Benchmarking: Cargo Imbalances

New Zealand’s economy has structural imbalances in how much freight moves into and out of each region. These imbalances, taking into consideration aspects like co-loading limits by product type, tell us the realistic maximum on how full trucks can run in New Zealand. The national average load factor usage is ~60%, but the ceiling on possible utilization may be ~80%.

Here is a practical example: each year the Waikato region sends 600 to 700 truckloads of fresh fruits and vegetables, evenly split between Gisborne and Hawkes Bay. But they receive deliveries of 4.5k truckloads of fresh fruit and vegetables from Auckland and another 3.5k from Bay of Plenty. Together, this equates to a 12:1 ratio of inbound trucks to Waikato vs. outbound trucks from Waikato that are equipped to handle fresh produce. The expected load factor ceiling for the fresh produce vehicles on these laneways is about 54%, i.e. they can be full going into Waikato but get about 4% fill-rate on the next move. Even the 54% figure is a little high because the trucks make an indirect return trip since Waikato fresh produce is going to Gisborne and Hawkes Bay, not back to Auckland or Bay of Plenty.

Exports of fresh produce by port for New Zealand

Port of Export for Fresh Produce

Imports of fresh produce by port for New Zealand

Port of Import for Fresh Produce

The Pricing Angle

TNX is a spot transport marketplace, and spot procurement makes the discussion of imbalances even more relevant. The average load factor is 54% on fresh produce in and out of Waikato. But for any given haulier on any given day they likely experience either 50% fill, or 100% fill because they either have or do not have a backhaul. In the TNX marketplace, we expect that to show itself at two very different price points for the forward haul. About one in twelve trucks going into Waikato with fresh produce already have a load coming out. So they can be more aggressive on their forward haul price, whereas their competitors without a backhaul must subsidise the return trip with the forward haul alone.

This example shows one of the effects we expect from TNX: a de-averaging of price. When a haulier replies to a longer-term quote request, they have to average their expected chances of getting backhauls. The stats cited above show that an average haulier gets 1 in 12 backhauls for every forward load of fresh produce going into Waikato. So they price according to the average. Spot markets allow the haulier to price according to their actual situation. When severe imbalances exist, it splits the market price. About 1 in 12 cargo owners can get a lower price than the long-term fixed rate because they match to hauliers with backhauls. Thus, 11 in 12 cargo owners pay a slightly higher price compared to the long-term fixed rate because the haulier is sure they have no backhaul. Cargo owners go from paying for a little empty space all the time, to either paying for no empty space or all the empty space on the return trip.

Is this a good thing? We at TNX Logistics think so, because we believe that pricing transparency reduces the haulier’s risk, increases load factor, and ensures those who work together are the most economically aligned to do so. Feel free to send us a note with your thoughts.

Source: All figures are from the Ministry of Transport’s National Freight Demand Study 2014

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