Cowen/AFS Freight Index points to fuel-driven rate gains, for LTL and parcel, in Q2

The new edition of the Cowen/AFS Freight Index, which was recently released by New York-based investment firm Cowen Inc. and Shreveport, La.-based 3PL and freight audit and payment company AFS Logistics LLC, highlighted how rising fuel prices are having a significant impact on both parcel and LTL (Less-than-Truckload) rates, whereas things are somewhat lessening on the truckload side.

The index made its debut in October 2021. The companies said that the objective of the quarterly Freight Index is to provide institutional clients of Cowen with predictive pricing tools for various sectors—including less-than-truckload (LTL), full truckload shipping (TL), and parcel shipping (separately focusing on express and ground).

The companies explained that the by leveraging AFS’s access to freight data across various modes, coupled with applying advanced analytics like machine learning algorithms, they have developed models that they said provide a complete picture of the data’s depth and richness. And they also highlighted how along with the large amount of historical data, they are evaluating and selecting current macro- and micro-economic factors, which are built into their historical models, which includes the most recent GRI (general rate increase) announcement from a major parcel carrier. What’s more, Cowen and AFS noted that the Cowen/AFS Freight Index “offers a unique and comprehensive review of both past performance and the forecasted outlook for the immediate future quarter.”

In a previous interview with LM, AFS Chief Executive Officer, Tom Nightingale explained that that the forward-looking nature of the report serves as a key differentiator of the report compared to others in the market.

“We are actually predicting where rates will go, not just where they have been,” he said. “We are also breaking down LTL, TL, and parcel (into two sub-categories) so it makes it [the Freight Index] unique in that regard.”

The Index observed that dramatically higher fuel surcharges represent what it called the accelerated growth in LTL and parcel costs, for the second quarter of 2022, with truck driver shortages and labor costs continuing to support truckload growth, despite a softening in forecasted demand.

The Index issued the following takeaways across the modes it covers:

• truckload rates are pegged to increase, on a rate-per-mile basis and compared to January 2018 baselines, from 25.2% in the first quarter to 27.1% in the second quarter, which marks a slower growth rate than previous quarters;
• overall truckload miles-per-shipment increased 3.2% in the first quarter compared to the fourth quarter, with 2022 truckload demand softening compared to 2021;
• LTL cost-per-shipment was impacted by fuel in the first quarter and pegged for further growth in the second quarter, as the pairing of global oil supply disruptions and high demand drive LTL carriers to adjust fuel surcharge tables, leading to significant increase in first quarter fuel-related costs;
• for major LTL carriers, the average fuel charge jumped from 28.3% in the fourth quarter 2021 to 42.1% in March 2022;
• the LTL index is expected to come in at an all-time high of 40.9% in the second quarter compared to the January 2018 baseline, a 4% gain over the first quarter, which has shippers vetting things like shipment consolidation, multi-stop truckload, and additional warehousing options, amid historically high LTL rates;
• for express parcel, the Index said that record-high general rate increases (GRI), accessorial charges, and high fuel surcharges paced a 5.8% increase, from the fourth quarter 2021 to the first quarter 2022, with the express parcel net effective surcharge up 24.7%, for the same period and is projected to remain above the 2018 baseline, from 0.8% in the first quarter to 1.8% in the second quarter; and
• the ground parcel index is on track to hit an all-time high of 24.6% in the second quarter, driven by carriers leveraging fuel surcharges to augment per package cost

Cowen analyst Jason Seidl observed in a research note that this edition of the Index suggests a plateau in TL rate per mile, while LTL rate per pound is expected to reach a new record.

“A plateau of TL rates keep us wary of rates beyond 2H22 as the demand outlook remains uncertain,” he wrote.