Characteristics of spot-market rate indexes for truckload transportation

Abstract

In the truckload transportation industry in the United States, a number of indexes are published that attempt to measure changes in rates, but no single index has emerged as an industry standard. Industry participants, particularly those exposed to the spot-market, have found that existing indexes do not effectively represent their experiences in the marketplace. A widely-used and valid spot-market index could allow for more effective tactical decision-making, the development of freight derivatives, stronger analysis and negotiation of contract rates, and contracts with index-tied rates. This paper examines pricing indexes from other industries and expands upon a framework of characteristics that support successful indexes. Using this framework to evaluate existing industry indexes, it finds that two commonly used indexes are not designed appropriately for use by the spot-market. It also examines rates experienced by a large North American provider of non-asset based logistics services and finds that they differ significantly from rates measured by existing indexes. The analysis suggests that indexes of the spot market would be improved by disaggregating rate information based on geography and tender lead time.