LTL news: UPS Freight to raise rates 6.9 percent in August

UPS Freight, the less-than-truckload (LTL) subsidiary of UPS and the fourth-largest LTL carrier in the country, said today it is rolling out a rate adjustment in the form of a general rate increase (GRI), effective August 1.

The GRI will be 6.9 percent and covers non-contractual shipments in the U.S., Canada, and Mexico, according to UPS. It also applies to minimum charge, LTL rates, and accessorial charges. UPS added that shippers will be able to view and download the new rates at www.ltl.upsfreight.com.

This GRI follows one which took effect on October 18 for 5.9 percent which also covers non-contractual shipments in the U.S., Canada, and Mexico.

In the first quarter of 2011, UPS Freight’s revenue was up 22.8 percent at $604 million, with strong increases in LTL revenue per hundredweight up more than 8 percent. UPS’s second quarter earnings release is scheduled for July 26.

“We don’t envision any further increases for this year,” said Ira Rosenfeld, UPS Freight spokesman, in an interview. “UPS does not sell on price but on the breadth and the depth of our portfolio offering and the quality of our service. It takes a huge investment to offer the best product in the industry.”

He also noted that the price per gallon is roughly a dollar higher now than it was a year ago, explaining that diesel prices are a contributing factor in this increase but not the only factor in what continues to be a soft economy. UPS Freight, he added, has made and continues to make huge investments into technology and rolling stock as evidenced by an investment totaling more than $100 million in new trucks and trailers, new stacking equipment in trailers, and network improvements for better transit times over the last two years. UPS Freight has made transit time improvements in more than 2,000 lanes during that same span.

Satish Jindel, president of Pittsburgh-based SJ Consulting, told LM that this increase is 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 has seen decelerated growth during that second quarter.