DC Velocity - July 2013

newsworthy
FedEx Freight raises tariff rates, undercuts rivals

FedEx Freight, the less-than-truckload (LTL) unit of FedEx Corp., increased tariff rates by 4. 5 percent across its North American system, effective July 1. The increase by the nation’s leading LTL carrier by revenue significantly undercuts the recently announced tariff hikes by four of its top rivals.

The increase affects FedEx Freight’s non-contractual 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 also said it would maintain its current fuel surcharge levels, adding that its surcharges are, in aggregate, 29 percent less than those of the next six carriers combined.

Within the past six weeks, UPS Freight, UPS Inc.’s LTL unit; YRC Freight, YRC Worldwide Inc.’s long-haul unit;

ABF Freight System Inc., the long-haul unit of Arkansas Best Corp.; and Con-way Freight, Con-way

Inc.’s LTL unit, have announced general rate increases (GRIs) of

5. 9 percent.

ruptcy) 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.”
William J. Logue, president and CEO of Memphis-based
FedEx Freight, did not respond 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 at a large shipper, whose $50 million in
annual LTL spend gives it the
clout to get better and more stable
pricing through contractual rela-
tionships, 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’ stan-
dard rates and what people actual-
ly pay.”
The shipper added that “any-
body can get a 60-percent dis-
count” off a carrier’s base rates
and that carriers lose credibility by publicly boosting tar-
iff rates only to negotiate away most of those increases
later on.

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 an effective job of rationalizing capacity and pricing. 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 them some market share but 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 bank-

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, in early June increased its “expectations for growth” for the second quarter. The Thomasville, N.C.-based LTL carrier said it expects its daily tonnage to rise by between 5 and 5. 5 percent compared with the same quarter in 2012. Old Dominion had forecast earlier this year that second-quarter tonnage would grow between 4. 5 and 5 percent over the year-earli-er 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. ;