If you believe in the free market economy, then you will believe in Copper Run’s Fair Prices.
Supply and demand: remember those from Economics 101? They apply very directly to the freight transportation marketplace.
Supply – the number and location of trucks with available empty space – changes hourly. Similarly, demand – the number and location of shipments to be moved – also changes hourly. If there are more trucks than freight, then shipping prices go down, and some trucks go home empty. If there are more shipments than trucks to carry them, then shipping prices rise, and some freight is left on the dock. Over time, normal market forces will tend to balance supply and demand, and prices will be stable.
However, occasionally there will be external factors that impede price stabilization, and prices will rise, perhaps very quickly and seemingly uncontrollably. When this happens, it is usually tied to a series of large severe storms that impact much of the continent, a significant and prolonged produce harvest, or a regulatory change.
So the roots of Copper Run’s fair prices are found in the supply-and-demand dynamics of the freight transportation marketplace. As one of thousands of brokers and carriers in the North American marketplace, where even the largest player controls less than 1% of the market, Copper Run cannot control market rates – but we can and do control both the services and the prices that we offer to our customers. Which is how we are able to offer fair prices.
There are additional factors that should be identified that impact basic market rates for freight transportation services:
Freight capacity is a commodity
Highway freight transportation capacity is a commodity, no different from precious metals or pork bellies, and it is traded like a commodity. It is bought and sold every minute of every business day on industry-specific, internet-based market exchanges, just the same way that stocks, bonds, hard and soft commodities, and money are bought and sold at the prevailing rates of the moment. There are even exchanges forming where freight transportation futures can be traded. To participate in any of these exchanges, purchasers (brokers) must be bonded, and sellers (carriers) must be licensed and insured.
Freight capacity Is Perishable
But the added twist is that transportation is the most perishable product or service produced. Whether it is a seat on an airplane, an empty taxi sitting outside a hotel, or a skid spot in a truck, once the capacity is produced, it vanishes instantly if it is not used:
Try boarding an airplane after it is airborne,
Or hailing a cab that gave up waiting and went to its next call,
Or filling out a truck after it has left town.
So there is a constant tug and pull on rates, as carriers try to ensure that upcoming available capacity gets booked before it sits idle, and shippers and brokers try to ensure that they have access to capacity when they want it, and within expected price ranges.
The result is that the day-to-day rates charged by carriers to freight brokers are equivalent of spot market rates. They are just like stock prices on a never-ending-ticker. They are almost always lower than the carrier’s quoted prices to its customers (but they can be higher), and they are good only for a specific truck in a specific location at a specific time in a specific market environment. They do rise and fall daily, sometimes hourly or minute-by-minute, based on the supply of and demand for available capacity
That is how the free market operates – economics 101 again.
And it is Copper Run’s experience in this dynamic, ever-changing market that enables us to obtain price / service combinations that work for our customers.
So the exchange-based free market determines shipment-by-shipment truck rates, which are approximately 85% of a broker’s total costs. Given the dominance of truck costs in that ratio, what is it that is so special about Copper Run’s prices?
Copper Run strives for pricing for our customers that will stand the test of time, pricing that is low enough to fend off competition, yet compensatory enough to enable us to provide reliable service.
Equally importantly, we want pricing that is medium- and long- term stable, that smooths the day-to-day peaks and troughs of the spot market, and that allows our customers to realistically plan their freight transportation budgets.
So we base our prices on the medium-term supply and demand for truck capacity, using three very simple steps:
- In each lane and for each type of service, we continuously monitor how much we expect will have to pay for trucking service.
- We calculate a margin to add to the truck rate that is sufficient to cover our internal costs and earn a modest profit to ensure stability and sustainability.
- We then cap that margin to ensure that our final price is approximately 5 points below current industry benchmarks.
Have you experienced our market-based Fair Prices lately?