FedEx Freight, ABF to Raise Rates as LTL Market Grows Stronger

This story appears in the March 10 print edition of Transport Topics.

Less-than-truckload fleets FedEx Freight and ABF Freight System last week announced rate increases, which began much earlier than last year, amid signs of an improving truck market and tightening capacity.

FedEx Freight on March 3 said rates on noncontract shipments would rise an average of 3.9% on March 31. A day later, Arkansas Best Corp.’s ABF Freight System unit announced a 5.4% increase, as of March 24.

ABF announced its rate increase a day after the company said tonnage and revenue were improving.

“Quarter-to-date tonnage growth is materially ahead of our full-quarter assumption, suggesting demand strength and potential market share gains,” Cowen and Co. analyst Jason Seidl said in a report. “While weather disruptions may have impacted service and added extra costs in the quarter, we believe conditions remain ripe for LTL pricing to remain very solid.”

Last year, the first rate increase was announced May 20, 11 weeks later than this year. In 2012, LTL rate increases began in July.

“Our view of the market is that it is currently pretty strong,” Arkansas Best spokeswoman Kathy Fieweger told Transport Topics. “We believe the freight market and operating environment will support the timing and level of the increase we are announcing.”

ABF said 2014 revenue rose 3% to 4% through Feb. 24 on a year-over-year basis, and tonnage was 2% to 3% better. Both improvements were 2 percentage points stronger than its assessment barely two weeks earlier. ABF also said weather reduced tonnage and revenue gains by 3 percentage points.

“There are several factors we consider before changing our shipping rates, including the cost of doing business and the need to adjust to the economic environment in the marketplace,” Debra Phillips at FedEx Freight told TT, also citing higher costs and ongoing efficiency enhancements as factors in rate decisions.

Another LTL carrier also noted the improving market.

Saia Inc. said at an investor meeting March 5 that less-than-truckload tonnage rose 3.3% in January and 6% in February, including the weather effect.

“Underlying demand appears to be strong,” Seidl said. “Carriers take rate increases when they think they are going to stick. If competitors don’t take increases soon, they will be leaving money on the table.”

Last week’s LTL market activity is part of a broader trend, Seidl told TT, as industry capacity is tightening.

“It’s very serious when [shippers] can’t find a truck in February,” which is one of the weakest freight months of the year, he said.

Industry officials speaking on a March 5 conference call echoed that market view.

“Capacity is unbelievably short. I think it is clear there are not enough trucks on the road,” said Bo Keith, president of truckload carrier First Express. “We could buy 100 trucks. The problem is we can’t grow because we can’t find the drivers.”

Keith also said January business levels were the best ever in that month.

“Everyone is at capacity,” said Ray Huffnagel, president of bulk carrier Plastic Express. “We are out there pushing as hard as we can.”

John Anderson, advisory director for Greenbriar Equity Group, confirmed the tight capacity.

“We get our signals from our customers, and our signals are that this will be a moderate growth year,” said Anderson, whose company owns broker Transplace. “Given that capacity is pretty tight, that is good news for truckers. There will be higher demand coming.”

“Unyielding winter weather continues to push freight onto the spot market as shippers search for available capacity,” said the weekly spot market report from DAT’s load boards, where volume available rose 6.7% in the week ending March 1.

Seidl also said tight capacity and rising spot market activity eventually could push contract pricing higher for fleets.

Another analyst also signaled the growing concern about capacity.

“In an informal survey of 28 small and mid-sized carriers (most between 100 to 1,000 trucks), all 28 felt the next capacity crunch had begun,” BB&T Capital Markets analyst Thom Albrecht said in a March 3 report. “But most of the 28 felt like they could not move the needle in pricing, needing the bigger carriers to take the lead. It is our impression that larger carriers are indeed seeking to ‘monetize the moment.’ ”

While ABF and FedEx raised rates, other carriers said they were watching the market closely but didn’t follow suit immediately.

Sally Buchholz, vice president of marketing for Saia, said: “We tend to follow the market where these types of actions are concerned and will be keeping abreast of other announcements made. We would make a decision on any action by Saia LTL Freight at a later date.”

Con-way Inc. spokesman Gary Frantz told TT, “We are considering our options.”

Sandy Adkins, at UPS Freight, said, “UPS Freight is in the process of determining a 2014 general rate increase for non-contractual shipments. We haven’t yet established a timeline.”

YRC Worldwide, Roadrunner Transportation and Old Dominion Freight Line did not comment on the increase.

ABF’s rate increase applies to contracts only if they reference base rates, Fieweger said, which is a “relatively small percentage” of freight.