-Note from the Author: The below article addresses truckload freight indexes for use in the United States and Canada.
If you’ve taken a moment to browse today’s freight news, you’ll probably find a slew of statistics attempting to quantify any number of applicable industry metrics. You may have read a doomsday article that pointed to one or more indexes and predicted that the writing’s on the wall for the freight market. Or you might have read a forecast based on the continuing driver shortage. If you’ve been around for a while, you may have noticed two articles arriving at two separate conclusions on the same market outlook. It’s pretty common to have many dissenting opinions when it comes to predicting the future of the freight market. Even the indexes themselves will often come to very different conclusions about the direction of the market from week to week. I think it’s safe to say that rule number one for implementing these tools is that you take their information with a grain of salt. That said, they are very useful (most of the time) and can help you save money and prepare against the times when the market is most volatile. You just have to know and understand their limitations. Below, I’ll do my best from an operational viewpoint to describe some of these tools I use almost every day.
Rate / Price Indexes
The indices that I use for pricing come from two companies, DAT and Truckstop.com. These two companies offer services to carriers, shippers, and brokers to help them find each other through networked load boards, similar to an online auction. They also provide, among other services, factoring (invoice processing and payment, collection, fuel card services, etc.) for interested carriers. The data they’re able to pull from these services allows them to paint a fairly clear picture of what the market has been doing. DAT RateView™ and Truckstop RateMate®, as the pricing services are called, fare best at predicting how seasonal trends affect lane pricing. They also do an okay job of predicting the current spot price of a lane. Frequently though, their current price prediction on a lane will differ greatly, especially when either the origin or destination market is in a volatile season. Since neither index has access to the metrics of the entire truckload freight market, their pictures are incomplete, and shouldn’t be used as an absolute price gauge.
These companies are able to use their data to provide some other useful analytics. DAT has a service called Trendlines™ that offers a national (and market) snapshot of where rates are now and where they’re headed based on the trajectory of past weeks. Truckstop has a market demand index (MDI) through their data sevice called Trans4Cast™ that attempts to measure how tight capacity has been, and where capacity and pricing will be in the future, based on current analytics and seasonal trends from previous years.
A third index that we use to help paint a slightly sharper picture of the market is the Cass freight index, created by Cass Information Systems, Inc. First and foremost, they are a payment and expense management and reporting service, but they are able to take much of that information to create some very useful reports. Though not an immediate price prediction tool, Cass indexes can be used to solidify the big seasonal picture painted by DAT and Truckstop.com. Cass also offers metrics for intermodal shipments, which is unique among the three.
Tender Rejection Index
This one is brand new, and we’ve been able to test drive it for a couple weeks. This index, found in a service package called SONAR, is exclusive to a company called Freightwaves. Because the index is new, it doesn’t offer many metrics for previous years. Still, we’ve found it to be very useful. The basic gist is that it looks at carriers contracts to accept load tenders from customers and shippers. When market capacity begins to tighten, carriers will tend to reject contract freight at higher percentages. Inversely, when capacity is loose, and there are less loads available in the market, the percentage of rejections drops. As the rejection index drops closer to 0 (the point at which no contract loads are reported as rejected by carriers), the market moves more to the shipper’s favor. The data can be singled out by market, and we’ve actually found this index to be able to identify market capacity ebbs and flows faster than any other index. Of course, it comes with a pretty hefty price, but if it saves you from overpaying on your lanes when the market suddenly calms, it’s probably worth it. The SONAR package touts a lot of other metrics, but we’re still trying to figure out how much of it has an applicable use for us. It’s still fun for all of us data geeks to play with.
Each of these tools provides a unique (but incomplete) snapshot of our freight market. Used in conjunction with each other, shippers can get a pretty clear picture of where rates should be, but at the end of the day, the final rate that you pay on a lane will have to do with many more variables than the market rate, or driver confidence. The difference of $200 could be over whether or not the shipper has a toilet, or what the driver ate for breakfast. You can’t trust an index to give you amazing accuracy beyond the past, but you can trust it to lead you in the right direction.