Carriers Remain Careful as Freight Volumes are Highest in Los Angeles

Carriers Remain Careful as Freight Volumes are Highest in Los Angeles

There is a lot more freight going into the northern California markets from L.A than coming out. Based on the recent influx of international containers, this relationship has grossly exacerbated as companies pull excess inventory into the country to ensure they will not be hit by increased tariffs.

Carriers and brokers understand the relationship between the northern and southern California freight markets reasonably well. The two markets’ Headhaul Index (HAUL) values have been moving in opposing directions over the past six months – increasingly negatively correlated or divergent.

Correlation between the two measures

A scale that is used for measuring the correlation varies from 1 to -1. The measurement is called the correlation coefficient. The closer the values move in the same direction, the closer the correlation coefficient is to 1. And vice versa, the closer the value is to -1, the more the values move in opposition. In June and July the HAUL values had a loose positive correlation, hovering around a 0.5. In January into early February the 28-day correlation was -0.99, an almost perfect negative correlation.

When two measures are positively correlated it means the values move at similar times in the same direction—as one value increases so does the other. When the values have a negative correlation, it means they move in opposite directions—one increases and the other decreases. The correlation between two numbers means that the two numbers move in sync with each other, indicating a relationship exists between the two values.

HAUL index values – outbound and inbound load volumes

The difference between outbound and inbound load volumes is being measured by the Headhaul Index. If a market has a positive HAUL value, there are more outbound loads than inbound, where a negative value indicates there are more inbound than outbound loads.

Coming out of New Year, L.A.’s HAUL value jumped coming out increasing 143% over pre-Christmas levels. On the other hand, Stockton’s HAUL value dropped 43% in the same time frame. Markets with positive HAUL values tend to have better odds for carriers to find loads moving out of the market. Therefore, carrier rates are heavily influenced by the availability of loads in an area.

Los Angeles and Stockton – working in opposition

The correlation between the two markets – one in Los Angeles and the other one in Stockton appears to be working in opposition. Considering their proximity to each other, there is a good indication that a lot of outbound L.A. freight has its destination in the Stockton market.

If the fact that the L.A market has plenty of freight available lasts long enough, there will be downward pressure on inbound L.A. rates in the spot market. That will end up impacting contract rates. On the other end of the spectrum, loads going into the Stockton market will see upward rate pressure, since it will be more difficult for carriers to find backhauls due to the oversupply of trucks in the market.

What are the options for carriers?

The problem with accepting loads into the L.A. market currently, is that most of the freight is ending in backhaul markets like Stockton and Phoenix. That way it appears that carriers accepting loads into the L.A. market are probably only thinking one load in advance.

The knowledge that the trip to the West Coast will eventually hit a dead end should put upward pressure on rates even though the L.A. outbound situation is still quite strong. That is why the carriers should be thinking about the odds of finding loads many markets in advance.

Deadheading out of northern California or Phoenix is an inevitability that should be factored into any current rates. Because, If market dynamics change, which they appear to be doing, carriers will be in a poor position to take advantage.

Leave a Reply

Your email address will not be published.