Ever wonder why there are so many trucks in some places and none in others?
Have you ever wondered why there are so many trucks in a particular area and none in others, or why the rates going to a particular place are so much higher than coming out? Many people would just guess it has to do with supply and demand. Well, yes it does. However, if you dig a little deeper you will see the underlying cause has more to do with population distribution than anything else.
For example, let’s take the Toronto and Montreal Markets. The Greater Toronto Area has a population of just over 6 million people. The Montreal Metropolitan Area has a population of 3.8 million. When Toronto and Montreal markets trade goods with each other, you can imagine the market in Toronto is almost double the size of Montreal for almost anything that travels on a truck; Food, durable goods, clothes, building materials, etc. So when Toronto buys two truck-loads of goods from Montreal, Montreal in turn buys 1 truck-load of goods. You can imagine there’s a huge imbalance of trucks. Too many in Toronto who want to go to Montreal to get loads coming back to Toronto and not enough in Montreal to get loaded with goods back to Toronto. This is why if you drive the 401 between Toronto and Montreal, you will see the train tracks when they run along the highway are full of empty truck trailers going back to Montreal!
How imbalance effects Pricing: The Backhaul
You can imagine in the situation above, the price of a shipment from Montreal to Toronto will be much higher than from Montreal to Toronto. And it is! Many people would refer to the Montreal-Toronto route as a “head-haul” lane and Toronto-Montreal as a “backhaul” lane. The economics of the situation are that the head-haul lane quickly gets bid up and the back-haul lane quickly gets bid down.
Expanding the Concept to Canada/US Transborder Traffic
The same logic and economics apply to many lanes between Canada and the United States. To add a further twist on the situation, the majority of traffic between Canada and the United States travels to and from just 4 major centers in Canada: Toronto, Montreal, Calgary and Vancouver (Winnipeg would be next on the list). So, if you can picture it, most of the trucks travel between these major centers and major centers in the United States. For example, Chicago-Toronto is a very heavily travelled lane, so is Toronto-Houston, Toronto-Los Angeles, Toronto-Atlanta, etc. Major centers to major centers. It seems obvious, and it is, that you’ll have a better chance at getting freight moved between major centers, timely and at a reasonable cost. One way will be a head-haul and be more expensive than the other direction which will be the back-haul.
Now let’s consider a point like Twin Falls Idaho. Vancouver-L.A. traffic misses it, Calgary-LA Traffic misses it, and anything coming from Toronto-Montreal to the LA misses it. As you can imagine, it would be difficult to ship from there to Eastern Canada. If you draw lines on the map from the major centers in Canada to the major population centers in the US, it will quickly become evident some places that are “empty” of traffic lanes. These areas are particularly difficult to move freight on, and expensive. So, if you’re planning buying from a supplier in Twin Falls, Idaho vs. a major center, once you factor in the cost of transportation, you’ll probably find it a poor choice.
Evaluating Your Logistics Plan
Many logistics planners just take into account the cost of transportation and miss the bigger picture of population distribution. While costs is a big factor in many decisions, understanding the underlying reasons for cost differentials in transportation helps you be a better logistical planner.
If you are considering ways to reduce costs in your supply chain, DSN Chemical Transportation has a team of experts with deep knowledge about the transportation and chemical industries standing by to help you. Contact us for a free consultation.