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July 25, 2011 3:30 AM, EDT

Spot Market Activity Gaining as Hauling Capacity Tightens

By Rip Watson, Senior Reporter

This story appears in the July 25 print edition of Transport Topics.

Indications are growing that carriers, brokers and shippers are shifting freight-buying habits to make more use of spot markets and load boards as freight capacity continues to tighten, sources said.

American Trucking Associations’ tonnage index is stuck where it was when the year began, while load board operator TransCore’s freight index has risen 56%, and the market demand index published by Internet Truckstop, another load board operator, has risen as much as 75%.

“Companies are posting on these boards because they don’t have the trucks,” according to Gary Salisbury, CEO of Fikes Truck Line, Hope, Ark. He said the carrier has doubled the use of load boards since April.

“We use those boards to post our extra loads,” Salisbury said. “They help us to develop relationships with other carriers.”

Fikes also uses the boards to find freight for drivers outside normal service areas, Salisbury said.

David Schrader, senior vice president of TransCore, said that “we are seeing capacity taken out of the market from failures and bankruptcies that hasn’t been replaced, combined with a marginally stronger economy.”

Recent load board growth “all goes back to the capacity issue,” said Leigh Foxall, director of sales and marketing for Internet Truckstop, New Plymouth, Idaho.

She said growth began to spike in December, when volumes normally taper off after the fall shipping peak, and has not stopped since.

“Even though demand isn’t as strong as we all would like it to be, the supply of trucks is stressed out right now,” said Jeff Tucker, president of Tucker Cos., a brokerage based in Cherry Hill, N.J.

Several other indicators also signal load boards’ growth.

For example, Internet Truckstop’s demand index has risen 45% since mid-July of 2010, when that barometer was 7.58.

In addition, TransCore’s load board activity rose 36% in June over the same month of last year, and increased 14% from May.

“At this point, things are looking good,” said TransCore’s Schrader. “We weren’t sure how to read the early May deceleration in freight. By the end of May and into June, we saw another uptick.”

Salisbury said Fikes uses Internet Truckstop almost exclusively because of services such as verification of insurance and payment monitoring.

As load boards grow, brokers that often use them are moving a greater share of truckload freight, said Richard Armstrong, CEO of Armstrong & Associates, which noted a 13% rise in domestic brokers’ gross revenue last year to $31.4 billion.

Brokers currently arrange about 18% of truckload moves, up from 12% five years ago, said Armstrong, who believes that percentage will rise by 1% annually, with no upper limit on growth.

Small carriers play a major role in load boards.

“Small fleets tend to go more to load board postings and not move as much contract freight,” said Bob Costello, ATA’s chief economist. “They tend to do worse in bad times and better in good times.”

“Carriers with 20 trucks or less really need third-party logistics operators to function as their sales department,” Armstrong added.

Robert Voltmann, president of the Transportation Intermediaries Association, said load boards are valuable because “smaller brokers found they were able to make more money on the spot market.”

His group defines smaller brokers as those with less than $500,000 in revenue.

Larger brokers generally focus more on contracts with slightly lower margins and higher volumes, largely leaving the load board markets to smaller operators, Voltmann added.

Several other factors are making load boards more attractive.

Drivers embrace load boards, Tucker said, because they can verify a broker or shipper’s credit as they are finding a load.

Load boards also are growing because major truckload fleets are using them instead of adding tractors, he said.

Foxall noted that services such as brokers’ credentials, payment habits and rate information are making load boards more attractive to users.

Foxall also said a new round of bankruptcies this year as diesel topped $4 a gallon has sparked more load board activity.

Schrader identified another factor. Rates on about 35% of major freight routes such as Chicago-Dallas currently are higher on the spot market than they are in contracts, said Schrader, prompting carriers to divert trucks to that higher margin business.

Internet Truckstop’s business has grown 20% in three years, Foxall said. Over that time, ATA’s tonnage index has gained less than 1%.

“The days of posting loads in a truck stop are gone,” Foxall said, because brokers/shippers want to verify the reliability of the carrier calling on the load. “Brokers/shippers are using load boards that verify carriers’ insurance and authority. It might take only one missed delivery from an unreliable carrier to put your shipper contract at risk.”