Con-way Freight announces general rate increase to take effect on October 19

Con-way Freight, the less-than-truckload (LTL) subsidiary of transportation and logistics service provider Con-way, recently announced it plans to implement a general rate increase for non-contractual freight, effective October 19.

Con-way officials said this increase will be applicable to its customers on the company’s CNY 599 tariff and affect general LTL rates, minimum charges, accessorial and other supplemental fees applicable to LTL shipments moving within the United States and Canada, cross-border shipments between the U.S., Puerto Rico, and Canada, as well as the domestic U.S. portion of Mexico-bound shipments.

“The rate increase is intended to help offset rising costs of doing business, which include contending with the nationwide shortage of qualified truck drivers, increased regulatory compliance, higher fleet operations and revenue equipment costs, and technology upgrades which enable the company’s premium service product,” the company said in a statement, adding that customers can view the new rates after October 5 through the My Con-way.com page on the Con-way website.

This is the second major LTL player to announce a GRI.

On September 16, FedEx announced several rate hike for its various offerings, including its LTL segment, FedEx Freight, set take effect on January 4, 2016.  FedEx Freight rates will increase by 4.9 percent on average, applicable to the FXF 1000, FXF 501 and other related series base rates, company officials said.

An LTL executive told LM that a good amount of business that falls under a GRI, or is non-contractual, are often the LTL carriers’ most profitable pieces of business, as GRI business does not work off of contract rates, which are more favorable to shippers.

“These are not the largest accounts but are the ones that operate best in our current rate system, but the majority of our book of business is not impacted by them [GRI hikes],” he added. “GRI usually stick. I have never seen one not stick. If 20 percent of my book of business is under GRI, I just let it be.”

Regardless of which way the economy goes, LTL GRI’s have seemingly gone the way of a “broken record,” according to Satish Jindel, president of SJ Consulting.

“LTL carriers announce these every year, but they are clearly becoming meaningless because they cannot seem to show it on the bottom line,” explained Jindel. “FedEx Freight, UPS Freight, and Con-way are three of the largest LTL carriers and operate at an operating ratio of 96 or worse, and GRIs are not going to correct the problem for them.
And then smaller companies like Saia and Old Dominion Freight Line (ODFL) are operating with better OR’s in the high 80s or low 90s, and private carriers smaller than them also around there.”

The larger LTLs need to do some soul searching, Jindel said, and figure out how even with such large networks and density, why they are underperforming, as the three LTLs that should be the most profitable are actually the least profitable.

And even with healthy amounts of density and scale, Jindel observed that quarter after quarter the big three LTL carriers still have not been able to perform at the level of Saia and ODFL.

“GRIs simply are not correcting the problems some of these carriers have,” said Jindel.

LTL executives have told LM that their primary focus is on the recovery of rates in the market and that is limiting capacity

There was a time, some said, when everyone was after growth and expansion, with the thought that if you got the density the margins would come through efficiencies and then carriers find that at a certain price that does not work. And in recent years there was a bad period in which LTLs learned and realized price cannot be cut to chase volume, because LTLs end up running a lot of miles and burning out equipment for no return.

Industry analysts have frequently stated that LTL GRIs typically impact 20-40 percent of LTL business.

Stephens analyst Brad Delco wrote in a research note that his firm believes that underlying fundamentals in the LTL industry were mixed in 3Q’15 highlighted by mostly solid pricing increases, but continued muted tonnage levels, adding that he expects mixed earnings reports from the LTLs with any upside potential likely driven from pricing and the corresponding impact to incremental margins.