Q3 TD Cowen/AFS Freight Index highlights how carriers fight margin pressure amid lengthy downcycle

The third quarter edition of the TD Cowen/AFS Freight Index, which was recently released by New York-based investment firm TD Cowen Inc. and Shreveport, La.-based 3PL and freight audit and payment company AFS Logistics LLC, provided a detailed overview of the myriad challenges industry stakeholders are up against, including over-the-road capacity, lower rates, and ongoing tariff-related impacts, among others.

The companies explained that the by leveraging AFS’s access to freight data across various modes, coupled with applying advanced analytics like machine learning algorithms, they have developed models that they said provide a complete picture of the data’s depth and richness. And they also highlighted how along with the large amount of historical data, they are evaluating and selecting current macro- and micro-economic factors, which are built into their historical models, which includes the most recent GRI (general rate increase) announcement from a major parcel carrier. What’s more, TD Cowen and AFS noted that the TD Cowen/AFS Freight Index offers what they called a unique and comprehensive review of both past performance and the forecasted outlook for the immediate future quarter.

“While the initial shock and awe of high-profile tariff announcements has subsided from earlier this year, businesses continue to grapple with the effects of shifting policies,” says Andy Dyer, CEO, AFS. “We’re also in year three of an unusually long downward freight cycle, and carriers are relying on hard-won lessons of the past to prioritize profitability and hang on in a soft environment.” 

The TD Cowen/AFS Freight Index issued the following takeaways across the modes it covers, for the third quarter:

• Truckload: For the third quarter, the report found that linehaul cost per shipment rose 1.5% annually, halting a quarters-long trend of annual declines, while citing what it called “an encouraging picture,” in the form of higher than expected second quarter GDP reading, as well as the 0.25% federal rate funds interest cut in September, with two more potentially expected later this year. But it added that challenges remain in the form of excess capacity driving down rates for almost three years, with the fourth quarter truckload rate per mile pegged to come in 6.1% ahead of the January 2018 baseline, up 0.001% sequentially and 0.9% annually, with rates at or below 6.2% for 11 straight quarters. Other factors impacting truckload, cited in the report, included persistent uncertainty around tariff policies and also heightened enforcement by the Department of Transportation of language and compliance rules for commercial truck drivers, resulting in around 3,000 drivers exiting the industry;
• Parcel: The report explained that the parcel duopoly of FedEx and UPS continue to move back and forth with rate adjustments “that steadily raise the industry baseline,” for various rates, including holiday demand surcharges, demand surcharges for additional handling and oversize/large package charges, and the “blanket” demand surcharge. For express parcel, it said that cost per package increased 0.03% from the second quarter to the third quarter, paced by higher billed weight, increased fuel, and a more premium service mix. Looking at the fourth quarter, the report said that the Express Parcel Freight Index is projected to hit 2.1%, for a seasonal 1.8% sequential decline and a 3.9% annual gain. It also stated that, “Parcel carriers are grappling with the impacts of trade policy changes, including the elimination of the de minimis duty-free exemption. These changes have increased costs, added operational complexity, and placed downward pressure on low-value parcel volumes” and
• Less-than-Truckload: LTL cost per shipment was down 1.8% sequentially in the third quarter, with average weight per shipment down 3.0%, with the report saying this is driving a further divergence between the metrics. It added that softer industrial demand and reduced heavy freight activities resulted in a 7.4% annual decrease in weight per shipment, while carriers remained disciplined with cost per shipment was down only 0.7% annually. It also pointed to a 5.6% increase in average carrier fuel surcharges and a 1.3% gain in average length of haul resulting in upward pressure on cost per shipment. The third quarter LTL Freight Index reading, at 65.1%, marked a record high, and is expected to come in at 64.8 in the fourth quarter, which would represent a 1.1% annual gain