
The latest TD Cowen/AFS Freight Index by AFS Logistics and TD Cowen shows the effect of continued surplus capacity across modes, with less-than-truckload (LTL) pricing finally showing signs of softening and truckload rates remaining stuck at the floor despite some signs of upward momentum. In parcel, carrier pricing actions continue to push against the headwinds of a low-demand environment and prop up rates with varying degrees of success.
“The current macroeconomic outlook has some positive signs for carriers, but in the near term, the same forces that shaped freight markets in 2024 are primed to continue in the quarter ahead,” says Andy Dyer, CEO, AFS. “There’s no demand-side spark that will shift the freight cycle from what we’ve had the past couple of years and despite a growing number of carriers exiting the market, the supply-side correction has not reached the magnitude required to offset sluggish demand.”
Key takeaways:
- Truckload demand remains flat, but some positive cues are emerging, including rising spot rates and higher tender rejection rates, indicating that carriers are being more selective about what loads they accept. But the upward momentum in the spot market has not made its way to contract rates, and the market remains in a state of overcapacity.
- Pricing changes proved effective tools for carriers during peak season, with the newly introduced “blanket” demand surcharge pushing the ground parcel average accessorial charge per package 16.4% higher in Q4 compared to Q3. Continued adjustments to fuel surcharge tables also paid off for carriers in Q4, as average net fuel cost for ground parcel rose 4.7% quarter-over-quarter (QoQ), despite on-highway diesel prices falling 4.6%. Express parcel saw a similar disconnect, with the U.S. Gulf Coast jet fuel price falling 8.8% QoQ, but only a 2.7% decrease for the carrier fuel surcharge.
- Despite a steady stream of pricing changes, the underlying market reality is one of low demand, intense competition and persistent discounting activity.
- Carriers saw more success in ground, with the rate per package index seeing a QoQ and YoY increase to 24.4% in Q4 2024.
- Unlike the malaise of sustained low rates in truckload, LTL pricing has remained elevated since Q3 2023.
“A major question facing the parcel market this year is the longevity of this discounting activity. It’s been defined by exceptional strength and staying power, but how long can that continue?” says Mingshu Bates, chief analytics officer and president of parcel, AFS. “Carriers are continuing to communicate an emphasis on revenue quality, which would indicate tighter pricing control as the year progresses and continued pricing changes throughout the year.”
“LTL pricing has been resilient, and a major factor is the increased sophistication of carriers and their ability to price freight in a way that is closely tied to the true cost to move it,” says Aaron LaGanke, VP, freight services, AFS. “But there are opportunities for shippers, especially as low demand persists and carriers seek out ‘attractive’ freight they can move efficiently. FedEx spinning off its freight business could also shake things up, as shippers who have historically benefitted from bundling parcel and LTL spend to qualify for higher discounts may entertain other options.”