Headhaul vs Backhaul Freight Market: Why it Matters for Pricing
Freight pricing is the number one topic discussed, whether a buyer, seller or freight market analyst. As we shared in the comprehensive article entitled Freight Costs: An Insider’s Look on Freight Pricing Buyers Should Know there are numerous factors that drive a freight rate either up or down.
Factors that Impact Freight Rates
- Overall Economic Conditions
- Market Capacity
- A Freight Provider’s go to Market Pricing Strategy
- Mode Required to Make Required Transit
- Mode Required for Physical Space Required for the Freight
- Special Handling and / or Requirements at Origin or Destination
- Spot, Contract or Special Project Pricing
- Balance of the Supply of Trucks in a Given Market vs. the Demand for Trucks
- Economics of the Freight Lane Itself
The reason to understanding the concepts of headhaul and backhaul is they are the keystone to the freight pricing equation for each carrier.
With the above in mind, let’s dive into the definition of headhaul and backhaul.
Definition of Freight Headhaul
A headhaul market is defined as the freight rate that is the higher of the round trip origin and destination zip code pairing.
Headhaul freight markets are created when there is an imbalance in a lane where the demand for the lane by shippers is greater than the supply of freight capacity provided by freight providers.
Characteristics of a headhaul freight market include: freight carriers have plenty of choices; carriers can typically demand a higher price and the carrier may deadhead into the market to tap into the higher rate optioned freight.
Definition of Freight Backhaul
A backhaul is the lower of the rates in a round trip origin and destination pair.
Backhaul markets are those markets where the imbalance of capacity occurs when there is less demand by shippers than there is for carriers in the market. The favorable nature creates lower prices for shippers because carriers are willing to negotiate price to get out of the market with freight on their truck versus running empty.
As an example of a backhaul lane, consider outbound Florida. For most of the year Florida has more inbound freight volume than outbound freight volume.
Characteristics of a backhaul market include: carriers have few options to get out of the market; increased chance of deadhead miles out to gain access to a market for the next load; and carriers often takes losses on the lane because they are forced to lower pricing to get out of the market..
Definition of Deadhead Miles in Trucking
An additional concept that comes with headhaul and backhaul is deadhead miles.
Deadhead miles can be defined as anytime a freight carrier is moving its trucks without revenue producing freight on board.
Deadhead miles are costly for the carrier and something they measure with the finest of microscopes when figuring pricing for a shipper.
Headhaul freight markets often cause carriers to deadhead into the destination, meaning they can only find freight out of the market but have no option to get into the market.
The opposite can occur when a freight carrier has its truck in a backhaul market and has not options to get out of the market without deadheading to the next closest origin point it can pick up another revenue producing freight load.
More on the Importance of Headhaul & Backhaul Freight Lanes
As the above definitions illustrated, the importance of understanding whether a freight lane is a headhaul, backhaul or balanced lane is critical to freight pricing.
With the cyclical nature of freight and its flows throughout the year, markets can be both a headhaul and backhaul market at different times during the year. A great example of this is when intermodal “peak season” hits in late third quarter and early fourth quarter every year when there is a higher demand to move the holiday retail product inland to the stores for their holiday shopping needs.
Markets can also change the balance of the entire network of how freight is balanced throughout the year when a natural disaster occurs in a given region. An example of this occurred in the summer of 2017 when hurricanes hit both Florida and Texas in a few short weeks. All of a sudden, the citizens of those areas were in need of food, shelter and clothing because of the disasters.
The intermodal spot rate pricing chart InTek publishes every week helps shippers and freight analysts see the changing tides in freight demand through a given period in time.
When analyzing a freight lane or singular market for the demand and supply swings that cause headhauls and backhauls it is worth reviewing the Tender Rejection Chart published by FreightWaves. The FreightWaves analysis provides macro detail or micro lane-by-lane detail on the ebbs and flows of a freight market being a headhaul or backhaul market based on the percentage of freight carrier tenders being accepted and rejected over a period of time.
Another point to understand is one freight provider's headhaul market may be another freight carrier's backhaul market. This is the reason why digital freight matching is the utopia of the logistics market because of its ability to effectively find these mismatches to produce a more efficient freight market. The result of a more efficient logistics network is carriers can reduce their deadhead miles, which they can then pass along a portion of the savings to help bring down the shipping costs for the community it serves.
A more efficient logistics market that reduces the amount of deadhead miles also improve the sustainability of a shipper's supply chain.
The last idea to leave you with is the balance of a freight market is key when studying a shipper’s supply chain network for them to optimize on service and price.
Next Step on Freight Pricing
This article was written just to get the ideas flowing on the importance of headhaul, backhaul and deadhead markets. Additional articles we suggest reading that take a deeper dive into freight pricing include:
- Freight Contract Rates vs. Spot Rates - Comprehensive Guide
- Freight Costs: An Insider’s Look on Freight Pricing Buyers Should Know
- Freight Pricing Methods Defined: Contract -Project - Spot
- How to Negotiate Best Intermodal & Truckload Market Pricing
- Cost of Managed Transportation Services
- Cost of Intermodal Transportation