• Evelina.Petrov

Supply & Demand 101: Learn the Basics of U.S. Truckload Market Economics

You don’t need a degree in economics to be successful in logistics. But having a basic understanding of the fundamentals will help you stay ahead market trends and set a better strategy. Let's go back to econ class for a quick recap on supply and demand and dive into few essential freight market indicators.


Understanding the Basic Principles of Supply & Demand

Supply and demand are basic economic principles that examine the relationship between the amount of goods or services available and the number of people who want to buy those goods or services.


While typically referenced together, supply and demand are two separate economic laws that govern market trends.




The Law of Supply says at higher prices, sellers will supply more of a product or service. The Law of Demand says at higher prices, consumers will demand less of a product or service.


How to Read a Supply Curve:

The supply curve shows the relationship between price and quantity supplied. It is indicated by an upward slope on the graph


One of two things can happen on the supply curve:


Supply increases

When the price of a product increases, sellers

manufacture more of that product to increase their

profits. In the case of the truckload market, as rates

rise, more carrier capacity enters the market as

existing carriers build up their fleet and new carriers

seek to enter.


Supply decreases

As prices fall, sellers manufacture fewer goods

because production is no longer as profitable. In the

case of the truckload market, as rates fall, carrier

capacity leaves the market as margins shrink.




Here's how to look at a supply and demand curve

applied to truckload market dynamics. If either line

moves to the left (a decrease) or right (an

increase), you can see how the equilibrium price

point (i.e. current spot rates) moves to meet the

trend.


In the truckload market:

Supply = carrier capacity (trucks & drivers)

Demand = truckload volume (shipments that

need to move)












Supply Exceeds Demand

When there are more trucks/drivers than available

shipments, rates go down. Because carrier capacity is

high and truckload volume is low, this is known as a

“loose” market — or shipper’s market, since rates

favor shippers.


Demand Exceeds Supply

When there are more available shipments than trucks/

drivers, rates go up. Because truckload volume is high

and carrier capacity is low, this is known as a “tight”

market — or carrier’s market, since rates favor

carriers.


Supply & Demand Are Equal

When the amount of shipments and available trucks/

drivers are balanced, the supply and demand curves

intersect. This is known as market equilibrium.




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