FedEx Freight rolls out rate increase

The time for less-than-truckload rate increases is here again, with FedEx Freight, the less-than-truckload (LTL) subsidiary of FedEx, announcing a 6.9 percent general rate increase (GRI), effective July 9.

FedEx officials said that this increase will apply to FedEx Freight shipments within the contiguous United States between the contiguous U.S. and Canada and within Canada. And it added that the rate for cross-border FedEx Freight shipments between the U.S. and Canada will also increase 6.9 percent for the U.S. portion for the U.S. portion of the shipment and will also take effect on July 9.

The company also said that the rate change applies to shipments covered by the FXF 100, FXF 501 and other related series base rates, with additional charges including absolute minimum charges and other related series base rates. The fuel surcharge, which FedEx Freight said is one of the lowest in the LTL sector, will not change. And FedEx Freight said that its published fuel surcharge rates of the next six largest LTL carriers are at least 23 percent higher than FedEx Freight’s, based on the average price of diesel fuel as of June 4.

With FedEx Freight announcing a rate increase, it stands to reason that its LTL brethren will soon follow.

As LM has reported, the sector has made up significant ground from the depths of the Great Recession. This is due, in part, to tighter capacity and steady rate gains since 2010.

What’s more, there are many drivers contributing to the turnaround occurring in the LTL sector, including a sharp focus on yield management and contractual relationships, coupled with an ongoing commitment to service reliability. But even with this positive momentum, it is clear challenges still remain as volumes and the general economy remain below pre-recession levels seen in 2007 and earlier.

In an interview with LM, Satish Jindel, president of Pittsburgh-based SJ Consulting, said that this 6.9 percent is in line with previous increases made by many LTL carriers in 2011 and about 1 percentage point higher than 2010 LTL increases, which were in the 5.9 percent range. Many LTL carriers rolled out multiple rate increases in 2010—in the first and fourth quarters.

“In LTL, a much smaller percentage number of customers experience these rate increases,” he said. “LTL’s have to cover the higher costs of supporting all their customers from a smaller group of customers [with the 6.9 percent GRI]. And the LTL industry as a whole struggles with getting a return on its operations.”

With FedEx Freight taking a rate increase now, it represents a positive development on several fronts, explained Jindel. In one sense, it suggests that LTL pricing discipline and capacity tightening will enable them to show shareholders three-to-six months from now that they were able to implement an increase and get something for it, as opposed to announcing it later and have nothing to show for it.

And as the single largest LTL carrier by revenue with about $5 billion in revenue over the last 12 months, according to SJ Consulting data, he said FedEx Freight is showing “enticing leadership,” which is a good sign. And he said that it shows that with an unimpressive operating ratio in the 100 range in its last quarter that FedEx Freight is serious about improving the profitability of its business.

“Other LTL carriers are going to be coming out with rate increases sometime in July and will take effect soon after that, with similar GRI increases at 6 percent or more, which will improve the profitability of their respective businesses,” said Jindel.  

Robert W. Baird & Co. analyst Ben Hartford agreed with Jindel in a research note, in stating that his firm also expects rate increase announcements to come from other LTL carriers soon.

“GRIs traditionally only impact 20-40% of LTL’s business; but [this] increase [is] directionally consistent with early 2012 contractual pricing growth among LTLs (+4-5% year-over-year excluding-fuel) and recent commentary from industry contacts,” wrote Hartford.