Q2 TD Cowen/AFS Freight Index points to a market largely favorable for shippers

The new 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, pointed to what continues to be a shippers’ market, with truckload rates remaining low, parcel rates seeing discounting in express and ground parcel, and still-elevated less-than-truckload (LTL) rates.

The index made its debut in October 2021. The companies said that the objective of the quarterly Freight Index is to provide institutional clients of Cowen with predictive pricing tools for various sectors—including less-than-truckload (LTL), full truckload shipping (TL), and parcel shipping (separately focusing on express and ground).

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.

“The current state of freight markets empowers shippers to wield pricing power and re-evaluate how to best make use of logistics networks,” said Tom Nightingale, CEO of AFS. “Carriers, on the other hand, continue to step up the sophistication and nuanced defenses of their revenue streams, with subtle and frequent ancillary price increases.”

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

Ground parcel rates per package fell from 28.8% in the first quarter to 26.8% in the second quarter, and is expected to drop to 25.7% in the third quarter. Second quarter cost per package decreased, due to an average discount increase, at 0.9%, from the first quarter to the second quarter, and a 5% decrease in net accessorial charges per package, demonstrating what the report called “further evidence of carriers’ aggressive discounting.” On the express parcel side, the index is pegged to fall from 4.7% in the second quarter to 2.8% in the third quarter, which matches up with seasonal trends and an expectation of heavy discounting behavior to remain intact. And it added that in the second quarter the average express parcel discount was up 0.7% compared to the first quarter, with the cost per package seeing marginal gains over the first quarter, due to weight, service mix, and fuel surcharge changes.  

“The ‘competitive but rational’ language used by carriers to describe the market did not signal cooling discounting activity, as the pursuit of volume drove liberal discounting in both express and ground parcel,” said Micheal McDonagh, AFS President of Parcel. “Carriers are also applying discounts to pursue the highest-profit customers, as small- to medium-size shippers are seeing exceptional discounts that might typically be reserved for much larger customers.” 

LTL cost per shipment fell 2.6% in the second quarter, due to declining weight per shipment and a lower fuel surcharge, while LTL rate per pound saw modest growth, with the report citing carrier discipline and graduated pricing structures making lighter shipments more expensive. For the third quarter, the report expects the LTL rate per pound index to come in at 63.2%, which would mark a 0.3% gain, with market conditions remaining steady and carriers maintaining discipline.

“Looking at shippers’ efforts to capitalize on cost saving opportunities in today’s freight market provides a rationale for the decreasing weight per shipment we see in LTL,” said Dean Jones, President of LTL for AFS. “Two examples show how inbound and outbound flows at both ends of the weight spectrum push this overall trend – seeking relief from the punitive charges of parcel carriers pushes lighter freight into LTL networks, while pursuing the efficiency of consolidated, multi-stop truckload pushes heavier freight away from LTL carriers.”

With the truckload rate per mile establishing a floor in the second quarter 2023, at 4.3% above the January 2018 baseline, the third quarter of 2024 is expected to mark the sixth straight quarter to see “rates bouncing along that bottom.” And the report observed that rate per mile is expected to fall 0.3%, to 4.7%, in the third quarter. It also noted that the second quarter average linehaul cost per shipment was down 2.7% compared to the first quarter, with the share of short-haul shipments fairly flat. While second quarter linehaul costs were down 14% annually, the report said it still marked an 11% gain over pre-pandemic levels.

“Recent increases on the spot market do provide a limited upward push, but with contract rates still slightly decreasing and no clear macroeconomic catalyst to spark increased demand, we’re projecting rates to keep hovering where they’ve been since Q2 of last year,” said Andy Dyer, AFS President of Transportation Management.