You would think that the recent drop in fuel prices would mean that the price of shipping freight would also go down or at least stay the same.
You would be wrong.
Three more carriers have announced general rate increases in recent weeks: Con-way Freight, ABF Freight and FedEx Freight. They join UPS, which recently announced a 4.9% increase effective December 29.
This Time It’s Not the Fuel Costs
Trucking companies say the problem isn’t so much the cost of fuel, but the cost of higher driver pack packages in an effort to attract and retain quality drivers, increased regulatory compliance, fleet operations, revenue equipment costs and technology upgrades that is driving prices upwards.
Con-Way announced that a 4.7 GRI took effect October 27. ABF rolled out its 5.4% GRI on November 3. And FedEx Fright has announced a 4.9% increase that will go into effect January 5.
And now that some of the industry’s biggest firms have announced price increases, you can expect smaller companies to follow suit, according to David Ross, a freight industry analyst for the consulting group Stifel Nicolaus.
“One of the industry’s problems, in our opinion, is that the carriers keep trying to raise prices on tariff (non-contract) customers, generally very profitable accounts made up of small shippers,” Ross told Logistics Management. “Tariff hikes end up driving these smaller shippers to 3PLs for rate relief, in our view, shifting good-paying accounts to lower-margin national-account-margin business, even if the freight stays in the same carrier network. Maybe with density-based pricing and the elimination of tariffs, things can be made simple. But we are not there yet.”
Shifting to “Dim” Pricing
The rate increases come at a time when many “less than truckload” (LTL) carriers are seeking ways to more accurately charge shippers rates based on the actual dimensions of their shipments, rather than by the traditional weight-and-distance formula that has been in use since the early 20th 20th Century.
Old Dominion, Sala, YRC Worldwide and other carriers are already testing these dimensional-measuring tools, or “dim” machines, and they may be the industry standard in the coming years.
Satish Jindel, a freight industry analyst and president of the Pittsburgh-based SJ Consulting, said consumers are becoming weary of the GRIs, which are like a “broken record” that is replayed year after year.
“GRIs simply are not correcting the problems some of these carriers have,” Satish said, adding that carriers are justifying the increases by pointing to higher non-fuel costs, but the results aren’t showing up in their earnings statements.
“LTL carriers announce these every year, but they are clearly becoming meaningless because they cannot seem to show it on the bottom line,” Jindel said. “FedEx Freight, UPS Freight and Con-way are three of the largest LTL carriers and operate at an operating ratio of 96 or worse, and GRIs are not going to correct the problem for them. And then the smaller companies like Sala and Old Dominion Freight Line are operating with better ORs int he high 80s or low 90s, and private carriers smaller than them also around there.”