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Are freight rates a matter of supply and demand?

Answer:

It really depends on the type of freight. For example, shipping fresh fruits and vegetables is more dependent on supply and demand because they spoil quickly. However, shipping metal or other durable goods isn’t as sensitive to changes in supply and demand.

How Supply & Demand Function in the Truckload Market

Now that you understand the basics of supply and demand, let’s take a closer look at how these economic principles function in the truckload market.

Supply refers to the total amount of available carrier capacity (trucks and drivers) and demand refers to the total amount of truckload volume (loads) from shippers.

In the truckload market:

Supply = carrier capacity (trucks & drivers)

Demand = truckload volume (shipments that need to move)

Here’s how to look at a supply and demand curve applied to truckload market dynamics.

If either line moves to the left (a decrease) or right (an increase), you can see how the equilibrium price point (i.e. current spot rates) moves to meet the trend.

Answer from Cargofive

On the other hand, the supply of maritime logistics service tends to be affected by the overcapacity in the market. There are no restrictions on the number of ships that carriers can build, plus we have to consider the time it takes to put one in actual service. It accentuates the supply fluctuation, which has a major impact on the freight rates. So, if shipping lines want to prevent rates to keep on sliding, they’d need to idle more ships.

How Air Freight Quote is Could be Determined?

Although it seems very necessary with all of these variations, automated and dynamic pricing doesn’t exist in this industry. It is still a very manual process, which slows down the market. Furthermore, it’s impossible or inviable for most freight forwarders to analyze rates fluctuations, because it takes a lot of manual effort.

Since the supply and demand are almost impossible to control at this point, the maritime shipping industry needs, therefore, more solutions to help reduce the impact of freight rates constant changing. There’s a significant need to automate and optimize pricing processes in the business.

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Nikolas White

Logistic, Warehouse and Shipping Services Expert. My work has been published in many different formats across North America with topics ranging from international trade to global logistics or supply chain management–all on the forefront of what’s happening right now!

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