UPS Freight, ABF announce mid-year LTL rate increases
June 03, 2013
Mid-year less-than-truckload (LTL) rate hikes—in the form of GRIs (general rate increases) for non-contractual freight—are back.
UPS Freight, the LTL subsidiary of transportation and logistics bellwether UPS, and ABF Freight System, the LTL subsidiary of Arkansas Best Corp. each recently announced rate hikes.
UPS Freight rolled out a GRI increase of 5.9 percent for non-contractual shipments in the United States, Canada, and Mexico, which is set to take effect on June 10. The company set this increase applies to minimum charge LTL and truckload rates and accessorial charges.
This 5.9 percent GRI increase matches the one UPS Freight rolled out last year at this time.
ABF said that it is revising its general rates and charges for its freight division, with rates increasing by about 5.9 percent and noting that the effect on specific lanes and shipments will vary. Company officials said the new rates can be viewed at http://www.abf.com .
These rate increases come at a time when the LTL sector continues to see improvements to varying degrees for price and volume, especially when compared to 2009, when it 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.
And as LM has reported, 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 or near pre-recession levels seen in 2007 and earlier.
That situation, though, could also be changing, with the housing and automotive sectors showing signs of improvement, with consumer confidence also hitting higher levels, too.
A recent research note from Wolfe Trahan noted that while some LTL carriers have been asking for up to 6 percent rate increases, a shipper told the Wall Street firm that on average the increases have been closer to 2-3 percent year-to-date, due to the shipper’s consistent volumes, history with carriers, and her company’s short payment history.
Many LTL executives have told LM they view the current rate environment as “rational,” especially when compared to 2009-2010, when they were doing whatever they could to hold onto business while sacrificing price for volume to keep freight moving in their costly fixed network operations.
Satish Jindel, president of Pittsbugh-based SJ Consulting, explained that while truckload and parcel carriers often see double-digit margins, LTL carriers are typically at the other end of the spectrum with low, single-digit margins.
“This is not because LTLs have a bad cost structure or because they are all bad operators,” said Jindel. “It is just that the industry has slacked some pricing discipline, and shippers have been able to leverage the multiple carriers they use in a way where they have been able to get lower pricing. Shippers may not like to hear this, but they don’t benefit from unprofitable carriers no matter which segment of the industry they are in.”
The reason for this, he explained, is that unprofitable carriers cannot make the needed investments into their people, technology, networks, and equipment and subsequently fall behind as a result and are unable to bring added value to shippers.
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