If there is anything that owners of small trucking businesses will never be completely happy about, it’s freight rates — unless, of course, it’s fuel prices. Even when freight spot rates were reaching record highs in early 2022, some owner-operators were still complaining about “bad” rates on social media outlets.
The reality is that freight rates and fuel prices fluctuate, and successful trucking businesses adapt their operations to remain profitable. Those that don’t adapt generally don’t stay in business.
Freight rates are broken down into “spot” rates, which are offered on the open market as loads become available, and “contract” rates that are guaranteed in agreements between carriers and customers. Contract rates can protect both parties against fluctuations in the market, but they can also obligate the parties to rates that could become unfavorable if the market changes.
Using data received from DAT Freight and Analytics, derived from actual load transactions on the DAT load board, and from the U.S. Energy Information Administration, The Trucker took a look at the last 20 years of rates and fuel costs.
There’s no doubt that 2022 was indeed a prosperous time for trucking. Spot rates for dry van freight reached their highest point in January 2022 at $2.70 per mile, and contract rates hit their high point the following month at $2.62. The fuel surcharge added to the rate per mile, however, reached its highest mark of 75 cents per mile (cpm) in June 2022. By then, spot rates had fallen by 77 cpm to $1.93. Just as truckers were feeling the pinch of lower rates, average fuel prices spiked at $5.81 per gallon nationally and $6.92 in California.
While carriers took the hit on spot rates, contract rates in June 2022 remained higher at $2.48 per mile, down just 14 cents from their peak. Carriers that hauled larger percentages of contracted freight weren’t hit as hard as those who relied on the spot freight market. That’s because contract rates tend to follow spot rates, but they lag three to six months behind as carriers and shippers identify trends and renegotiate contracts.
All of this underscores the importance of making sure to consider fuel surcharges when considering posted loads. Contracts for rates often contain fuel surcharge addenda, so the carrier is assured of fuel surcharges on each load. Posted spot rates may build in fuel surcharges, while others may pay them separately. It’s always a good idea to make sure of the amount you’ll receive, including surcharge.
A year after attaining the high point in January 2022, dry van rates had fallen to $1.83 per mile and had dropped to $1.67 by March. Contract rates fell too, but only to $2.26 per mile. Fuel surcharges also fell, reaching an average of 49 cents by March 2023. That’s commensurate with national average fuel prices reported by the Energy Information Administration (EIA), which were $3.92 in the same month.
Rates for temperature-controlled freight followed a similar trajectory, but the timing was a bit different for flatbed freight. Flatbed spot rates hit their highest point of $2.76 per mile in June 2021, seven months earlier than dry van and refrigerated.
It helps to understand the trucking segment in which you work. Flatbed rates, for example, often climb as construction season begins, and also after hurricanes or other weather events cause damage that must be repaired. Refrigerated truckers might learn the various harvesting schedules in different parts of the country, or locations where foreign produce arrives in the U.S. Some research and some conversations with other drivers could result in significant revenue increases.
Understanding freight lanes can make a difference, too. Before accepting that great rate to Miami, for example, it’s best to see what loads coming out of Miami are paying. Online load boards, like the one operated by DAT, make it easy to do so. The most profitable carriers plan several loads in advance.
The EIA predicts that fuel prices won’t change much for the rest of 2023 — and will actually decline in 2024 — but it’s important to note that the oil market can quickly be impacted by weather events, military conflict and other factors. No projection can be 100% accurate.
Fuel surcharges fluctuate with average pump prices, of course, but there’s another factor used to calculate them — the fleet average miles per gallon (mpg). Nationally, the average for Class 8 trucks is about 6.25 mpg; that’s the number typically used for calculation of fuel surcharge. What really matters is the mpg of the truck you operate. That’s what determines how much the fuel surcharge helps you cover the cost of fuel.
For example, the national average fuel surcharge reported by DAT for March 2023 was 49 cpm. If your truck achieves the national average mpg of 6.25, you’ll earn $3.06 for each gallon of fuel you burn (6.25 multiplied by 0.49). Subtract that from the average fuel price on March 20 of $4.18 and diesel cost you $1.12 per gallon (4.18 minus 3.06).
If your truck delivers a higher 7.25 mpg, the surcharge you receive for each gallon burned is $3.55. That lowers your out-of-pocket price to 63 cents per gallon. If you can get your fuel mileage to 8.5 mpg, the surcharge would jump to $4.17, and your out-of-pocket fuel cost would drop to just a penny per gallon. On the other hand, if your truck gets only 5 mpg, you’ll earn $2.45 in fuel surcharges, bringing your out-of-pocket cost to $1.73 per gallon.
Considering that you may purchase 15,000 to 20,000 gallons of diesel per year, every tenth of an mpg you can increase your fuel mileage will, calculated at the March surcharge of 49 cpm add another $750 to your end-of-year profit.
It helps to view each truck as a tool you use to earn income. Fleet trucks purchased by large carriers are typically equipped for the best mileage possible while maintaining durability and driver comfort. Owner-operators sometimes prefer trucks with more features and accessories, often at the cost of fuel mileage. Make your own decisions, with the understanding that some choices may cost you once for purchase and again in fuel prices because of reduced mpg.
The better you understand your business and your market, the better your chances of remaining profitable during even the worst of trucking times.
Cliff Abbott is an experienced commercial vehicle driver and owner-operator who still holds a CDL in his home state of Alabama. In nearly 40 years in trucking, he’s been an instructor and trainer and has managed safety and recruiting operations for several carriers. Having never lost his love of the road, Cliff has written a book and hundreds of songs and has been writing for The Trucker for more than a decade.
