CARRIER PRICING SHOWING CRACKS

After a couple of years of relentless price increases from freight carriers, shippers are beginning to see pricing soften or at least hold steady in most areas.

What will happen in 2020 is of course very uncertain given the unpredictability of the world economy and the tariff situation, but tonnage is down for most LTL carriers. That said, even during the last recession the LTL and Parcel carriers implemented general rate increases (GRI’s) to their base rates, around a more modest 3%, and then promptly gave them away by increasing discounts to shippers in order to hold onto market share. Most LTL carriers took a GRI of around 5.9% earlier this year, so expect another increase at the end of this year, or beginning of 2020.

Truckload carriers do not take an industry wide GRI due to the thousands of carriers in that mode, plus the many sub types, ie, flatbed, tank, heavy haul, hopper, etc.  However, last year TL carriers were demanding 10-15% price increases from shippers vs. this year most were predicting low single digit increases, which have now eroded to no increases for many shippers.  TL Van spot rates are down by about 20% vs last year, according to DAT Solutions who track spot rates nationwide.

Ocean contracts operate on a May 1 to April 30 cycle and most shippers this year reported little to no increases for the 2019-20 contract year. Spot rates are down, but not as much as one might expect due to the ocean carriers “blanking sailings”, that is, taking ships out of the scheduled published rotation. By reducing capacity they are keeping prices firm.

For air freight, 2018 was a strong year as many US companies rushed imports via air freight into the US to beat tariffs. That peak has passed with air carriers reporting tonnage down 5-10% so pricing is stable at this point and should not increase in the near future.

Rail tonnage is also down, but carload rates have remained strong due to carrier pricing discipline, however, intermodal rates are beginning to show signs of weakness…as spot TL rates move down, they are getting nearer to intermodal rates and at some point, the smaller savings of intermodal vs. TL is offset by the longer transit time of intermodal.

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