LTL and Truckload Rates Hold Steady

LTL and truckload rates are expected to remain steady, consistent with trends established since Q2 of last year, according to research from AFS Logistics and TD Cowen. In parcel, the index shows the effect of fuel surcharge increases and other accessorial changes to drive net rate growth in Q1 and Q2 2024, despite limited overall demand.

“While truckload and LTL markets are largely a continuation of established trends, parcel carriers have unleashed a wave of key pricing changes to raise revenue,” says Tom Nightingale, CEO of AFS. “After significant discounting to compete for falling package volumes last year, UPS and FedEx have deployed accessorial charges as more covert tools to increase yields, with changes to fuel, demand and delivery area surcharges targeted to boost revenue.”

Key takeaways:

• As the parcel market continues to face sagging demand, both FedEx and UPS are prioritizing network improvement, cost reduction and targeted revenue generation through pricing changes. Carriers typically communicate updates to fuel and other accessorial charges as part of annual general rate increase (GRI) announcements, but in recent months, carriers have made several out-of-cycle changes.
• The ground parcel fuel surcharge is based on the U.S. on-highway diesel fuel index, and express is based on the U.S. Gulf Coast kerosene-type jet fuel. As of March, the jet fuel index is up 40% since 2021, but during the same period, the express fuel surcharge for both carriers is up over 100% for both carriers. A similar discrepancy exists for ground, with the diesel index up 22% since 2021, but the ground fuel surcharge for both carriers is up over 75%.
• In express parcel, the effect of the GRI, fuel surcharge adjustments, a shift to more premium services and higher average billed weight more than offset carrier discounting to drive a significant net increase in cost per package in Q1 2024, jumping from 0.9% above the January 2018 baseline in Q4 2023 to 3.9% in Q1 2024. The index projects a slight increase to 4.1% in Q2 2024, in line with the “competitive but rational” parcel market described on the March FedEx earnings call, and an indication of carriers’ desires to move away from the significant discounting they had previously used in the fight for market share.
• Ground parcel rate per package also saw a significant jump in Q1 2024, up from 23.8% in Q4 2023 to 28.8% in Q1 2024. Increased fuel surcharge and higher average billed weight fueled growth, and average discount remained flat after significant increases in previous quarters. In Q2 2024, the ground rate per package index is expected to reach 29.3%, nearing the index’s historic high set in Q1 2023 and reversing the trend of three consecutive quarterly year-over-year (YoY) declines.
• In Q1 2024, the truckload rate per mile index fell slightly, from 5.2% above the January 2018 baseline in Q4 2023 to 4.9%. Cost per shipment continued to slide in Q1 2024, down 16.7% YoY and 2.0% quarter-over-quarter (QoQ), consistent with established trends as a greater share of short haul shipments pushed down average linehaul cost. In the coming months, rate per mile is expected to continue bouncing along the floor established in Q2 2023, with the index projected as 4.8% for Q2 2024, a slight quarterly decline, but the first YoY increase since Q3 2022.
• In Q2 2024, the index projects LTL rates will remain at the escalated levels upheld since the Yellow collapse in Q3 of 2023, at 59.4%; above the January 2018 baseline and a 2.4% YoY increase. This expectation represents a modest 0.4% increase from Q1 2024, driven in part by anticipated higher fuel surcharges due to global crude oil production cuts. In Q1 2024, the LTL rate per pound index precisely matched the expectation set out in the last release of the index, declining slightly, from 61.3% above the January 2018 baseline in Q4 2023 to 58.9%. Data indicated downward trends for both weight and distance, with weight per shipment down 4.6% YoY and average length of haul down 7.6% QoQ.