Ever wonder how your carriers come up with their lane pricing? Here’s a quick primer on some of the key factors that go into these decisions.
Also referred to as a “freight lane,” a carrier lane is simply a route that’s routinely served by a specific carrier. By establishing lanes to operate in, carriers, independent operators, and large trucking operations can run more efficiently and effectively (versus trying to serve “everyone everywhere”).
Many less-than-truckload (LTL) carriers operate within a fixed region of the country where they have established lanes, while national LTL carriers operate both within defined regions and via long-haul lanes that carry freight through those regions. Finally, independent operators manage both full and partial truckloads within their established lanes.
5 Points to Remember
Here are five determining factors that carriers use when developing their lane pricing:
- Current freight volume. Much like any industry that fluctuates according to supply and demand, freight usually costs more to move when everyone is vying for space on trucks. When that demand wanes, lane pricing usually retreats along with it. “Rates are elevated right now and the supply-demand dynamic suggests they will remain so for some time,” Freightwaves “Carriers are rejecting loads at a high rate and volumes are flowing at historic levels. Carriers have options and they are exercising them in search of margins.”
- Fuel costs. As fuel prices go up, carriers typically adjust their costs to offset their own increased cost in this realm. When fuel costs go down, the savings are often passed along to the shipper via a fuel cost component that carriers build into their own pricing models. These fluctuations can directly impact carrier lane pricing.
- Head-hauls, backhauls, and deadhead miles. When truck drivers are competing to reduce empty miles, rates will be lower. When shippers are competing to find capacity, rates will be higher. Key factors that carriers look at include the chances of getting reloaded after delivery; and the load-to-truck ratio at the pickup and delivery locations. They also factor in deadhead miles or the number of “empty” miles that have to be driven between pickup and delivery locations (for the next load).
- Driver pay and labor availability. These two go hand-in-hand: when there are ample drivers to choose from, and when those drivers aren’t commanding higher wages, carrier lane pricing tends to remain steady. However, when driver shortages begin to drive up wages, those increases are usually reflected in higher transportation costs for shippers. Coming off a year when labor availability was an issue for most organizations—and then moving right into the 2020 pandemic (which took a different toll on workforce availability)—this point remains a major hurdle for carriers and trucking companies.
- Government regulations. Hours of service (HOS) rules, the electronic logging device (ELD) mandate, and other government regulations can all directly impact carrier lane pricing. For example, the HOS rules—which have since been integrated into carriers’ business models—had an initial impact by reducing the number of hours that a driver could be behind the wheel before stopping for a break. That meant no more waiting out in the yard for two hours for a dock door to open up (during which time the driver’s hours could run out). By deploying digital yard management systems (YMS) like PINC, companies have been able to eliminate these detention issues and keep drivers safe and operating (and subsequently, transportation costs affordable).
Keep these points in mind as you plan out your next load, knowing that most of the issues can be worked around if you attack them well in advance (versus waiting until it’s too late to do anything about it). Talk to your carriers about your options and use your YMS and transportation management system (TMS) to come up with a plan to provides the best value at the right price.