With national average spot van rates hovering at or under $2/mile for the last three months in a row, Overdriveasked readers for answers to the question on every owner-operator's mind: Who is hauling all this cheap freight?
Ultimately, "cheap freight" is a loaded phrase in and of itself, and truly "in the eye of the beholder," as they say. $1.75/mile might not seem like a good rate for most owners, but what if it's a load out of Miami that takes you right smack dab to an origin point where $3/mile loads are common? Or what if it takes you to your own doorstep?
We didn't quibble much over a universal definition of "cheap freight," with the questions rather focused on loads at the edge of, or below, profitability goals. That's what we mean when we invoke the term throughout the rest of this report, showcasing recent survey results from nearly 600 respondents.
The American Transportation Research Institute's most recentOperational Costs of Trucking reportput carrier costs at $2.25/mile, based on 2022 data, passing $2/mile for the first time ever in the history of the report. The average cost of trucking for small carriers, specifically, sat even higher at $2.30 -- costs are inclusive of pay to the truck operator. These are somewhat older numbers, and not a perfect measure (we sure hope your own are lower today; for tips on getting cost in control them read Gary Buchs' latest on fighting "cheap freight" one load at a time). But based on these benchmarks, it sure does look like there's a whole lot of cheap freight out there today.
With the first question, we asked independent owner-ops and small fleets to take a look in the mirror, so to speak:
As results show, a majority of respondents admitted to taking it on the chin with an unprofitable load at some point or other, an honest 14% noting though that hauling at unprofitable rates wasn't the intent when the load was negotiated. For another 6%, though, with an outright confession, running at a loss is a frequent occurrence.
Partner Insights
Information to advance your business from industry suppliers
Presented by Rand McNally
A tiny 1% noted they were "not sure," but if you're really not sure if you made money on a load, is it likely you did?
In any case, it's fairly obvious the "say no to cheap freight at all costs" camp, whether by virtue of circ*mstance or will, is in the minority here. No surprise, maybe, that the majority of carriers admit to sometimes hauling for cheap.
The real question came next: Why?
Here, we begin to get the real story.
When 'cheap freight' stops being cheap
The most commonly cited reasons for running at a loss were geographical, with "cheap freight" chosen to get to a better-demand area or home most often. Add the "More than one of the above" choice and geography might account for close to 80% of the total vote.
Commentary accompanying this question illustrated various reasons behind unprofitable trucking.
"We average our rates over the course of a trip," said one commenter. "Our outbound loads pay more than double the market rate. Therefore, we can afford to take a load back to our dedicated shipments without losing money. Plus, we have no debt and we don't factor. So our cost per mile is less than most out there today."
It seems "cheap freight" stops being cheap when:
- It's on your way,
- It gets you to a better lane, or ...
- Averaged with the "head haul," you still come out on top.
Another commenter seems to refute that notion: "I'll run home empty before I participate in that kind of thinking. It simply perpetuates a broken industry by running for nothing. It lowers the bar."
Similarly, this commenter urged small fleets and owner-operators to consider the wider impact of load choices:"All those irrational arguments are just brokers' way to negotiate very low and unfair rates, which is violating one of the most important values of any business, 'social responsibility.'"
[Related:Words to truck by: You will 'never, ever come out ahead running at a loss']
A lot of the talk makes a big assumption -- that a carrier knows its true cost at the time of booking. Sometimes, though, it's the carrier's knowledge -- or lack thereof -- that yields a revenue shortfall, as one commenter wrote of their close brush with a money-losing oversize move: "Not doing my proper research about cost of oversize permits and number of escorts and police escorts the state was going to require."
So how do these carriers hauling all these unprofitable loads stay in business? (Remember, only about a third of respondents admitted to hauling cheap freight more than a time or two.)
Our last question asked for owners' impression/opinion of any carrier routinely running at or close to a loss. Here's how the results shook out.
Some owners took amore sympathetic view, with 15% acknowledging the lengths to which many will go to get through hard times without losing everything.A downright optimistic 13% flagged the role of efficiency in competition: A truck that gets 10 mpg will run for less than a truck getting 6.
Good point -- our May Trucker of the Month Alec Costerus and the Alpha Drivers Transportation two-truck operation exemplify this strategy with fuel efficiency near doubling the average Class 8.
A final 5% of respondents chimed in with write-in responses. Some blamed foreigners or "visa drivers." Some blamed the government.
"Those carriers are supported by the government, and it needs to stop," one wrote. "CDLs shouldn't be given out like candy. Safety and quality of life is compromised."
Others blamed large fleets putting the squeeze on owner-ops.
"Last man standing who has deeper pockets, or is more efficient, or both," wrote one, summing things up.
[Related:Fuel mileage gains, business prowess power Trucker of the Month Alec Costerus' Alpha Drivers Transportation]
Among plenty of broadsides against foreign or immigrant drivers and the government, some took on a tone of personal responsibility.
"Almost every owner-operator in my segment of trucking that I’ve asked what their cost-per-mile to operate was looked at me as if I were growing a third eye right in front of them," one wrote.
One pointed to the Federal Motor Carrier Safety Administration's broken registration system, and a general lack of enforcement of rules in place:"I think there is a very real probability that because FMCSA does not enforce the rules currently on the books pertaining to carriers and their legitimacy, as well as driver accountability, there are a lot of illegally operated trucks moving freight for any rate as part of a much bigger illegal enterprise."
There was plenty more blame to go around, too: "Some of these guys have no health insurance, live in their truck and drive crap equipment that is paid off. ... Oh and the companies insure one truck but they run 10."
Many called for brokered-transaction transparency, at the center of perhaps the hottest debate now in trucking. Owner-operators pushing transparency enforcement or new automated-disclosure mandates believe opaque broker practices push down rates, and that those cheap rates ultimately impact safety, reflected in substandard equipment and safety practices seen.
One commenter summed it up this way:
"We see these operators on the road every day -- bald tires, broken mirrors, bumpers hanging off, leaking oil faster than they can put it in. That is what you can see at 65 mph. What about brakes, suspension, steering components? That is the true cost of low rates: no maintenance. As an example, how many guys parked their trucks, ran nights or back roads to avoid scale houses during this past blitz week? Why?"
In the final analysis, you don't need to know the whole story of what every other carrier is doing. As plenty commenters also suggested, one man's cheap freight is another's profitable load. The best defense against running in the red becomes knowing your own numbers. If, on top of that, you can improve efficiency to get your costs down and really see the results, then cheap freight stops looking so cheap.
[Related:Calculate any load's cost in relation to time, not just miles]
