Shippers continue to struggle with high transportation costs, driven by surging fuel prices and other market forces that are raising rates across the board, according to a second-quarter outlook report from Cowen Research and third-party logistics services (3PL) provider AFS Logistics.
The companies’ Cowen/AFS Freight Index analyzes AFS Logistics’ freight data across transportation modes, including less-than-truckload (LTL), parcel express, parcel ground, and truckload. The most recent report, released April 12, predicts record-high rate levels for parcel and LTL shipments, in particular, driven mainly by high fuel surcharges. AFS manages $11 billion in freight spend for clients in North America. Its quarterly index offers a forward-looking view of transportation industry trends. “Rising fuel prices are no secret. The average cost of diesel in the U.S. going up over a dollar in just a month made plenty of headlines, and in a tight capacity market carriers are responding with significantly higher fuel surcharges,” Tom Nightingale, CEO of AFS Logistics, said in a statement announcing the quarter-two results. “Shippers should expect rising rates across the board, as those higher fuel surcharges join the usual suspects like capacity constraints, GRIs [general rate increases], firm pricing policies and steep accessorial increases to intensify upward pricing pressure.” Market conditions have pushed LTL carriers to adjust fuel surcharge tables, which drove considerable increases in fuel-related costs in the first quarter of this year. According to Cowen/AFS data, the average fuel charge among LTL carriers grew from 28.3% in the fourth quarter last year to 42.1% in March. Parcel costs grew as well. Both FedEx and UPS implemented changes to fuel surcharges, resulting in increases of 129% in express parcel and 89% for ground parcel compared to last October, according to Cowen/AFS data, which measures the net effective fuel charge, which is the actual fuel paid as a percentage of total spend across its network. In a separate interview, Nightingale said he expects increases and higher costs to continue. “Fuel is going to remain fairly hot, although I think we’re getting through some of the worst [of it],” he said, adding that industry consensus calls for fuel to remain high throughout the summer driving season. “[It was] $3.61 for diesel in early January and now we’re up to $5.14 at the beginning of Q2. The expectation is we’ll probably wind up in a more reasonable $4 to $4.50 range, but that’s still high.” The index predicts slowing rate growth in the truckload market, primarily due to softening demand. The monthly data point to continued rate-per-mile increases, but at a slower pace compared to last year. The index is expected to grow from 25.2% in the first quarter to plateau at 27.1% in the second quarter, “a lower growth rate than previous quarters,” according to the research. “The correlation between price and distance remains strong, and the overall miles per shipment increased 3.2% in Q1 compared to the previous quarter,” the researchers wrote. “Market forces like the driver shortage and higher labor costs continued to support cost-per-shipment growth in Q1 2022, but early data indicates truckload demand in 2022 will be softening compared to 2021.” The increasingly complicated landscape calls for a holistic approach to managing logistics and transportation spending, Nightingale said. “The best strategies … are not just attempting to establish more favorable incentives on surcharges, or on fuel, or on a specific mode. It [requires] looking at the portfolio of transportation needs across all modes,” he explains. “In addition to the clear benefits of working with a 3PL who can optimize your cost structure and carrier mix, both shippers and 3PLs should be looking at alternate mode options such as converting parcel to LTL, LTL to multi-stop truckload, truckload to volume LTL, and of course looking for non-premium parcel options that still meet required time in transit. Looking across modes like this can enable shippers to unlock opportunities to save on their transportation spend.”
