TD Cowen/AFS Freight Index points to impact of market factors on rates and capacity

The new edition of the Cowen/AFS Freight Index, which was released today by investment firm TD Cowen and Shreveport, La.-based 3PL and freight audit and payment company AFS Logistics LLC, was in line with highlighted rate disparities across various freight transportation modes.

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 TD 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 a unique and comprehensive review of both past performance and the forecasted outlook for the immediate future quarter.”

The Index issued the following takeaways across the modes it covers:

First quarter truckload linehaul cost per shipment fell 13.8%, from the fourth quarter to the first quarter and was down 19.1% annually, for its first negative annual difference going back to the third quarter 2020, with the correlation between the price (linehaul cost per shipment) and distance (miles per shipment) remaining strong but the gap continued to narrow in the first quarter. Due to economic uncertainties, it said that the TL Rate Per Mile Index is expected to drop 6.6% in the second quarter and come in 0.8% below the first quarter. And with the disparity between price and distance, which are heavily correlated, continuing to shrink since the second quarter of 2022, it is a strong indication that carriers are using rates as a primary tool to gain volume, coupled with the share of short-haul shipments, up 3.4%, putting downward pressure on rates;

First quarter LTL rate per pound index saw its most significant sequential decline on record, dropping from its historic high of 64.0% above the January 2018 baseline in Q4 2022 to 57.0% in Q1. This sharp decline can be attributed to declining diesel fuel prices and excess capacity exerting downward pricing pressure. In Q1 2023, the actual fuel cost per shipment dropped 15.7% sequentially and cost per shipment decreased 4.6% QoQ, even though weight per shipment remained consistent with the previous quarter.

For Q2 2023, the index projects rates to flatten, with a modest sequentially increase of 0.8% attributed to seasonal data trends, reaching 58.3% above the January 2018 baseline. Looking ahead, the YoY trend of the LTL rate per pound index is expected to turn negative in upcoming quarters due to weakened demand and lower rates; and

First quarter express parcel rates grew 4.6% sequentially despite decreases in average billed weight and average zone. This higher-than-expected increase was predominantly driven by the record-high GRI, which appears to be ‘stickier,’ or more resistant to the impact of shipper negotiation and discounting, compared to ground.  A slight increase in the premium service mix in Q1 2023 also contributed to an increased cost per package. The express parcel index expects continued growth in Q2 2023, mainly driven by seasonality, with a 1.1% sequential increase up to 4.6% above the January 2018 baseline. Both FedEx and UPS are reporting decreasing year-over-year (YoY) volumes, and their strategies to adapt to this situation will significantly influence express parcel rates going forward.

“A year ago, rapid increases in fuel prices provided a pronounced mechanism for carriers to earn windfall profits. However, while diesel prices fell to their lowest level in over a year, certain carriers continue to eek out disproportionate profits from their revised fuel surcharges,” says Tom Nightingale, CEO, AFS Logistics. “This serves as further evidence of the fact that shippers need the voice of experience with them at the negotiating table.”