying informed can lead to better cost management and operational efficiency.
### What Factors Influence Freight Rates?
While the truckload cycle plays a major role in shaping freight rates, other key elements also have a significant impact. According to Tim Denoyer, an analyst at ACT, the core driver is **supply and demand**. When demand outpaces available capacity—whether in terms of trucks, drivers, or routes—rates tend to rise. Conversely, when supply exceeds demand, rates typically fall. This creates a cyclical pattern that affects the entire industry.
Beyond this, economic demand and fleet capacity are two of the most critical factors.
#### Economic Demand
Every physical product sold in the economy often travels via full truckload freight. Retail and industrial sectors are the largest consumers of TL services. In simple terms: if you bought something, it likely arrived by truck.
When the economy is strong, consumer spending increases, leading to more freight movement. During downturns, spending drops, reducing freight demand. Over time, per capita freight generation tends to remain stable, though slower population growth can affect long-term demand.
Freight activity usually peaks early in the economic cycle, as businesses expand and restock inventory. It then slows down later, sometimes entering a "freight recession" before the broader economy shows signs of decline. These cycles typically last about two years on the upswing, with downturns lasting from a few months to two years.
#### Fleet Capacity
Fleet capacity is another crucial factor. As more trucks hit the road, freight demand may decrease due to shifts in consumer behavior and inventory levels. The age and condition of trucks matter too—older vehicles may be reintroduced during tight periods when new capacity isn’t immediately available.
During slack times, less efficient trucks are often retired due to lower rates. This makes the capacity side of the market very fluid and responsive to changes in demand.
### How Do Rates Differ Between Types of Freight Trucking?
In a freight recession, rates across all types of trucking tend to decline. However, the gap between specialized trailer types—such as flatbed and reefer compared to dry van—often widens during the cycle's bottom phase. As the market begins to recover, dry van rates typically catch up, but the difference remains wide throughout the mid-cycle before contracting again in the late stages.
But how do these different types of trucking compare?
#### Dry Van Trucking
Dry van trucks transport dry, non-temperature-controlled goods in fully enclosed trailers. This is the most common and standardized form of truckload shipping, primarily used for retail products.
#### Refrigerated (Reefer) Trucking
Refrigerated trucks haul temperature-sensitive items like food, pharmaceuticals, and medical supplies. Reefer rates are generally more stable than other types due to consistent demand and higher service requirements.
#### Flatbed Trucking
Flatbed trucks carry oversized or heavy freight on open trailers without sides or a roof. They're commonly used for industrial goods like machinery and construction materials. Flatbed rates can be more volatile due to seasonal demand patterns.
Despite differences in type and use, all forms of trucking are interconnected. Most tractors can handle any of the three main trailer types, making the market flexible but also sensitive to shifts in demand and supply.
### How Do Freight Rates Differ Between Contract and Spot Trucking?
Contract freight rates are fixed agreements between shippers and carriers for a set period. These provide stability and predictability. On the other hand, spot rates are short-term, on-demand prices for shippers without long-term commitments.
While spot rates are often seen as more volatile, both options have their advantages. Many companies use a mix of contract and spot markets to manage risks, cover unexpected changes, and maintain flexibility in their logistics strategies.
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