FedEx Freight Raises Rates; Other LTLs Increase Prices
This story appears in the June 18 print edition of Transport Topics.
FedEx Freight levied a 6.9% rate increase, prompting other less-than-truckload carriers to signal similar moves as they try to capitalize on a strong rate environment.
FedEx Freight, the largest LTL carrier, announced the increase on June 7, two months earlier than the increase last year, and raised the percentage increase from 6.75% in 2011. ABF Freight System last week announced a 6.9% increase, effective on June 25, and Estes Express Lines, Saia Inc. and others indicated similar moves.
FedEx Freight, Estes, Saia and others among the top 10 LTL carriers in the Transport Topics Top 100 list of the largest for-hire U.S. and Canadian carriers generated more than $21 billion in revenue last year, or about 70% of the total for carriers in that sector. Rates have risen 10.7% above 2011 levels during the first four months of the year, according to American Trucking Associations’ latest trucking report.
“Estes will implement a general rate increase but the amount and effective date is being evaluated,” Paul Dugent, vice president of pricing, told TT on June 12.
“Although we have not formally announced our intentions as it pertains to a general rate increase, we expect to be in line with the increase and time frame as FedEx Freight announced,” Rick O’Dell, CEO of Saia, told TT.
Con-way Freight, the third-largest LTL carrier, hasn’t yet announced a decision on a general rate increase. Neither has UPS Freight, the fourth-largest fleet.
“YRC will be in line with the market,” a company spokeswoman said in an e-mail without giving details.
“We believe FedEx’s action will set off a series of similar increases both in amounts and effective dates,” Brad Davis, vice president of pricing and traffic at Averitt Express told TT, without specifying what Averitt’s pricing decision would be.
“LTL carriers will likely continue to seek price adjustments, both in the form of GRIs as well as contractual increases. The industry is still recovering from the deep price cuts of the Great Recession with carriers trying to achieve returns that allow for reinvestment,” Davis said.
Old Dominion Freight Line declined to comment.
FedEx Freight’s increase will take effect on July 9 and will apply to tariff rates but not contract prices.
FedEx spokeswoman Debra Phillips said the timing of the increase was driven by “a number of factors, including the costs of doing business and the continuing need to adjust to the economic environment in the marketplace.”
The increase affects the continental United States, cross-border shipments with Canada and other prices such as minimum charges.
ABF, the LTL unit of Arkansas Best Corp., said in its statement that its rate increase would be effective even earlier, on June 25. ABF spokesman Russ Aikman said the increase generally would apply just to tariff rates.
Tariff rate increases typically affect between 20% and 40% of a carrier’s pricing, Benjamin Hartford, an analyst for Robert W. Baird & Co., said in a report.
Hartford and others said they were certain that prices would increase industrywide, sooner rather than later.
“Expect others to follow suit quickly,” analyst Art Hatfield said in a report for Raymond James & Associates, noting that he expected the amounts to be similar. “Pricing remains critical for the industry in the midst of relatively modest tonnage growth trends.”
Hatfield said he expected small LTL carriers would quickly follow FedEx Freight’s pricing lead.
“This should have the positive effect of propping up contract pricing over the next couple of quarters,” Hatfield said in his June 8 report.
“The announcement is consistent with solidly positive LTL industry pricing trend,” Hartford said, citing industrywide “pricing momentum” and the need to raise profitability.
Among the publicly traded carriers, Old Dominion’s operating income, or profit before taxes and interest, led the industry, followed by Con-way and Saia.
YRC and Arkansas Best posted losses, and the LTL units of both FedEx and UPS were around break-even levels in their most recent quarters.