Q1 Outlook: Carriers will continue to compete for limited demand

Freight carriers will compete for limited demand early in 2023, continuing a trend that marked the transportation industry at the end of last year, according to the latest Cowen/AFS Freight Index, released this week.

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The report shows mixed results in a market that is generally favoring shippers. The quarterly outlook report predicts a continued downward trend in truckload (TL), increases in parcel, and “surprising” strength in less-than-truckload (LTL). TL rates are expected to decline, while surcharges and general rate increases (GRIs) will drive higher rates for parcel and LTL, according to the report. The index is published by Cowen Research and third-party logistics services (3PL) provider AFS Logistics.

“Seven interest rate hikes since March of last year and continued inflation have taken a significant bite out of economic demand,” AFS Logistics’ CEO Tom Nightingale said in a press release announcing the Q1 report. “While the index does not show a uniform decline across all modes, looking deeper shows the effects of macroeconomic conditions playing out, with carriers competing for more limited demand while searching for ways to claw back revenue.”

Key findings from the report include:

• TL: A continued decline in the truckload rate per mile index is projected to erase almost all of the gains accumulated since Q2 2021. Compared to the record-high 25.8% figure of just a year ago, the index is projected to be 11.2% in Q1 2023–an 11.6% year-over-year (YoY) decline. Inflation-driven cost increases, relatively high fuel costs, and shipper pricing power are expected to threaten truckload carrier profitability in 2023. Data from Q4 2022 indicated a falling cost per shipment, aided in part by a higher percentage of short-haul shipments, with miles per shipment declining 2.5% quarter-over-quarter (QoQ).
• LTL: While macroeconomic headwinds and flat weight per shipment often point to loosening LTL capacity and falling rates, the data indicate continued strength, with rates heading higher. In Q1 2023, the LTL rate per pound index is projected to reach a new high of 66.5% above the January 2018 baseline–a 1.1% QoQ increase and 20.4% YoY increase.
• Parcel: The record GRIs announced at the end of 2022 are now in effect, resulting in minimal list rate differentials between FedEx and UPS across services. Both carriers also announced similar changes to an extensive list of surcharges, including levying surcharges for deliveries to remote areas and applying peak demand surcharges on a year-round basis, rather than just during the extended holiday season.

The outlook follows other recent industry reports that point to the effects of weakening economic conditions on the supply chain in the year ahead. Earlier this month, for example, German container logistics platform ContainerxChange found that inflation and a potential recession are among the top concerns of supply chain leaders worldwide, and that the industry is in for a “challenging” year ahead. Another report–from Indiana-based ACT Research–is also predicting softer conditions, although the researchers say an economic downturn in 2023 will be less severe than other recent downturns due to moderating personal consumption expenditures, slowing jobs growth, and decelerating wage inflation.

The Cowen/AFS Freight Index is based on data associated with $11 billion of annual transportation spend by AFS customers across all modes of transportation; it uses past performance and machine-learning to generate predictions for the remainder of the quarter, set against a baseline of 2018 rates for each mode.