Forecast: parcel rates will remain elevated in Q2 despite drooping LTL volumes

Carriers will continue competing for freight volume in the second quarter, causing less than truckload (LTL) rates to bottom out after a sharp drop in the first quarter, even as truckload (TL) rates continue their decline, according to a forecast from AFS Logistics and TD Cowen.

Meanwhile, per-package parcel rates will remain elevated, thanks to record-high general rate increases (GRIs) from carriers, following the lingering strength of last year’s fuel surcharge increases, the firms said. Their analysis came from the Q2 2023 release of the “TD Cowen/AFS Freight Index,” a snapshot with predictive pricing for the truckload, less-than-truckload (LTL), and parcel transportation markets generated by the third-party logistics provider (3PL) AFS Logistics and the financial services firm TD Cowen.

“A year ago, rapid increases in fuel prices provided a pronounced mechanism for carriers to earn windfall profits. However, while diesel prices fell to their lowest level in over a year, certain carriers continue to [eke] out disproportionate profits from their revised fuel surcharges,” Tom Nightingale, CEO of AFS Logistics, said in a release.

Decreasing fuel prices are having a limited impact on ground and express parcel rates, but parcel fuel surcharges have not fallen to the same extent as the actual fuel price indices. For example, since fuel surcharges peaked in Q2 2022, the on-highway diesel index has dropped by 18% while ground fuel surcharges only dropped 13%. By another measure, the U.S. Gulf Coast kerosene-type jet fuel index dropped 22% over the same timeframe, but express fuel surcharges only decreased by 19%.

“The multiple fuel surcharge increases announced last year and the recent record-high GRIs continue to be effective tools for carriers as they seek to maximize per-package yield in the face of falling volumes,” Micheal McDonagh, president, parcel, AFS Logistics, said in the release. “Another important factor to consider is the prevalence of small- and medium-sized shippers, who do not get the discounts that larger customers do for fuel and other accessorial charges. While carriers are willing to negotiate and offer pricing relief to fill capacity, they still have several potent ways to capture revenue, such as pursuing those more profitable segments of customers.”

Despite those pricing strategies for the parcel sector, falling freight volumes have exerted their usual impact on the LTL sector, the report found. In the first quarter of this year, the LTL rate per pound index experienced the most significant quarter-over-quarter decline on record, dropping from its historic high of 64.0% above the January 2018 baseline in the fourth quarter of 2022 to 57.0% in the first quarter of this year. That sharp decline can be attributed to declining diesel fuel prices and excess capacity exerting downward pricing pressure, AFS and TD Cowen said. 

And in turn, those conditions could provide clever shippers with some relief from high parcel prices. “As carriers look to fill excess capacity and maintain revenue, prudent shippers can find major cost saving opportunities by looking beyond traditional LTL services,” Kevin Day, president, LTL, AFS Logistics, said in the report. “Volume LTL is a tool for carriers to get some incremental revenue out of backhaul lanes that would otherwise have them moving empty trailers, while giving shippers the opportunity to take advantage of significantly lower rates and avoid the added sting of steep accessorial charges.”