That grim news would sting particularly hard in the truckload sector, where the rate per mile index is projected to show a slight quarter-over-quarter (QoQ) decline to 5.5% in the second quarter— the ninth straight quarter with rates stuck at low levels of just 4.3% to 5.9% above the 2018 baseline.
“Tariffs have become the topic du jour in boardrooms and beyond, and combining those policy changes with a cloudy macroeconomic picture is a recipe for the uncertainty and caution that characterize current market sentiment,” Andy Dyer, CEO, AFS Logistics, said in a release. “These conditions do not indicate a shift away from the malaise of soft demand that has shaped domestic transportation markets for quite some time.”
Conditions are somewhat better in the less than truckload (LTL) segment, where the rate per pound index is forecast at 63.4% for the second quarter, a slight QoQ drop but a 0.7% YoY increase — the sixth consecutive quarter with a positive YoY trend.
But stormy economic weather could eventually drench that sector, too, analysts said.
“After 26 months of contraction, the purchasing managers index finally reversed course with two months of growth early in Q1, but March data shows it’s back to contraction, which underscores some of the headwinds facing the freight market,” Aaron LaGanke, Vice President, Freight Services, AFS, said. “Truckload typically feels the impact of macroeconomic forces and trade policy first, then LTL has more of a delayed reaction. For now, LTL carriers are effectively navigating a low-demand environment with a focus on profitable lanes, contractual relationships, and reliable freight, rather than chasing volume with pricing concessions.”
And shippers will also feel the pain, since parcel carriers are expected to make more aggressive attempts to regain pricing advantage, the report found. According to the report, the era of parcel price increases announced on a predictable, annual cadence with plenty of advance notice for shippers is over. Instead, over the past 18 months, FedEx and UPS have pursued a different strategy as they fight for revenue in a low demand environment, with more frequent, subtle pricing changes that take effect more quickly.
“These latest changes introduce even more complexity for shippers to digest and negotiate. If they overlook any one of these subtle updates, they can find themselves subject to punitive provisions like a blanket payment processing fee that’s in effect a 2% price hike,” Mingshu Bates, Chief Analytics Officer and President of Parcel, AFS, said in the report.
