In today's highly interconnected economy, the freight market operates like a complex nervous system, with its pulse directly reflecting the overall health of economic activity. The latest TD Cowen-AFS Freight Index provides crucial insights into this vital sector, analyzing current conditions and future trends across truckload, parcel, and less-than-truckload (LTL) transportation markets.
TD Cowen-AFS Freight Index: Background and Methodology
The TD Cowen-AFS Freight Index, first published in October 2021, serves as a predictive pricing tool for institutional clients, covering LTL, truckload (TL), and parcel shipping (divided into express and ground services). The index combines AFS Logistics' extensive freight data across transportation modes with advanced analytical techniques including machine learning algorithms.
Beyond historical data analysis, the index incorporates current macroeconomic and microeconomic factors into its models, including recent General Rate Increases (GRIs) announced by major parcel carriers. This comprehensive approach provides both retrospective analysis and forward-looking projections for upcoming quarters.
CEO Perspective: Market Forces in 2024
AFS Logistics CEO Andy Dyer noted: "While there are some positive signs in the current macroeconomic outlook for carriers, the forces shaping the 2024 freight market will persist through the next quarter. We haven't seen a demand-side spark to change the freight cycle of recent years, and while more carriers exit the market, supply-side adjustments haven't yet reached the scale needed to offset weak demand."
Q1 Freight Market Analysis by Mode
Truckload (TL) Market
The index shows cautious optimism in truckload despite flat demand, with spot rate increases and higher tender rejection rates indicating carriers are becoming more selective. However, these spot market gains haven't translated to contract rates, with capacity oversupply persisting.
Cost per truckload shipment declined for the eighth consecutive quarter, reaching the lowest point of this period while remaining 11.6% above pre-pandemic levels. Projections suggest truckload rates will remain stable through Q1 2025, maintaining a 5.1% increase over the January 2018 baseline.
Parcel Shipping
Parcel carriers demonstrated effective pricing strategies during peak season, with new blanket demand surcharges driving ground parcel surcharges 16.4% higher in Q4 versus Q3. Fuel surcharge adjustments also benefited carriers, with average net fuel costs for ground parcels rising 4.7% quarter-over-quarter despite a 4.6% decline in highway diesel prices.
Express parcel rates declined both quarterly and annually in Q4 2024, standing just 0.5% above baseline. Ground parcel performance was stronger, with rates increasing to 24.4% above baseline, though aggressive discounting continues to pressure margins across both segments.
Less-Than-Truckload (LTL)
LTL rates remain elevated but show early signs of pricing discipline erosion. Since Yellow Freight's bankruptcy created capacity constraints in Q3 2023, carriers have maintained strong pricing. However, Q4 2024 saw LTL costs per shipment decline 1.3% while weight per shipment fell just 0.3%, suggesting potential price competition.
Fuel surcharges tell a similar story, with major LTL carriers' average fuel surcharges dropping 3.4% quarter-over-quarter. While the LTL rate index is projected to show year-over-year growth in Q1 2025, the pace continues slowing, with just 0.4% projected growth over the prior year.
Conclusion: Structural Recovery Amid Demand Challenges
The Q1 report reveals a freight market navigating complex challenges, with weak demand and excess capacity as dominant themes. However, positive spot market signals, carrier pricing adjustments, and evolving LTL dynamics suggest potential pathways for recovery.
Key factors to monitor include:
- Demand-side indicators from manufacturing and service sectors
- Carrier capacity adjustments through market exits and new entrants
- Technology adoption in logistics operations
- Policy impacts from infrastructure, environmental, and trade regulations
This comprehensive analysis provides businesses and investors with valuable insights to navigate the evolving freight transportation landscape.