FedEx Freight, the less-than-truckload unit of FedEx Corp., announced today that it will increase tariff rates by 4.5 percent across its North American system, effective July 1. The increase by the nation's leading LTL carrier by revenues dramatically undercuts the recently announced tariff hikes by rivals UPS Freight, YRC Freight, and ABF Freight System Inc.
The increase will affect FedEx Freight's noncontractual business moving within the United States, within Canada, and within Mexico. It also covers shipments moving between the contiguous 48 U.S. states and Canada, and between the 48 states and Mexico, FedEx Freight said.
FedEx Freight also said it will maintain its current fuel surcharge levels, adding that its surcharges are, in aggregate, 29 percent less than the next six carriers combined.
Within the past three weeks, three of FedEx Freight's main competitors—UPS Freight, UPS Inc.'s LTL unit; YRC Freight, YRC Worldwide Inc.'s long-haul unit; and ABF, the largest division of Arkansas Best Corp.—have announced general rate increases (GRIs) of 5.9 percent. UPS' increases took effect today. The YRC and ABF increases are already in effect.
ABF said its increases would affect about 40 percent of its business. A spokeswoman for UPS Freight would not divulge such data, saying it was proprietary to the company. YRC did not respond to a request for comment by press time.
SMART STRATEGY, OR NOT?
The latest round of increases comes amid what has turned into a virtuous cycle for carriers. Freight demand, though not explosive, is holding up fairly well. Carriers have done a reasonably effective job of rationalizing capacity and pricing. In so doing, they have regained some of the ground lost during the last down cycle, when LTL revenues fell significantly and carriers were engaged in vicious rate wars that may have gained market share but did so at the expense of their profits.
Still, with the economy failing to fire on all cylinders, some wonder if the rate hikes are becoming overkill. UPS Freight, for example, has raised its tariff rates five times in the past three and a half years. None of those increases was less than 5.9 percent.
"While carrier costs are rising, larger-than-five-percent general rate increases are a bit strong, given the fact that these increases are passed down, and end up in many cases raising the price of the goods," said Charles W. Clowdis, Jr., managing director of transportation advisory services at the research and consulting firm IHS Global Insight.
To some, the FedEx Freight hike is reminiscent of the unpleasant days of predatory pricing, when the carrier was a primary player in that game. Back then the race to the bottom was driven by efforts to put YRC Freight (at that time the market leader, and with its parent facing bankruptcy) out of business. The gambit failed, as YRC not only stayed alive but has regained part of its luster under the leadership of CEO James L. Welch and Jeff Rogers, head of the YRC Freight unit.
"I think (FedEx Freight) is still of the opinion it can make a market-share grab somehow," said a trucking executive who asked not to be named. "It is a poor strategy, in my opinion. Fools can cut rates, but it takes a smart guy to raise them."
At press time, William J. Logue, president and CEO of Memphis-based FedEx Freight, had not responded to an e-mail request for comment.
With annualized revenues of just over $5 billion, FedEx Freight controls slightly more than 15 percent of the $32 billion U.S. LTL market, according to data from SJ Consulting.
An executive of a large shipper, whose $50 million annual LTL spend gives it the clout to get better and more stable pricing through contractual relationships, said the dynamics of GRI pricing are "a bit tough to understand" because "they only seem to widen the gap between the craziness of the carriers' standard rates and what people actually pay."
The shipper added that "anybody can get a 60-percent discount" off of a carrier's base rates, and that carriers lose credibility by publicly boosting tariff rates only to negotiate away most of those increases later on.
STRONGER DEMAND SIGNALS
In what could be considered a positive sign on the demand front, Old Dominion Freight Line Inc., arguably the nation's most successful truck line, on Friday increased its "expectations for growth" for the second quarter of 2013. The Thomasville, N.C.-based LTL carrier said it expects its daily tonnage to rise by between 5 and 5.5 percent compared to the same quarter in 2012. Old Dominion had forecast earlier this year that second-quarter tonnage would grow between 4.5 percent and 5 percent over the year-earlier period.
Old Dominion said its average daily tonnage rose 5.7 percent in April and 5.8 percent in May over the same periods in 2012. Revenue per hundredweight, a key measure of LTL carrier profitability, is expected to increase by 1.5 percent to 2 percent over the 2012 quarter. That forecast excludes the impact of fuel surcharges, Old Dominion said.
Gartner, Inc.