As e-commerce packages pile up and trucks stream endlessly across highways, have you ever wondered about the pricing dynamics behind these logistics operations? The latest TD Cowen/AFS Freight Index report serves as a barometer for the logistics industry, revealing price trends across three key segments—parcel, less-than-truckload (LTL), and truckload (TL) transportation—during the third quarter.
Jointly published by investment firm TD Cowen Inc. and third-party logistics provider AFS Logistics LLC, this index has provided forward-looking pricing tools for Cowen's institutional clients since its debut in October 2021. Covering critical areas including LTL, TL, and parcel shipping (further divided into express and ground services), the index integrates AFS's vast freight data across multiple transportation modes with advanced analytical techniques like machine learning.
Methodology Behind the Index
The TD Cowen/AFS Freight Index leverages AFS Logistics's extensive freight data resources. As a third-party logistics company, AFS possesses comprehensive industry data encompassing various rate information across different transportation modes. Through this partnership, TD Cowen accesses sufficient data samples to form the foundation of the index.
For analysis, the index employs sophisticated machine learning algorithms to mine and examine historical data. These algorithms identify underlying patterns and trends, enhancing predictive accuracy. Additionally, the index incorporates macroeconomic and microeconomic factors—such as interest rate fluctuations and fuel price volatility—that may influence freight pricing.
Sector-Specific Findings
Parcel Shipping: Unprecedented Discounts
The report highlights that persistent weak demand has led to unprecedented discounting. Carriers are offering deeper discounts across more customers and services (including surcharges) to maintain market share, effectively offsetting surcharge increases and reducing overall parcel shipping costs.
Detailed data shows that while carrier adjustments drove a 2.3% increase in fuel surcharges in Q3, substantial discounts resulted in an actual 6.8% decrease in net fuel surcharges. The ground parcel per-piece rate index dropped from 26.2% in Q2 to 20.3% in Q3 (against a 2018 baseline), marking the lowest level since 2021. This decline primarily stemmed from a 2.4% improvement in average discounts and a 7.1% reduction in average per-piece surcharges.
For Q4, the report predicts intense price competition will dominate the holiday shipping season. Larger customers will secure even greater discounts, pushing the ground parcel per-piece rate index slightly higher to 21.5%, though still down 1.8% year-over-year.
LTL Shipping: Declining Weight and Pricing Discipline
The LTL sector shows continued reduction in shipment weight, down 1.9% quarter-over-quarter. Meanwhile, carriers have demonstrated remarkable pricing discipline, with per-shipment costs declining just 0.6%. This stability reflects longer average hauls and effective carrier management of pricing power.
The index forecasts Q4 LTL rates will remain 65.0% above 2018 baseline levels, rising 0.5% quarter-over-quarter and 2.2% year-over-year. This would mark the fourth consecutive quarter of annual growth, signaling sustained upward pressure on LTL rates.
Truckload Shipping: Soft Demand and Excess Capacity
The report suggests recent Federal Reserve rate cuts won't immediately impact truckload pricing. The sector continues facing challenges from tepid demand and overcapacity. While Q3 marked the seventh consecutive quarter of year-over-year declines in per-shipment linehaul costs, these costs remain 12%-14% above pre-pandemic levels.
For Q4, the index expects the per-mile rate index to hover near the bottom range established over the past six quarters, edging up slightly from 4.6% in Q3 to 4.9% (against 2018 baseline).
Industry Perspective
AFS Logistics CEO Andy Dyer commented: "While Fed rate cuts signal positive long-term prospects for truckload and LTL carriers, our data doesn't indicate material impact on Q4 freight pricing. In parcel shipping, the holiday season introduces additional variables to an already complex pricing landscape. With demand remaining soft, carriers are using discounts to offset their own pricing adjustments."
Understanding the Freight Index
The TD Cowen/AFS Freight Index represents more than numerical data—it offers deep insights into logistics industry dynamics. Key aspects include:
- Component Structure: Multiple sub-indices track price movements across different transportation modes, with parcel shipping further divided into ground and express categories.
- Data Reliability: Primary data comes from AFS Logistics's extensive freight operations, supplemented by macroeconomic indicators from authoritative sources.
- Analytical Rigor: Machine learning algorithms identify patterns while accounting for seasonal variations, demand shifts, and capacity changes.
- Practical Applications: Shippers can optimize budgets, carriers can refine pricing strategies, and investors gain industry visibility.
Key Pricing Influencers
Freight pricing responds to numerous macroeconomic and microeconomic factors:
- Macroeconomic: GDP growth, interest rates, fuel prices, and inflation collectively shape transportation demand and operational costs.
- Industry-Specific: Supply-demand balance, available capacity, seasonal patterns, and competitive dynamics directly affect rate volatility.
Future Outlook
Moving forward, the TD Cowen/AFS Freight Index will continue monitoring critical pricing factors while refining analytical models to provide increasingly accurate market intelligence. As global economic conditions evolve and logistics technologies advance, this index will serve as an essential resource for navigating industry changes.