Extra capability, sagging demand push carriers to compete for quantity: Q2 TD Cowen/AFS Freight Index
ATLANTA (April 11, 2023) – AFS Logistics (afs.internet), an industry-leading third-party logistics (3PL) supplier, and TD Cowen announce the Q2 2023 launch of the TD Cowen/AFS Freight Index, a snapshot with predictive pricing for truckload, less-than-truckload (LTL) and parcel transportation markets. The most recent launch of the index initiatives LTL charges to degree off after a pointy drop in Q1 and truckload charges to proceed their decline, whereas per-package parcel charges stay elevated as record-high basic charge will increase (GRIs) and the lingering power of final yr’s gasoline surcharge will increase conflict with falling volumes.
“A yr in the past, fast will increase in gasoline costs offered a pronounced mechanism for carriers to earn windfall earnings. Nonetheless, whereas diesel costs fell to their lowest degree in over a yr, sure carriers proceed to eek out disproportionate earnings from their revised gasoline surcharges,” says Tom Nightingale, CEO, AFS Logistics. “This serves as additional proof of the truth that shippers want the voice of expertise with them on the negotiating desk.”
Key implications for floor and specific parcel
As in different modes, lowering gasoline costs are having an impression on floor and specific parcel charges, however parcel gasoline surcharges haven’t fallen to the identical extent because the precise gasoline value indices. Since gasoline surcharges peaked in Q2 2022, the on-highway diesel index has dropped by 18% whereas floor gasoline surcharges solely dropped 13%. Over the identical timeframe, the U.S. Gulf Coast kerosene-type jet gasoline index dropped 22%, however specific gasoline surcharges solely decreased by 19%.
“The a number of gasoline surcharge will increase introduced final yr and the latest record-high GRIs proceed to be efficient instruments for carriers as they search to maximise per-package yield within the face of falling volumes,” says Micheal McDonagh, President, Parcel, AFS Logistics. “Carriers have additionally prolonged peak surcharges indefinitely since January which is one other efficient instrument to drive a rise in income per bundle.”
In floor parcel, charges elevated 4% quarter over quarter (QoQ) in Q1 2023, pushed partially by the seasonal rebound of common billed weight per bundle, a 4.5% QoQ improve. Nonetheless, floor parcel information additionally signifies a mean low cost improve of 1.6%, suggesting that carriers needed to elevate reductions to counteract the impression of the record-high 2023 GRI. Trying ahead to Q2 2023, the bottom parcel index is predicted to stay at traditionally excessive ranges, growing 1.7% QoQ to 31.7% above the January 2018 baseline.
In Q1 2023, specific parcel charges grew 4.6% QoQ, regardless of decreases in common billed weight and common zone. This higher-than-expected improve was predominantly pushed by the record-high GRI, which seems to be ‘stickier,’ or extra immune to the impression of shipper negotiation and discounting, in comparison with floor. A slight improve within the premium service combine in Q1 2023 additionally contributed to an elevated price per bundle. The specific parcel index expects continued progress in Q2 2023, primarily pushed by seasonality, with a 1.1% QoQ improve as much as 4.6% above the January 2018 baseline. Each FedEx and UPS are reporting lowering year-over-year (YoY) volumes, and their methods to adapt to this case will considerably affect specific parcel charges going ahead.
Key implications for LTL
In Q1 2023, the LTL charge per pound index skilled essentially the most important QoQ decline on file, dropping from its historic excessive of 64.0% above the January 2018 baseline in This autumn 2022 to 57.0% in Q1. This sharp decline could be attributed to declining diesel gasoline costs and extra capability exerting downward pricing strain. In Q1 2023, the precise gasoline price per cargo dropped 15.7% QoQ and value per cargo decreased 4.6% QoQ, although weight per cargo remained per the earlier quarter.
For Q2 2023, the index initiatives charges to flatten, with a modest QoQ improve of 0.8% attributed to seasonal information traits, reaching 58.3% above the January 2018 baseline. Trying forward, the YoY development of the LTL charge per pound index is predicted to show destructive in upcoming quarters as a consequence of weakened demand and decrease charges.
“As carriers look to fill extra capability and preserve income, prudent shippers can discover main price saving alternatives by trying past conventional LTL providers,” says Kevin Day, President, LTL, AFS Logistics. “Quantity LTL is a instrument for carriers to get some incremental income out of backhaul lanes that may in any other case have them shifting empty trailers, whereas giving shippers the chance to benefit from considerably decrease charges and keep away from the added sting of steep accessorial expenses.”
Key implications for truckload
Truckload linehaul price per cargo considerably decreased in Q1 2023, dropping 13.8% QoQ and 19.1% YoY – the primary destructive YoY change since Q3 2020. Value and distance are closely correlated, and the disparity between the 2 has continued to shrink since Q2 2022, which is a powerful indication that carriers are utilizing charges as a main instrument to realize quantity. One other issue exerting downward strain on charges is the share of short-haul shipments, which elevated by 3.4 share factors.
“A higher share of short-haul shipments may point out normalizing stock ranges and placement, with companies not so determined for stock that they pay for longer, less-efficient shipments to maneuver hundreds,” says Andy Dyer, President, Transportation Administration, AFS. “Extra rate of interest hikes and inflation proceed to impression buying energy, particularly demand for client durables.”
In gentle of these macroeconomic headwinds, the index expects truckload charges to proceed their destructive trajectory. In Q2 2023, the truckload charge per mile index is projected to fall to six.6% above the January 2018 baseline – a 0.8% QoQ lower and a 13.1% YoY decline.
