Market concept applied to refrigerated transportation for 3PL brokers

Publish on 2010-11-16 by Alexandre Giroux
Market concept applied to refrigerated transportation for 3PL brokers

As previously discussed on this blog about the temperature controlled transportation market (frozen transportation, fresh produce transportation and all other types of temperature specific specialized logistics), RM Logistic is always looking forward to fulfill the needs of its customers and meet their expectations by caring about all the details and requirements.

In order to fulfill those needs, it is very important to understand the basics in the market price. Last time on this blog, we mentioned the concept of equipment availability for certain areas. We introduced the concept of the market price that goes hand-in-hand with truck availability.

Market price

The market price in the trucking industry undergoes the same basics as economy 101: supply and demand. Since specialized equipment, such as refrigerated trucks, goes where the demand is, it appears clear that some lanes in transportation will see a great fluctuation in their price. Seasonal produce has a great impact on truck availability and price. Let’s say you have a weekly pick up in New York with a reefer truck, the price and the truck availability will fluctuate within the same year due to certain seasonal products such as watermelon in june from Laredo, TX.

Certain regions are active during a certain period of the year. California, for instance, is active 12 months a year, but only 9 months to the Northeastern regions, due to this areas growing capacity during the other 3 months. Low prices on the outbound to California will be observed during this period. The same thing goes with Laredo, TX, El Paso, TX and Nogales, AZ which is on the border between USA and Mexico. During high season peak, we will notice a low truck availability for reefers out of other areas like Rochester, NY as an example.

Weather

The weather affects truck availability too because of its effect on harvesting and picking. For example, berry picking doesn’t occur when it’s raining in California. All the refrigerated equipment will be immobilized until the picking begins. The supply will exceed the demand, and the price for that period will go down, sometimes very sharply.

Also there is a direct relationship with the truck market pricing and the market price for the commodity for the end user. Therefore, there’s a limit to what a haul back can cost. End-market consumers, namely you and I, will never pay $15/per carton for strawberries, therefore it will never be possible to have a TL of berries paying $20 000.00 to Montreal.

The principles of supply and demand can also be explained by the factor of transportation hubs. The same truck that goes somewhere in South Dakota will cost you more than a truck going to California per mile. There isn’t that much freight to pick up in South Dakota, which makes the return hard to book without dead miles. Drivers usually have to drive with an empty trailer to a bigger hub to get loaded and they’re usually charging those empty miles and the way to go.

It would be the same principles for the same lane in two different directions. Let’s say for instance the lane New York City, NY to San Francisco, CA. Since California has an trade imbalance with New York, prices for transport will be more expensive to go to California than it is to come back. This is simply due to a large pool of equipment originating from California stuck in New York without a proper paying backhaul.

Currency

The currency is also a major factor in equipment availability and market rates for trade between two countries. Like we have experienced lately since our currency is at parity to US. This has motivated Canadians to buy more from the USA because of the usually cheaper costs due to the sheer economy of scale. That will create a large pool of carriers that went outbound to the US with Canadian goods always loaded to come home from the high supply of US freight. This will affect the inbound rates from the high demand and low supply.

There are many other reasons that can affect the price of transportation such as fuel rate, time of the week (Friday afternoon emergency), Holliday seasons, and so on. This is why it is a good thing to work with brokers that are always looking for your best interest such as RM Logistic in Montreal to always get a fair rate for a specific timeframe.

Questions or comments

You can always contact me at :
alex@rmlogistic.com for any other inquiries. See you in two weeks!