In today's rapidly evolving freight market, businesses face the constant challenge of accurately predicting pricing trends to optimize logistics costs. The TD Cowen/AFS Freight Index serves as a crucial barometer, providing decision-makers with valuable insights by analyzing pricing activities across three key segments: parcel, less-than-truckload (LTL), and truckload (TL) transportation.
TD Cowen/AFS Freight Index Overview
First launched in October 2021, the TD Cowen/AFS Freight Index was developed as a predictive pricing tool for TD Cowen's institutional clients. The index covers multiple transportation modes including LTL, TL, and parcel shipping (further divided into express and ground services). By integrating AFS Logistics' freight data across various transportation modes and applying advanced analytical methods including machine learning algorithms, the index provides comprehensive insights into market trends.
Beyond extensive historical data, the index evaluates current macroeconomic and microeconomic factors, incorporating them into its models. These include recent general rate increases (GRIs) announced by major parcel carriers. TD Cowen and AFS emphasize that their freight index offers both a unique retrospective analysis of past performance and forward-looking projections for upcoming quarters.
AFS Logistics CEO Andy Dyer noted: "While Federal Reserve interest rate cuts signal positive long-term prospects for truckload and LTL carriers, our data suggests these reductions won't materially impact Q4 freight pricing. In parcel shipping, the holiday season introduces additional complexity to an already challenging pricing environment, with low demand prompting carriers to offset pricing changes through increased discounts."
Third Quarter Transportation Mode Analysis
The TD Cowen/AFS Freight Index provides detailed analysis of Q3 trends across transportation modes, with key findings including:
Parcel Shipping: Unprecedented Discounting
Persistently weak demand has driven carriers to offer unprecedented discounts, extending to more customers and including additional fee categories such as accessorial charges. These substantial discounts have largely neutralized various surcharge increases, resulting in lower overall parcel shipping costs.
Specifically, while carrier adjustments led to a 2.3% increase in fuel surcharges, "the magnitude of discounts was sufficient to offset this increase, resulting in a net 6.8% quarter-over-quarter decrease in fuel surcharges per package." The ground parcel per-package rate index dropped significantly from 26.2% above the 2018 baseline in Q2 to 20.3% in Q3—the lowest level since 2021—primarily due to a 2.4% increase in average discounts and a 7.1% quarterly decrease in average accessorial charges per package.
Looking ahead to Q4, competitive pricing pressures will dominate the holiday shipping season, with significantly increased discounts for large customers expected to drive a modest quarterly increase to 21.5%, though this still represents a 1.8% year-over-year decrease.
In express parcel shipping, higher discounts and lower net fuel surcharges reduced the express per-package rate index from 4.5% in Q2 to 1.6% in Q3. While U.S. Gulf Coast jet fuel prices fell 9.1% quarter-over-quarter, carriers promptly adjusted their surcharge tables, resulting in a 2% carrier fuel surcharge reduction. Combined with discount factors, this led to a 4.9% net fuel surcharge decrease in Q3. The index projects Q4 express per-package rates will decline 0.2%, settling at 1.4% above the 2018 baseline.
LTL Shipping: Declining Weight Meets Pricing Discipline
LTL data reveals continued declines in shipment weights, with a 1.9% quarterly decrease. However, carriers have maintained pricing discipline, limiting the per-shipment LTL cost decrease to just 0.6%. This resilience stems from increased average haul lengths and effective carrier management of pricing power.
The index forecasts Q4 pricing at 65.0% above the 2018 baseline—a 0.5% quarterly increase and 2.2% annual gain. This would mark the fourth consecutive quarter of year-over-year growth, continuing upward pressure on LTL rates.
Truckload Shipping: Weak Demand Meets Excess Capacity
The index indicates that recent Federal Reserve rate cuts won't directly impact truckload pricing. In the near term, the sector continues to grapple with weak demand and excess capacity. Q3 per-shipment linehaul costs declined year-over-year—the seventh consecutive quarterly decrease—though remain 12%-14% above pre-pandemic levels over the past four quarters.
The index observes that Q4 "per-mile truckload rate index is expected to remain near the bottom established six quarters ago, edging up slightly from 4.6% above the 2018 baseline in Q3 to 4.9% in Q4."
Detailed Mode-Specific Analysis
To better understand pricing dynamics across transportation modes, we examine each segment in greater detail:
Parcel Shipping
The parcel market is undergoing pricing transformation driven by weak demand and intense competition. Traditionally, parcel carriers regularly implemented rate increases supplemented by various surcharges. However, current market conditions have forced carriers to offer substantial discounts to attract and retain customers—a strategy that's effectively neutralizing rate increases and reducing overall shipping costs.
- Discount Strategies: Carriers are deploying multiple discount approaches including volume-based incentives, contractual discounts, surcharge waivers, and customized pricing solutions.
- Fuel Surcharges: While historically significant, fuel surcharges' impact is diminishing due to both falling fuel prices and discount strategies that offset these charges.
- Regional Variations: Pricing reflects geographic factors, with denser urban areas typically seeing more competitive rates than remote locations.
LTL Shipping
The LTL market remains relatively stable, with carriers demonstrating strong pricing discipline. Despite declining shipment weights, carriers are maintaining profitability through increased haul lengths and effective pricing management.
- Weight vs. Pricing: While e-commerce growth drives smaller, more frequent shipments, carriers are offsetting this through operational efficiencies and network optimization.
- Distance Factors: Expanding business geographies are increasing average haul lengths, creating revenue opportunities for LTL providers.
- Pricing Approaches: Carriers employ weight-, distance-, and service-based pricing models, customized to client needs and market conditions.
Truckload Shipping
The truckload sector faces significant challenges from soft demand and excess capacity. While Fed rate cuts may benefit long-term prospects, near-term pricing pressures persist.
- Supply-Demand Imbalance: Economic softness and inventory adjustments have reduced freight volumes, while increased truck availability and improved driver supply have created excess capacity.
- Fuel Price Impact: Fuel remains a major cost component, with recent price increases creating profitability challenges partially offset through surcharge mechanisms.
- Geographic Variations: Pricing reflects regional demand differences, with stronger freight markets commanding higher rates.
Conclusion and Outlook
The TD Cowen/AFS Freight Index's Q3 report highlights diverging pricing trends across transportation modes. Parcel shipping faces unprecedented discount pressures, the LTL market demonstrates relative stability, while truckload contends with demand weakness and excess capacity. These trends carry significant implications for corporate logistics strategy and transportation cost optimization.
Looking forward, freight markets will continue growing alongside economic expansion and e-commerce adoption, though competition will intensify. Carriers must enhance operational efficiency, optimize networks, and improve service quality to maintain competitiveness. Similarly, shippers must monitor market developments closely and adapt transportation strategies to navigate evolving conditions and maximize logistics efficiency.