Imagine being an experienced mariner navigating the stormy seas of freight markets. The TD Cowen-AFS Freight Index serves as a lighthouse, illuminating the path forward with quarterly insights. This joint report from investment firm TD Cowen and logistics provider AFS Logistics functions like a "weather forecast" for freight, analyzing past trends while predicting future developments across truckload, parcel, and less-than-truckload (LTL) sectors.
Understanding the Index
Launched in October 2021, the TD Cowen-AFS Freight Index represents more than a standard market report. It's a sophisticated forecasting tool that leverages AFS Logistics' extensive freight data combined with machine learning to provide pricing predictions across transportation modes for TD Cowen's institutional clients. Essentially, it serves as a "freight price predictor" indicating how different transportation costs may fluctuate.
Methodology
The index distinguishes itself by incorporating both macroeconomic and microeconomic factors—such as general rate increases (GRIs) announced by major carriers—alongside historical data. This comprehensive approach enables more accurate market projections. TD Cowen and AFS emphasize their model provides thorough retrospective analysis while forecasting near-term market conditions.
AFS CEO Andy Dyer noted: "While current macroeconomic conditions show some positive signs for carriers, the factors influencing 2024 freight markets will persist through the next quarter. No demand-side stimulus exists to alter the freight cycle of recent years, and supply-side adjustments haven't yet reached levels needed to offset weak demand—despite increasing carrier exits from the market."
Truckload Market Analysis
Despite continued soft demand, the truckload sector shows cautious optimism. Rising spot prices and higher tender rejection rates indicate carriers becoming more selective about loads—suggesting regained pricing power compared to previous market conditions.
However, spot market improvements haven't translated to contract pricing, with overcapacity persisting. Truckload linehaul costs declined for the eighth consecutive quarter to their lowest point in that period—just 11.6% above pre-pandemic levels.
The index forecasts Q1 2025 truckload rates will remain stable at 5.1% above the January 2018 baseline—flat quarter-over-quarter with a 0.2% year-over-year increase.
Key Observations:
- Soft demand: The primary challenge facing truckload markets, driven by slowing consumer spending and business investment
- Overcapacity: Pandemic-era fleet expansions created lasting overcapacity that persists despite some carrier exits
- Spot vs. contract markets: Spot market improvements may eventually influence contract pricing, but with delayed effects
- Carrier leverage: Rising tender rejection rates indicate strengthening carrier negotiating positions
Parcel Market Analysis
The index reveals pricing adjustments have become carriers' primary tool during peak seasons. New "all-in" demand surcharges drove Q4 ground parcel surcharges 16.4% above Q3 levels.
Fuel surcharge adjustments also benefited carriers—while highway diesel prices fell 4.6%, average net fuel costs for ground parcels increased 4.7% quarter-over-quarter. Express parcels showed similar patterns, with carrier fuel surcharges declining just 2.7% despite an 8.8% drop in Gulf Coast jet fuel prices. UPS implemented its eighth 2024 fuel surcharge increase in December.
Unlike uniform adjustments across fuel price ranges, recent changes feature "tilted" fee curves—surcharges rise faster when fuel prices increase but decline more slowly when prices drop. Beneath these pricing dynamics lies weak demand, intense competition, and ongoing discounting.
The Q4 2024 express parcel per-package rate index declined both quarterly and annually to just 0.5% above the January 2018 baseline. While Q1 2025 projections anticipate 4.1% seasonal growth from carrier GRIs, this represents a year-over-year decrease reflecting aggressive annual discounting. Ground parcels performed better, with the Q4 2024 per-package rate index rising to 24.4%.
With 2025 GRIs taking effect, the Q1 2025 ground index may reach 28.2%. However, discounting effects remain visible—the projection shows slight year-over-year declines and sits 2% below peak levels from two years prior.
LTL Market Analysis
Rates remain elevated but show early signs of eroding pricing discipline. Unlike struggling truckload rates, LTL pricing has stayed strong since Q3 2023—with Yellow Freight's bankruptcy creating necessary capacity tightening that boosted rates. Carriers have maintained high rates since, though recent data suggests this discipline may be weakening.
Q4 2024 saw LTL costs per shipment fall 1.3% quarter-over-quarter—significantly exceeding the 0.3% decline in shipment weights. Declining fuel surcharges (down 3.4% quarterly) appear primarily responsible, with actual net fuel surcharges per shipment dropping 5.5%.
While Q1 2025 projections show the LTL per-pound rate index maintaining its fifth consecutive positive annual trend at 62.4%, growth continues slowing—just 0.4% above prior year levels and down 0.2% quarterly.
Market Outlook
The TD Cowen-AFS Freight Index provides critical visibility into freight market dynamics. While challenges like soft demand and overcapacity persist, emerging positive indicators across sectors offer guidance for shippers and carriers navigating complex market conditions. Strategic adaptation to these evolving trends remains essential for maintaining competitive positioning.