Q3 TD Cowen/AFS Logistics Freight Index
AFS Logistics, a third-party logistics (3PL) provider, and TD Cowen have released the Q3 2024 TD Cowen/AFS Freight Index, offering predictive pricing insights for truckload, less-than-truckload (LTL), and parcel transportation markets.
The index reveals uneven impacts from ongoing demand and capacity imbalances across various transportation modes.
Truckload: Waiting for a Rate Recovery
The truckload rate per mile index established a floor in Q2 2023, maintaining a level 4.3% above the January 2018 baseline. Q3 2024 is anticipated to be the sixth consecutive quarter with rates remaining at this bottom level.
Projections indicate a slight drop to 4.7% in Q3 2024, a 0.3% decline from the previous quarter's 5.0%. Additionally, in Q2 2024, the average linehaul cost per shipment declined by 2.7% quarter-over-quarter (QoQ), with the share of short-haul shipments staying relatively flat.
Despite the Q2 linehaul cost per shipment being down 14% year-over-year (YoY), it remains 11% higher than pre-pandemic levels.
Andy Dyer, president of transportation management for AFS, commented, "With truckload rates seemingly stuck at the bottom for over a year, speculation is rampant as the market looks for any sign of a recovery finally materializing.
Recent increases in the spot market 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."
LTL: Carrier Discipline Keeps Rates Elevated, Though Cost per Shipment Falls
Dean Jones, president of LTL for AFS, remarked, "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.
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."
The release indicated that declining weight per shipment and a lower average fuel surcharge led to a 2.6% QoQ decline in LTL cost per shipment in Q2 2024. Despite this, the rate per pound showed modest QoQ growth, reflecting carrier discipline and 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.
Parcel: Major Discounting Overpowers Accessorial Changes
The media release noted that parcel carriers are in a contradictory cycle – frequently increasing surcharges to boost revenue from limited demand while simultaneously deploying heavy discounting to compete for modest volumes.
Repeated fuel surcharge increases, even as fuel prices fall, have led to a growing divergence between surcharges and actual fuel prices.
If FedEx and UPS allowed the ground fuel surcharge to purely follow market dynamics based on the EIA on-highway diesel price, the ground fuel surcharge would be 5.5% lower. However, significant discounts driven by the low-demand environment blunt the impact of the surcharge hikes.
Micheal McDonagh, president of parcel for AFS, stated, "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.
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 significantly impacted the ground parcel rate per package index, declining from 28.8% to 26.8% in Q2 2024, with an expected further drop to 25.7% in Q3. 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, reflecting carriers' aggressive discounting rather than leniency.
The express parcel index is also expected to fall, from 4.7% in Q2 2024 to 2.8% in Q3 2024, aligning with seasonal trends and continued heavy discounting. In Q2 2024, the average discount in express parcel increased 0.7% QoQ, though the cost per package marginally increased compared to Q1, influenced by weight, service mix, and fuel surcharge changes.