TD Cowen/AFS Freight Index points to flattish rates, driven by muted demand

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, highlighted ongoing market conditions, most notably soft demand, continuing to impact truckload, less-than-truckload (LTL), and parcel 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.

“While the Federal Reserve is expected to cut interest rates later this year, the near-term economic outlook continues trends established in the second half of last year,” said Tom Nightingale, CEO of AFS. “Carriers are taking action to scrape out extra revenue, particularly in parcel, but the underlying reality of soft demand puts a damper on any upward pricing momentum.”

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

• First quarter ground parcel rates are expected to be 28.9% above the January 2018 baseline, for a 3.7% quarter-over-quarter increase, driven by GRI and fuel surcharge increases, while falling 1.6% annually. And paced by holiday shipping patterns, coupled with higher accessorial charges, average zone and fuel, ground parcel rates eked out a 0.7% increase from the fourth quarter to the first quarter. On the express parcel side, the first quarter is expected to come in 1.8% over the January 2018 baseline, for a 1.6% quarter-over-quarter increase and a 2.2% annual decrease, while rates fell 2.2%, from the third quarter to the fourth quarter, due to increased discounting and a shift away from premium services to lower-priced offerings like two-day and three-day service;
• First quarter less-than-truckload (LTL) rates are expected to be up 0.7%, from the fourth quarter to the first quarter, and up 0.8% annually, which the index said would keep rates at the escalated levels established going back to the second quarter 2022 and stayed at that level, in part, due to Yellow exiting the market last year. It added that the consolidation in capacity is expected to dull some downward rate pressure that would normally be expected without increased demand and prompting the ongoing pattern of subtle fluctuations in LTL rate per pound; and
• First quarter truckload rates are expected to be down 0.2%, from the fourth quarter to the first quarter and down 2.9% annually. The index explained that while truckload rate per mile has exhibited consistency since establishing a floor in Q2 2023, average linehaul cost per shipment has declined in step with miles per shipment. And short-haul shipments—defined as less than 500 miles— grew from 79.8% of all shipments in Q2 2023 to 84.9% in Q4 2023. Despite the continued decline in Q4 2023, cost per shipment still sits 16% higher than pre-pandemic levels.