LTL carriers are rolling out general rate increases again

The time has come again for less-than-truckload (LTL) general rate increases (GRI), with various carriers recently announced their respective rate hikes in recent days.

Among the LTL carriers that have rolled out GRI’s in recent days are Con-way Freight with 4.7 percent GRI, which took effect on October 27, with the company saying it is intended to help offset the rising costs of doing business, which includes higher driver pack packages in an effort to attract and retain quality drivers, increased regulatory compliance, fleet operations, revenue equipment costs, and technology upgrades.

And ABF Freight said last week it is rolling out a 5.4 percent GRI set to take effect on November 3, with the effect on specific lanes and shipments to vary. UPS Freight, the LTL subsidiary of UPS, said last week that it will implement a GRI of 4.9 percent, effective December 29.

FedEx Freight, the LTL subsidiary of FedEx, said in mid-September that its rates will increase by an average of 4.9 percent, effective January 5.

These increases come at a time when the LTL market is in a good spot, due to solid manufacturing and industrial production activity, coupled with decent retail-related volumes in advance of the holiday shopping season, which will begin in earnest in early November. Another positive for the LTL market is positive yield momentum, according to Stifel Nicolaus analyst David Ross.

With just a few LTL carriers announcing GRI’s, Ross explained in a research note that it is likely many are considering implementing one with some likely to actually announce one.

“One of the industry’s problems, in our opinion, is that the carriers keep trying to raise prices on tariff (non-contract) customers—generally very profitable accounts made up of small shippers,” wrote Ross. “Tariff hikes end up driving these smaller shippers to 3PLs for rate relief, in our view, shifting good-paying accounts to lower-margin national-account-margin business, even if the freight stays in the same carrier network. Maybe with density-based pricing and the elimination of tariffs, things can be made simpler, but we are not there yet.”

As previously reported by LM, LTL carriers are rapidly investing in expensive, on-dock, three-dimensional size measurement capturing machinery. LTL carriers are hoping one day of being able to more accurately charge shippers rates based on the actual dimensions of their shipments, rather than the traditional weight-and-distance-based formula for pricing that has been in effect since the 1930s or even earlier.
 
These “dim” machines already are being tested by industry giants FedEx Freight, YRC Worldwide, Old Dominion, Saia, and probably many other carriers in the LTL space.

Joel Clum, president of Carrier Direct, a trucking consulting firm, says dimensional pricing could soon “revolutionize” the LTL sector. He says the current weight-based and freight classification system is outdated should be replaced by the dimensional weight approach which is easier to understand and easier to automate.
 
Others agree, to a point. Satish Jindel, president of SJ Consulting, Pittsburgh, which closely tracks the LTL sector, said dim pricing could aid carriers’ profitability but might be difficult to implement because of the variety of shipments that by definition move every day in LTL carriage.

In the meantime, Stifel’s Ross said that these GRI announcements will be a positive for LTL brokers like Echo Global Logistics, C.H. Robinson and others as “small shippers migrate to 3PLs in search of cost savings.”

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

“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.