Market Overview

Who's Really Hauling Spot Market Freight?

Who's Really Hauling Spot Market Freight?

From the first day of on the job training, a freight broker is taught to focus on owner-operators and micro-fleets (one to three trucks) to find capacity. The tribal knowledge surrounding this belief is: smaller fleets rely on the spot market the most; and larger carriers source all their freight directly from shippers. The new freight broker usually takes this early advice and starts hammering the phones, focusing on small carriers.

While using owner-operators to find capacity is a key for success as a broker, the estimates of how many owner-operators are in the market is often inflated by 200 or 300 percent. This means at some point freight brokers will have to focus on larger fleets to grow their books of business. When doing this it is important to know that there is a sweet spot in the market that is often overlooked by freight brokers and shippers. 

This sweet spot was identified by Dr. Jason Miller at Michigan State University (MSU) during regression testing on a survey conducted by Freightwaves and CarrierLists in May 2018. The survey interviewed 1,918 fleets operating between five and 200 trucks, and found that 63 percent of these carriers sourced their loads directly from shippers. Dr. Miller found that several variables could be used to determine the probability of carriers sourcing directly from shippers. These include fleet size, trailer types, domicile location and length of normal haul.  

The most surprising finding in the analysis is that fleets between five and 20 trucks source more freight directly from shippers than those operating between 40 to 100 trucks. At first glance this goes against conventional wisdom, but on further investigation there is evidence to support this finding. 

Once the sweet spot that is often overlooked is identified, the next step is to identify how many carriers run 40 to 100 trucks. This way freight brokers can better target their time and resources to build a competitive advantage by developing new relationships with this overlooked fleet segment. 

The probabilities of fleet size and sourcing freight directly from shippers

The chart below details which fleets by size have the highest probability of sourcing at least 70 percent of freight directly from shippers. 

Probability that at least 70 percent of freight is from shippers for dry van, national carriers

The most interesting finding from the MSU analysis is that fleets with five to 18 trucks have the highest probability of sourcing at least 70 percent of their freight directly from shippers. The probability drops to less than 50 percent for fleets with around 50 trucks, before starting to climb again. 

This goes against conventional wisdom. How can fleets from five to 25 trucks source more freight directly from shippers than fleets of 40 to 100 trucks?   


Small fleets and local shippers

Small fleets with five or more trucks are often built around one or two dedicated "hometown" customers. These are deep relationships the fleet owner and the local shippers have forged over the years. The core customers provide loads outbound on either dedicated point-to-point lanes, or to varied locations across the country. 

The fleet owner then either develops backhaul lanes through a combination of shippers at the load destinations or through freight brokers. These backhaul lanes are of the utmost importance for small fleets as they need to reposition trucks back to their hometown to provide capacity for their core customers. 

Carriers most active in the spot market were fleets with 40 to 100 trucks. These fleets find themselves in the tweener space – too large to be supported by a small group of hometown customers, and too small to be invited to win bids from large shippers looking for "core carriers." Most do not have the scalable processes, sales staff and capital needed to double or triple their fleet to reach the size needed to land contracts from large shippers. This means they must rely on the spot market a bit more than smaller fleets. 

This is where the sweet spot is in the market. Fleets running between 40 to 100 trucks are running spot freight more than most realize. By moving time and resources to this group you will be able to find capacity that most freight brokerages overlook. 

Now that the sweet spot has been identified at between 40 and 100 trucks, the next question is, how large is this market? How many carriers are in this segment? 

Creating an estimate for the true number of fleets and trucks on the road 

Determining the true number of active carriers operating in the U.S. is difficult to say the least. The trucking industry is highly fragmented and consists of mostly small privately held companies. Most estimates are based on the Federal Motor Carrier Safety Administration (FMCSA) census file. While this database is the most comprehensive, as it contains the registration information from all carriers with U.S. Department of Transportation (USDOT) and Motor Carrier numbers (MC Numbers), it is all self-reported and updated only every two years. 

This makes the census file highly inaccurate. Carrier registrations are littered with clerical errors, misclassified private fleets, carriers that have closed up shop, have disconnected phone numbers, and thousands of other carriers with no trucks registered at all. These flaws are apparent to anyone who has ever prospected for carriers using the FMCSA census file supplied by many third-party vendors. 

The true number of for-hire interstate carriers is unknown. All the trucking industry can hope for is the best estimate possible. This again is difficult because many sources cite the FMCSA census file without filtering out any of the misclassifications and errors inherent in this dataset. 

The Owner-Operators Independent Drivers Association (OOIDA) estimates there are 526,000 fleets operating one to 100 trucks on the road right now. The American Trucking Associations estimates there are 777,240 carriers on file with the FMCSA census file. 

A better estimate of for-hire interstate fleets can be attained by filtering out as much noise in the data as possible. This includes removing all private fleets, fleets reporting less than a minimum number of miles, along with fleets without any equipment registered. 

With these filters applied the total carriers and trucks are more realistic. These counts for both for-hire interstate and intrastate carriers are in the tables below. 

These carrier and truck counts are more reasonable estimates based on employment and revenue numbers for the trucking industry. For example, OOIDA references $350 billion in annual revenues for the for-hire full truckload segment based on an industry estimate at Adding truck counts for both interstate and intrastate trucks averages out to an annual revenue per truck of $198,172. This annual revenue amount is line with $15,000 to $20,000 monthly revenue per truck that is used by many as a target number. 

How many fleets and trucks are in the sweet spot? 

According to the estimates above, there are approximately 3,310 fleets operating 199,951 trucks in the sweet spot of fleets (40 to 100 trucks). This is 13 percent of all for-hire interstate trucks on the road, and one-third more capacity than owner-operators. 

By devoting more time and resources to the sweet spot identified above, freight brokers will unlock hidden capacity that is often overlooked. This strategy will at least make them more competitive, if not create a competitive advantage almost overnight. 

Image Sourced by Pixabay

Posted-In: Freight Freightwaves Logistics spot market Supply ChainNews Markets General


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