Q3 TD Cowen/AFS Freight Index highlights mixed trends for parcel, LTL, and truckload pricing activity

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, was somewhat mixed, with what it called unprecedented parcel pricing, as well as more established trends for truckload and 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 Fed cutting interest rates is a positive sign for the long-term outlook of truckload and LTL carriers, but our data does not project a material effect on freight pricing in Q4,” says Andy Dyer, CEO, AFS Logistics. “In parcel, the holiday shipping season brings more wrinkles to an already convoluted pricing picture, in which low demand has carriers discounting away the effects of their own pricing changes.”

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

Parcel: The index explained that persistent low demand has subsequently led to what it called unprecedented levels of discounting, as carriers continue to offer heavier discounts to a wider variety of customers, as well as on more line items, including surcharges. Which it added has the net effect of that negating the impact of various surcharge increases and also lowering parcel shipping costs.  

That is clear, too, by the numbers, with third quarter carrier adjustments driving a 2.3% fuel surcharge increase, with “substantial discounting more than offset that increase, resulting in the fuel surcharge per package actually falling 6.8% quarter-over-quarter.” And it added that the ground parcel rate per package index fell significantly, from 26.2% in Q2 to 20.3% above the 2018 baseline in Q3 – its lowest level since 2021—driven by a 2.4% higher average discount and 7.1% decline in average accessorial charge per package compared to the previous quarter.

For the fourth quarter, it said competitive pricing pressure will continue to dominate the holiday shipping season, with a notable trend of growing discounts for large customers, resulting in a slight quarterly bump to 21.5%, which would be a 1.8% annual decline.

On the express parcel side, higher discounts and lower net fuel surcharges led to the express parcel rate per package index falling from 4.5% in Q2 to 1.6% in Q3. It added that the USGC jet fuel price fell 9.1% QoQ, but well-timed adjustments to carrier surcharge tables resulted in a 2% decrease in the carrier fuel surcharge, but when coupled with discounting, the net fuel surcharge declined 4.9% in Q3. The index projects a 0.2% decrease in express parcel rate per package in Q4, coming in at 1.4% above the 2018 baseline.

LTL: Data for the LTL sector pointed to ongoing trends regarding declining weight per shipment, which fell 1.9%, from the second quarter to the third quarter, and carrier pricing discipline, with cost per LTL shipment off just 0.6%, for the same period—driven by a higher average length of haul and carriers managing pricing power. Fourth quarter pricing is expected to come in at 65.0% above the 2018 baseline, and be up 0.5% over the third quarter, and up 2.2% annually—marking what would be the fourth consecutive quarter of positive annual growth and also sustained upward pressure on LTL rates.

Truckload: The index said that the recent Federal Reserve rate cut will not have an immediate impact on truckload pricing, whereas in the near-term the segment continues to see low demand and excess capacity. The third quarter linehaul cost per shipment saw an annual decrease for the seventh consecutive quarter, with the caveat that over the past four quarters it has been 12%-to-14% above pre-pandemic levels. For the fourth quarter, the index observed that the “truckload rate per mile index is expected to stay near the floor established six quarters ago, rising slightly from 4.6% in Q3 to 4.9% above the 2018 baseline in Q4.”