Understanding Freight Rates

Freight rates are the foundation of trucking profitability. Understanding what drives rates up or down, how to calculate them, and how to position yourself for maximum revenue is essential for successful dispatching. This guide breaks down the complex world of trucking rates, from spot market dynamics to contract pricing strategies.

Rate Components Breakdown

Line Haul Rate:

Base Freight Rate:

Payment for transporting cargo from Point A to Point B
Quoted as:
- Per mile: $2.00/mile × 1,500 miles = $3,000
- Flat rate: $3,000 for the load (regardless of exact miles)
- Per hundredweight (CWT): $15/CWT × 400 CWT = $6,000

Most Common:

Per mile - Standard for most truckload freight
Easiest to compare across lanes and loads

Fuel Surcharge (FSC):

Purpose:

Compensate for fuel price fluctuations
Protects carrier from sudden fuel cost increases
Adjusts weekly based on national diesel average

Calculation:

Based on DOE diesel fuel index
Formula varies (negotiated)
Typical: $0.05-$0.30/mile depending on fuel prices

Example Formula:

National average diesel: $4.00/gallon
Baseline: $2.50/gallon (agreed starting point)
Difference: $1.50/gallon
Fuel surcharge: $1.50 ÷ 6 MPG × surcharge % = FSC

Contract vs. Spot:

Contract freight: Usually has FSC clause
Spot market: Often built into rate (not separate)

Accessorial Charges:

Detention:

Waiting time beyond free time
Rate: $25-$75/hour
Free time: Typically 2 hours

Lumper Fees:

Unloading service
Cost: $100-$500
Sometimes reimbursable, sometimes not

Tarp Fees (Flatbed):

Covering load with tarp
Fee: $50-$150/load

Layover:

Driver waiting overnight
Rate: $100-$200/day

Extra Stops:

Multiple pickups or deliveries
Fee: $50-$150 per additional stop

What Influences Freight Rates

Supply and Demand:

High Demand (Shipper's Market):

More loads than trucks
Rates increase
Carriers have negotiating power
Examples: Q4 holiday season, harvest season

Low Demand (Carrier's Market):

More trucks than loads
Rates decrease
Brokers have negotiating power
Examples: January-February post-holiday slowdown

Balanced Market:

Equal supply and demand
Moderate, stable rates
Fair negotiations

Lane Characteristics:

Head Haul vs. Back Haul:

Head Haul (Strong Direction):

High freight demand in this direction
Higher rates
Example: CA → TX ($2.50-$3.50/mi)

Back Haul (Weak Direction):

Low freight demand in reverse
Lower rates
Example: TX → CA ($1.50-$2.20/mi)

Why:

More freight moves from CA to TX than reverse
Supply/demand imbalance creates rate differential

Distance:

Short Haul (<250 miles):

Higher rate per mile ($2.50-$4.00/mi)
Fixed costs spread over fewer miles
More time loading/unloading relative to driving

Medium Haul (250-800 miles):

Moderate rate per mile ($1.80-$2.50/mi)
Good balance of revenue and efficiency

Long Haul (800+ miles):

Lower rate per mile but higher total ($1.60-$2.30/mi)
More efficient (more driving, less loading time %)
Better for driver productivity

Equipment Type:

Rate Premium by Equipment:

Dry Van (Baseline):

Standard rates
Highest availability
Most competition
$1.50-$2.50/mi typical

Reefer:

+$0.30-$0.50/mi vs. dry van
Fuel costs for reefer unit
Temperature control adds value
$2.00-$3.00/mi typical

Flatbed:

+$0.40-$0.80/mi vs. dry van
Specialized loading/securing
Tarping labor
$2.00-$3.50/mi typical

Step Deck:

+$0.60-$1.20/mi vs. dry van
More specialized
Less competition
$2.50-$4.00/mi typical

RGN/Lowboy:

+$1.50-$6.00/mi vs. dry van
Heavy haul expertise
Permits often required
$3.50-$10+/mi typical

Seasonality:

Peak Seasons (Higher Rates):

Q4 (Oct-Dec): Holiday freight, +30-50% rates
Harvest (Aug-Nov): Agricultural products, flatbed demand
Summer (Jun-Aug): Reefer produce season
Spring (Apr-May): Construction materials, flatbed

Slow Seasons (Lower Rates):

January-February: Post-holiday crash, -20-30% rates
Winter (Dec-Feb): Weather disruptions but lower demand

Cargo Type:

High-Value Cargo:

Electronics, pharmaceuticals
Premium rates: +10-20%
Higher insurance, security requirements

Commodity Freight:

Dry goods, palletized freight
Standard rates

Hazmat:

Premium rates: +15-30%
CDL endorsement required
Routing restrictions
Higher liability

Perishable:

Premium for expedited: +20-40%
Time-sensitive delivery
Temperature requirements

Rate Calculation Methods

Per Mile Calculation:

Standard Method:

Rate = Miles × Rate Per Mile

Example:

1,500 miles × $2.00/mile = $3,000

All-In vs. Loaded Miles:

Loaded miles: Actual distance with freight
All-in miles: Loaded + deadhead to pickup
Negotiate based on loaded miles, calculate profitability on all-in

Rate Per Mile Benchmarking:

Operating Costs:

National average: $1.60-$1.95/mile (all-in costs)

Minimum Profitable:

Cost + desired margin
$1.75 cost + $0.25 margin = $2.00/mi minimum

Target Rates:

Dry van: $2.00-$2.50/mi
Reefer: $2.30-$3.00/mi
Flatbed: $2.40-$3.50/mi

Spot Market vs. Contract Rates

Spot Market:

Characteristics:

Load-by-load pricing
Negotiated for each load
Market-driven rates
Volatile (changes daily/weekly)

Advantages:

✅ Flexibility to pick best rates
✅ Can capitalize on peak seasons
✅ No commitment

Disadvantages:

❌ Unpredictable revenue
❌ Time spent searching
❌ Rate volatility risk

When to Use:

Extra capacity beyond contracts
Filling gaps in schedule
Peak season premiums

Contract Rates:

Characteristics:

Guaranteed rates for period of time (3-12 months)
Guaranteed volume (X loads per week/month)
Dedicated lanes
Less negotiation per load

Advantages:

✅ Predictable revenue
✅ Stable operations
✅ Less search time
✅ Preferred capacity (you get loads first)

Disadvantages:

❌ Locked in during peak seasons (miss high rates)
❌ Minimum volume commitments
❌ Less flexibility

When to Use:

Core business (60-70% of capacity)
Want stability
Committed to specific lanes

Hybrid Strategy:

Best Approach:

70% contract freight: Stable base
30% spot market: Capitalize on peaks, fill gaps

Benefits:

Stability from contracts
Upside from spot market peaks
Flexibility to optimize

Conclusion

Understanding freight rates is fundamental to dispatching profitability. Rates are influenced by supply/demand, equipment type, distance, seasonality, and negotiation skills. Successful dispatchers know when rates are fair, when to push for more, and when to walk away.

Key Takeaways:

Rate Components:

✅ Line haul (base rate)
✅ Fuel surcharge (if applicable)
✅ Accessorial charges (detention, lumper, tarp)

Rate Drivers:

✅ Supply and demand (market conditions)
✅ Lane balance (head haul vs. back haul)
✅ Equipment type (specialized = higher rates)
✅ Distance (short haul = higher rate/mi)
✅ Seasonality (Q4 peak, Q1 slow)
✅ Cargo type (high-value, hazmat = premium)

Benchmarking:

✅ Know your operating costs ($1.60-$1.95/mi typical)
✅ Use DAT RateView, Truckstop for market rates
✅ Calculate minimum acceptable rate
✅ Target profitable rates above break-even

Strategy:

✅ Mix of contract (stability) and spot (upside)
✅ Specialize in profitable lanes
✅ Avoid chronically unprofitable markets

"Rates tell a story—of market conditions, lane balance, and equipment value. Learn to read the story and profit from it."

Continue Learning:

Master freight rates for consistent profitability. Continue your education at Carriversity.

Understanding Freight Rates