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UPS Freight to implement a general rate increase at end of March

By Jeff Berman, Group News Editor
March 16, 2014

UPS Freight, the less-than-truckload subsidiary of UPS, recently announced it will implement a 4.4 percent general rate increase (GRI) that will take effect on March 31.

UPS said this GRI hike will apply to non-contractual LTL shipments rated on the current UPS Freight tariffs, including 525, 560, 570 and 571, adding that it also applies to all offshore rates and charges and accessorials listed in the UPS Freight 102 Series Rules Tariff. The impact of this GRI may vary by specific lane or shipment characteristics such as weight or class, according to UPS.

UPS Freight is the most recent LTL carrier to recently announce a GRI. 

ABF Freight System will implement a 5.4 percent GRI, effective March 24, and FedEx Freight did the same with a 3.9 percent GRI taking hold on March 31.

As previously reported, 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.

A recent research note from Stifel Nicolaus suggested that LTL pricing should rise 1 percent to 3 percent in 2014. But the firm added that if the economy were to decelerate, these expectations would likely prove too aggressive.

“On the other hand, if the economy were to truly accelerate and/or if the onslaught of federally mandated safety rules sufficiently shrinks effective capacity, these pricing estimates could easily prove too conservative,” according to a Stifel research note.

“Again, we side with the more cautious view, which would lean toward expecting low single digit y/y pricing expansion in 2014.”

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 Pittsburgh-based 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 you find that at a certain price that does not work. And in recent years there was 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.

Morgan Stanley analyst Bill Greene stated in a research note that these recent GRI announcements by FedEx Freight and ABF are likely driven by weather-induced tightness and improving volume trends, adding that while weather will weigh on 1Q results, earlier GRIs should be tailwinds to LTL yields going forward.

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


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Article Topics

News · LTL · GRI · UPS Freight · All topics

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