In 2018, the impact of the electronic logging device (ELD) mandate in tandem with a strong U.S. economy translated into a lack of truck capacity and higher freight rates. Any moves to or from the farm that are located within 150 air miles of the farm are exempt from ELD regulations. Carriers responded to the higher rates by ordering new trucks, paying drivers more, and increasing driver recruitment efforts. FTR reported Original Equipment Manufacturers (OEM) building capacity was booked for 2019 or approximately 420,000 units.
The long-term answer is that a steady supply of new drivers is needed. While the answer sounds simple, a potential driver must meet age requirements, commercial driver’s license testing standards, strict drug and alcohol testing regimes, and have a safe and clean driving record. Many communities and transportation companies have truck driving training programs to increase the number of drivers available to potential employers. Early returns in 2019 suggest these efforts are paying dividends.
Truck capacity is booked either by spot market or through a contract rate. The spot rate is the market rate while the contract rate is a forward contract. The advantage of a contract rate is knowing the future freight price and ensuring available truck capacity. Due to the world soybean market being dependent on unpredictable variables, such as weather patterns and government policy, the origination and destination locations are not always known a year prior. As a result, most soybean truck volume is spot business transported by small trucking companies and farming organizations.
Actual truck freight rates per loaded mile indicate the available truck capacity and more truck drivers are having a positive impact on spot rates from a shipper’s point of view. The truck freight rates within the Midwest region peaked in July 2018 and have fallen below $2.50 per loaded mile as shown below. The data is actual rates versus minimum rates. It is interesting how the truck rates jump around more than most people believe. It appears if a shipper is in the right position, truck rates are very low. This is likely due to the shipper sending cargo to a location that has an available cargo for a paid backhaul versus the trucker having to deadhead or returning empty with no revenue. The truck rate difference also explains why a shipper might ship a further distance to a location that will be more likely to have a backhaul opportunity, such as St. Louis, Missouri. The bottom line is that the combination of lower truck freight rates and lower barge freight rates enable soybean buyers to pay a higher cash price for soybeans, which is important in the current low-price environment.
