LTL Price Increases are Killing Small Shippers
During the summer of 2013, ABF Freight System, Con-way Freight, Fed-Ex Freight and United Parcel Service Freight made an unexpected move and levied an across the board LTL rate increase. It is expected that the other large LTL shipping companies will follow their example and raise their prices, as well. These LTL price increases are killing small shippers.
Why are the carriers raising LTL shipping prices?
The justification for an LTL rate increase may have been prompted by a promising peak in sales volume. According to the American Trucking Associations Freight Tonnage Index, there has been an encouraging economic growth spurt over the first and second business quarters of 2013.
However, these absolute TL load statistics are not separated by sector, so increases in oil shipments may have skewed the results for the entire industry. Trailers are also able to carry more weight and are loaded more efficiently than they have been in the past, making the numbers seem as though the volume had been lower than it actually was.
How accurate are these numbers?
Despite these recent positive signs of growth, total load
volumes are lower than they have been for a long time. The absolute TL loads are more than ten percent below numbers calculated during 2008 just prior to the economic recession. Additionally, they are nowhere near the record breaking numbers from the early part of the decade.
David Ross and Bruce Chan, transportation sector analysts for Stifel Nicolaus & Company, believe that while freight volumes have been poor, the LTL carriers are still in a favorable economic position. LTL carriers have been increasing hiring rates and adding new trucks to their fleets, so truck capacity is not limiting volume of sales.
How are the shippers reacting?
Many shippers do not believe that their profit margin will permit them to pay the rapidly LTL prices increases without increasing prices for their own customers. As they struggle with increased competition and a smaller shipping budget, the reason for this price increase is difficult to understand. According to Ross and Chan, smaller shippers are paying the higher rates, but larger shippers are successfully attempting to negotiate for lower increases or electing to use smaller LTL carriers.
In this economy, it is obvious that whenever possible, the shippers will need to negotiate aggressively to keep rate increases to a minimum. Hopefully the TL volume will continue to improve, making it easier for the carriers to avoid LTL price increases.
How are the prices affecting you out there? Let us know!