LTL news: Con-way Freight is latest carrier to announce a rate hike
July 19, 2011 - LM Editorial
It appears to be the season for less-than-truckload rate hikes, with Con-way Freight, the less-than-truckload (LTL) subsidiary of freight transportation and logistics services provider Con-way Inc., announcing it is raising its rates by 6.9 percent, effective August 1.
This matches previously-announced matching increased by UPS Freight—effective August 1—and ABF Freight system—effective July 25—earlier this month.
Con-way officials said this increase is applicable to non-contractual business and will be implemented for customers on the company’s CNW 599 tariff. They added that the increase will apply to general LTL rates, minimum charges and accessorial or supplemental fees for special services for LTL shipments moving within the United States and Canada, as well as cross-border shipments moving between the U.S., Puerto Rico and Canada.
Specific rate increases will vary for individual shippers and shipments based on characteristics such as geography, lane, product classification and weight, according to Con-way.
Satish Jindel, president of Pittsburgh-based SJ Consulting, recently told LM that these rate increases are a good thing, because the LTL industry needs to become more profitable.
“The market is getting tighter, and it is a good time for this,” he said. “Capacity is part of this in terms of the two types of capacity the industry deals with: one being fixed capacity and the other being variable capacity.”
Regarding the latter, Jindel said it is very tight at the moment, as it involves driver availability, which is very challenging at the moment.
While raising rates is seen as key for recovering revenues lost during the recession, Jindel said there are other effective ways to address this situation. One way is for LTL carriers to charge for what they actually handle.
“If a carrier is charging for 760 pounds and the Bill of Lading says 740 pounds, charge for the extra 20 pounds,” said Jindel. “About 4 percent of industry margins would improve if carriers did that. This is a bad industry practice from years ago.”
Another thing that can help LTL margins, according to Jindel, is freight classification and using FAK (Freight All Kinds) rates for average pricing. Leveraging both these practices would improve margins without rate hikes, said Jindel.
As LM reported during the fourth quarter of last year, anecdotal evidence suggested 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.
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.
Ed Wolfe, analyst at Wolfe Trahan & Co, wrote in a research note that while LTL capacity still is much more available than LTL, LTL pricing is “going in the right direction as the largest carriers remain very focused on improving rates.” He added that LTL tonnage saw decelerated growth during the second quarter.
BB&T Capital Markets analyst Thom Albrecht noted that these GRI’s typically cover 20 percent-to-40 percent of a carrier’s revenue base, with the percentage depending on the carrier’s freight mix and customer profile.
“If other carriers haven’t announced a new GRI by late July or early August, then the summer GRI could lose some momentum,” Albrecht wrote in a research note. “Nearly every industry participant we have spoken to is on board; however, it seems like many are waiting to see 1-2 carriers in the top 5 take the lead and announce their GRIs before announcing their own.”
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