Carrier Depot :: Pricing Theory

Pricing Theory

A long established economic principle is that the price of any good or service is a function of the supply and demand for it.
Freight rates are a function of the demand for trucks in a particular area versus the supply of trucks in that area. Geographic areas with high volume shippers have a higher demand for trucks to haul their freight. Shippers are willing to pay a premium because there are not enough trucks available to cover all of the loads. Headhauls = Demand for trucks > Supply of trucks, Rates are at a premium.
On the other hand, some geographic areas are made up of consumers rather than producers. Shippers need to deliver a lot of freight to these areas to keep up with consumer demand. There are a lot of inbound trucks, but not enough freight to load them all. The demand for trucks in these areas is less than the supply of trucks, so carriers are willing to haul freight at a discount. Backhauls = Demand for trucks < Supply of trucks, Rates are discounted.
In some geographic areas there are both producers and consumers, causing the inbound and outbound alternatives to be about equal. In these areas, referred to as intermediate hauls the supply and the demand for trucks are equal and carrier's can expect to receive an average rate. Intermediate Haul = Demand for trucks = Supply of trucks.
The following diagram illustrates how the outbound alternatives affect truckload pricing: