The biggest reason for the current truckload capacity shortage is the exacerbation of the majority of goods moving from west to east. This relationship is reflected in the spot rate for freight moving from Los Angeles to Dallas and the return trip. Rates are currently almost three times as expensive moving east than west for the exact same mileage.
One of the biggest questions being asked right now is why haven’t dramatic contract rate increases and more fluid pricing models had more impact on carrier compliance. The simplest answer is the fact that trucks are consistently out of position for picking up the freight.
In a chart of the week a few weeks ago, we looked at tender rejection rates for loads moving more than 800 miles into specific regions of the U.S. The West Coast region’s inbound rejection rate was by far the lowest, but still above 10%. Over the past few weeks, that direction has shifted and inbound rejection rates have increased into the region, a sign that carriers are having increasing trouble covering desirable lanes.
The elevated spot rates out of Southern California illustrate exactly why carriers so desperately want to get back to Los Angeles at this point. Outbound demand is outpacing inbound by 43% in the Los Angeles and Ontario markets. Magnify this over the course of a year and there simply is too much freight exiting Southern California and too little coming into the area.
With an average length of haul over 800 miles out of the two markets, pricing round trips is extremely costly. The only solution is for the imbalance to lessen either by reduction of outbound demand or increasing inbound freight flows in relation to one another.
Even if demand eases out of the West, there is a strong likelihood that it will also slow simultaneously from the East. This imbalance is driven by the disproportionate amount of goods being imported from Asian countries as industrial manufacturing has been pushed overseas where labor is relatively cheap.
Even with all the talk of near- or reshoring production, there appears to be little to no change as the economics have become worse in the U.S. as wage growth accelerated and blue-collar labor has become more scarce after a large portion of the workforce experienced furloughs or temporary layoffs during the pandemic and went on to find other careers.
Railroad bottlenecks due to limited drayage capacity have also exaggerated the problems as Union Pacific shut down service from Los Angeles to Chicago earlier in the year. Rail ramps and yards have been clogged and shipping companies need to keep containers as close as possible to the ports for return trips.
Demand easing would help, but the imbalances are not new and the rise of e-commerce may help keep these large gaps in freight balance in place well beyond the upcoming holiday season.
About the Chart of the Week
The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.
SONAR aggregates data from hundreds of sources, presenting the data in charts and maps and providing commentary on what freight market experts want to know about the industry in real time.
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NOVEMBER 7-9, 2023 • CHATTANOOGA, TN • IN-PERSON EVENT
The second annual F3: Future of Freight Festival will be held in Chattanooga, “The Scenic City,” this November. F3 combines innovation and entertainment — featuring live demos, industry experts discussing freight market trends for 2024, afternoon networking events, and Grammy Award-winning musicians performing in the evenings amidst the cool Appalachian fall weather.