U.S. sees elevated shipping costs as fuel prices drive market

Higher fuel prices pushed freight rates above expectations in the second quarter and are expected to keep transportation costs elevated through the third quarter, according to the latest TD Cowen/AFS Freight Index.

The quarterly report from AFS Logistics and TD Cowen found rising diesel and jet fuel prices drove truckload, less-than-truckload (LTL) and parcel shipping costs higher during the second quarter, with ongoing conflict in the Middle East creating the potential for additional fuel-related cost increases.

“With this edition of the freight index, the fuel numbers tell the story. In Q2, diesel prices rose about 51 per cent compared to January and February levels, while jet fuel prices were up 90 per cent compared to Q2 of last year,” said Andy Dyer, CEO of AFS Logistics. “Beyond the direct impact of higher freight bills paid by shippers, these price movements also have second-order effects that squeeze rates higher. Smaller truckload carriers working on tight margins may park trucks and wait for fuel prices to revert to more palatable levels before returning to operation, further restraining capacity amid a supply-side market correction.”

The report projects truckload rates will reach a four-year high in the third quarter as tighter carrier capacity combines with higher fuel costs. The truckload rate-per-mile index is forecast to rise to 17.7 per cent above the January 2018 baseline, an 11 per cent increase from a year earlier.

LTL rates are also expected to remain near record levels after fuel surcharges climbed sharply during the second quarter. The report projects the LTL rate-per-pound index will reach 76.8 per cent above the January 2018 baseline in the third quarter.

“Q2 showed that carriers’ pricing strategies include the ability to not only secure rate increases and strategically valuable volumes, but capture volatile fuel costs,” said Mich Fabriga, vice-president of LTL pricing, AFS Logistics. “But aside from fuel, the competitive landscape is experiencing some major shifts. While near-term impact may be limited, Amazon’s full-scale entry into the LTL market signals a major force for the future and the completion of the FedEx Freight spinoff frees a major player to compete without their parcel business tying their hands.”

The report also found parcel carriers continue to adjust fuel surcharges and pricing strategies while facing growing competition from regional carriers and new market entrants. Ground parcel rates are expected to remain elevated despite a seasonal decline in the third quarter, while express parcel rates are forecast to reach a record high.

“This shifting carrier landscape is a welcome development for shippers who have long sought relief from two dominant players that seemingly moved in lockstep,” said Mingshu Bates, president of parcel and chief analytics officer, AFS Logistics. “But capitalizing on these savings opportunities requires managing significant complexity, both in terms of navigating a carrier landscape with highly variable service offerings and geographic reach, and the technology infrastructure necessary to rate shop parcels and execute fulfillment.”