Data indicates a favorable market for shippers, highlighted
by intense price competition among parcel carriers and the
sixth-straight quarter of truckload rates hovering at the
floor
ATLANTA, July 16,
2024 /PRNewswire/ -- AFS Logistics, an
industry-leading third-party logistics (3PL) provider, and TD Cowen
announce the third quarter (Q3) 2024 release of the TD Cowen/AFS
Freight Index, a snapshot with predictive pricing for truckload,
less-than-truckload (LTL) and parcel transportation markets. The
latest release of the index shows the uneven effects of continued
demand and capacity imbalances playing out across multiple
transportation modes. While LTL carriers are holding the line with
pricing discipline, parcel rates are showing the effects of
aggressive discounting and excess truckload capacity continues to
suppress a pricing recovery.
"The current state of freight markets empowers shippers to wield
pricing power and re-evaluate how to best make use of logistics
networks," says Tom Nightingale, CEO
of AFS. "Carriers, on the other hand, continue to step up the
sophistication and nuanced defenses of their revenue streams, with
subtle and frequent ancillary price increases."
Truckload: Still waiting for a rate recovery
The
truckload rate per mile index established a floor in Q2 2023 of
4.3% above the January 2018 baseline,
and Q3 2024 is expected to be the sixth straight quarter with rates
bouncing along that bottom. The index projects rate per mile to
drop slightly to 4.7% in Q3 2024, a 0.3% decline from the 5.0% mark
of the previous quarter. In Q2 2024, average linehaul cost per
shipment also declined, down 2.7% quarter-over-quarter (QoQ), as
the share of short-haul shipments remained relatively flat. For
additional context, although Q2 linehaul cost per shipment was down
14% year-over-year (YoY), it was still 11% higher than pre-pandemic
levels.
"With truckload seemingly stuck at the bottom for over a year,
speculation is rampant as the market looks for any sign of a
recovery finally materializing," says Andy
Dyer, President of Transportation Management for AFS.
"Recent increases on the spot market do provide a limited upward
push, but with contract rates still slightly decreasing and no
clear macroeconomic catalyst to spark increased demand, we're
projecting rates to keep hovering where they've been since Q2 of
last year."
Parcel: Major discounting overpowers accessorial
changes
Parcel carriers find themselves in a contradictory
cycle – frequently hiking surcharges to squeeze additional revenue
from limited demand, but simultaneously deploying heavy discounting
to compete for those modest volumes. Repeated increases to fuel
surcharges even as fuel prices are falling have resulted in a
growing divergence between surcharges and the actual price of fuel.
The ground fuel surcharge would be 5.5% lower if FedEx and UPS
allowed the ground fuel surcharge to purely follow market dynamics
based on the EIA on-highway diesel price. However, major
discounts spurred by the low-demand environment blunt the effect of
the surcharge hikes.
"The 'competitive but rational' language used by carriers to
describe the market did not signal cooling discounting activity, as
the pursuit of volume drove liberal discounting in both express and
ground parcel," says Micheal
McDonagh, President of Parcel for AFS. "Carriers are also
applying discounts to pursue the highest-profit customers. Small-
to medium-size shippers are seeing exceptional discounts that might
typically be reserved for much larger customers."
Discounting played a major role in the ground parcel rate per
package index declining from 28.8% to 26.8% in Q2 2024, and that
trend is expected to continue in Q3, dropping to 25.7%. Cost per
package also decreased in Q2 2024, driven by an average discount
increase of 0.9% QoQ and a 5% reduction in net accessorial charges
per package – not an indication of carrier leniency, but further
evidence of carriers' aggressive discounting.
The express parcel index is also expected to fall, from 4.7% in
Q2 2024 to 2.8% in Q3 2024. This projection is in line with
seasonal trends and an expectation for heavy discounting behavior
to continue in Q3. In Q2 2024, the average discount in express
parcel increased 0.7% QoQ, though the cost per package actually
increased marginally compared to Q1, driven by weight, service mix
and fuel surcharge changes.
LTL: Carrier discipline keeps rates elevated, though cost per
shipment continues to fall
Declining weight per shipment and
a lower average fuel surcharge drove a 2.6% QoQ decline in LTL cost
per shipment in Q2 2024, though rate per pound showed modest QoQ
growth – a testament to carrier discipline and graduated pricing
structures that make lighter shipments more expensive. Looking
ahead to Q3, the LTL rate per pound index is projected to reach
63.2% - a slight 0.3% QoQ increase as market conditions remain
steady and carriers maintain discipline.
"Looking at shippers' efforts to capitalize on cost saving
opportunities in today's freight market provides a rationale for
the decreasing weight per shipment we see in LTL," says
Dean Jones, President of LTL for
AFS. "Two examples show how inbound and outbound flows at both ends
of the weight spectrum push this overall trend – seeking relief
from the punitive charges of parcel carriers pushes lighter freight
into LTL networks, while pursuing the efficiency of consolidated,
multi-stop truckload pushes heavier freight away from LTL
carriers."
About the TD Cowen/AFS Freight Index
The TD Cowen/AFS
Freight Index launched in October
2021, offering a unique perspective on the transportation
market through its dataset and forward-looking view. Expected rate
levels are derived from visibility to over $39 billion of annual transportation spend across
all modes and includes actual net charges that factor in
accessorials such as fuel surcharges. Past performance and machine
learning produce predictions for the remainder of the quarter, set
against a baseline of 2018 rates for each mode.
About AFS Logistics
AFS Logistics helps more than
1,800 companies across more than 35 countries drive sustained
savings and operational improvements, while turning their logistics
operations into competitive, customer-centric differentiators. As a
non-asset based and non-asset biased 3PL, AFS provides a range of
logistics services, featuring freight and parcel
audit, parcel cost management, LTL cost
management and transportation management, which
includes freight brokerage and freight forwarding.
Founded in 1982 and employing a team of more than 380 logistics
teammates in eight major locations across the U.S. and Canada, AFS is regularly part of the Inc. 5000
list of fastest growing companies. To learn more,
visit www.afs.net.
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SOURCE AFS Logistics