LTL/transportation news: FedEx announces rate hikes

Soon after less-than-truckload (LTL) transportation service providers YRC Worldwide and ABF Freight System announced matching 5.9 percent general rate increases, FedEx Freight said this week it is upping its GRI a bit higher at 6.9 percent, effective November 1.

FedEx officials said these rate increases for FedEx Freight and FedEx Regional LTL apply to interstate and intrastate LTL shipments and shipments between the U.S. and Canada covered by the FXF 1000 and FXNL 501 Base Rates. They also said that FedEx Freight’s fuel surcharge—at 4.5 to 6.5 percentage points below the next five largest LTL carriers—will not change

Late last month, FedEx said that it plans to combine its FedEx Freight and FedEx National LTL operations, effective January 30, 2011, in an effort to increase efficiencies and reduce operational costs. A major component of the company’s approach to this strategy is centered on fuel management initiatives, more disciplined contract pricing, and reviews of lower-performing accounts that await adjustments, according to FedEx.

Anecdotal evidence suggests that many LTL carriers are seeing rates recover and are turning their attention to rate increases, following a challenging 2009 for the sector in which LTL carriers to a degree were highly focused on driving volume gains with pricing power largely diminished.

What’s more, LTL carriers are also seeing marked improvements in pricing, volume, and weight per shipment in recent months, according to analyst reports.

An LTL executive told LM that there is no question that LTL rates are starting to firm up on the yield side and it has become a focus for carriers—with all having some sort of yield improvement process to raise rates in place.

But a research report from Stephens Inc. noted that there is not always a direct correlation between GRI’s and overall rates.

“Our studies have found that, historically, GRIs have little correlation with rate performance over the following year, as supply/demand dynamics are the true drivers,” according to Stephens. “To be sure, we do see the opportunity for these “out-of-cycle” GRIs to have some positive impact as 1) LTL pricing has been artificially deflated, 2) large players are reducing their network size, and 3) concerns about YRCW’s survival are beginning to weigh on shippers’ minds. However, absent a YRCW failure, we think Street estimates overstate the impact of GRIs and understate the incremental costs coming back on line in FY11.”

Other LTL players such as Con-way Freight, Old Dominion Freight Line and Vitran have yet to announce rate increases.

Other FedEx rates: FedEx also announced FedEx Express shipping rates are set to increase by an average of 3.9 percent for U.S. domestic and U.S. export services effective January 3, 2011.

Company officials said that the full average rate increase of 5.9 percent will be offset by adjusting the fuel price threshold at which the fuel surcharge begins, which reduces the fuel surcharge by two percentage points.

And FedEx and FedEx Ground will implement a change to the dimensional weight volumetric divisor from 194 to 166 for U.S. domestic services.