As freight handlers, understanding the dynamics of freight rates can be undeniably complicated. There are numerous factors contributing to the unpredictability of these rates. The Load to Truck ratio is a key factor that can significantly affect pricing, and therefore, understanding its intricacies becomes essential.
The Role of Load Boards in Calculating Load to Truck Ratios
Before the digital revolution, load boards were physical bulletin boards placed at truck stops, where shippers and brokers would post freight details. Interested truckers would then find loads suitable for their routes. However, this system had its inefficiencies, which led to the digitization of load boards.
One of the pioneers in digitizing load boards was a company called Dial-A-Truck, which later rebranded itself as DAT. By 1995, DAT was providing real-time freight matching and has since expanded its services and products, claiming the largest and most diverse electronic marketplace for on-demand freight.
When industry analysts refer to the load to truck ratio, they’re often referring to data derived from the DAT databases. DAT publishes its data online and offers paid services for more in-depth statistical collection and analysis.
The Relevance and Limitations of DAT Load to Truck Ratios
According to DAT, their statistics are derived from databases that represent about $57 billion in market value. This includes all DAT transactions between shippers, brokers, and carriers.
Measured in terms of market value, the DAT databases appear to represent about 1/13 of the total industry or around 7 percent. According to DAT, this is enough to provide approximately a 90 percent correlation between the load-to-truck ratio and spot market rate trends.
However, it’s important to note that the load to truck ratio is just one part of a complex matrix of data that executives use to predict future market trends. This ratio does not factor in deals made outside of the DAT load boards.
DAT also provides load-to-truck ratios for specific shipping methods, including dry van trucks, reefer shipping, and flatbeds.
Decoding the Load to Truck Ratio
A Load to Truck ratio is a simple numeric representation of the balance between the supply (number of trucks) and demand (number of loads) within a specific area. This ratio is calculated by dividing the total number of loads by the total number of available trucks in that area.
Let’s consider an example to understand this better. Suppose, in a particular region, there are 500 loads available and 100 trucks to carry these loads. The Load-to-Truck ratio would then be calculated as 500 divided by 100, resulting in a ratio of 5:1.
This ratio becomes an essential measure for transportation providers to decide their pricing strategy, as it provides a clear picture of the supply-demand balance in a specific area. Additionally, the Load-to-Truck ratios can vary based on the type of trailers involved, further adding to the complexity of this calculation.
The Correlation Between Load to Truck Ratio and Freight Rates
The load-to-truck ratio often serves as a leading indicator of impending changes in freight rates. When the number of loads exceeds the number of available trucks, the ratio rises. As demand surpasses supply, prices tend to increase.
Increasing load-to-truck ratios often hint at upcoming rate hikes. Since DAT’s statistics are based on real-time data and are updated frequently, shifts in the ratio can act as early warning signs of changes in shipping costs.
However, the ratio’s value on a particular day is not the sole determinant of freight rates. It’s the trend of changes in the ratio over a period of time that provides actionable insights. If the load-to-truck ratio in a specific market area has been on the rise for a few weeks or months, carriers are likely to raise prices soon. Conversely, when the ratio starts to drop, rate relief often follows.
The Role of Load to Truck Ratios in Transportation Companies
Transportation companies use load-to-truck ratios to formulate pricing strategies. The ratio at your cargo’s origin and destination locations significantly influences the cost of securing coverage for transportation.
At a high level, a ratio of two loads for every truck is considered healthy. A location with such a ratio is likely to attract lower freight rates since carriers are assured of getting another load to move. However, as the ratio falls to 1:1 or less, the location becomes “tight” or “cold” for freight movement, thus affecting the price of shipping to/from it.
Load-to-truck data points change daily. National ratios adjust marginally from month to month, while regional and city-level ratios can undergo more pronounced swings. These changes are often influenced by seasonal trends, such as Christmas tree season in the northwest or produce harvest in southern states.
Transportation companies use load-to-truck ratios to estimate their likelihood of finding their next load at or near your drop location. A high ratio indicates less competition in the area, which can decrease your price. Conversely, a low ratio suggests a “tight” market, making it more difficult for the carrier to secure their next load promptly, which can increase your price.
How do freight companies factor in Load To Truck ratios when setting rates?
Your charges may be significantly affected by the ratio of available loads to the number of trucks near your pickup and dropoff points. These figures primarily convey two pieces of information to your transportation provider:
How likely it is that they will be able to locate their next load in the vicinity of your drop-off point
One factor that affects a carrier’s ability to find their next cargo is the load-to-truck ratio at your destination. The higher the number, the more intense the competition in the area where their vehicle will be delivering their freight. Since trucking firms are essentially rental businesses (earning money only while their assets are in use), it is crucial that they find their next freight as soon as possible.
A “tight” load-to-truck ratio makes it more challenging for a carrier to keep a driver moving at an economical pace.
However, the cost will go down if there are many more cargo shipments than available trucks at your final destination. Every trucking business wants to ensure that their asset will continue to be useful after they deliver a load.
Their negotiating power (and the price of the transportation service) where you plan to pick them up.
There are two load-to-truck ratios that must be calculated for each delivery. This ratio is used by the carrier at the origin side of the equation to compare costs and decide on a price.
Transport firms only have a finite number of vehicles, trailers, drivers, and units of equipment. Therefore, it is in their best interest to maximize their output.
Because of this, you can expect your outbound freight rate to be in line with the local supply (trucks) and demand (loads). In the event that the load-to-truck ratio at your origin is 1:2, prices will likely drop as drivers compete for available loads.
On the other hand, shipping from a region with high demand will increase your costs, such as the southern United States during harvest time. There are a high volume of competing shipments for the same limited coverage as yours.
Conclusion
The load-to-truck ratio is a vital metric that can significantly impact the logistics and transportation industry. It helps businesses monitor supply and demand, optimize routes, and improve overall operational efficiency. In this digital age, leveraging technology like Appscrip’s Truck Booking App development solutions can provide real-time updates on this ratio, enabling swift and informed decision-making. Don’t let your business lag behind in this competitive market. Contact Appscrip today, and let’s work together to build an app solution tailored to your business needs, ensuring you stay ahead of the curve in managing load-to-truck ratios.
