The effects of an uncertain economic outlook and rapidly evolving trade policies weigh against a freight market recovery, according to the TD Cowen/AFS Freight Index, released by AFS Logistics and TD Cowen.
Data shows truckload pricing staying at depressed levels after a small uptick in Q1.
“Tariffs have become the topic du jour in boardrooms and beyond, and combining those policy changes with a cloudy macroeconomic picture is a recipe for the uncertainty and caution that characterize current market sentiment,” says Andy Dyer, CEO, AFS Logistics. “These conditions do not indicate a shift away from the malaise of soft demand that has shaped domestic transportation markets for quite some time.”
Key takeaways:
- In Q1, the truckload rate per mile index came in somewhat higher than expected, at 5.9% above the January 2018 baseline. This uptick can be attributed to shippers pulling inventory forward to get ahead of the latest tariffs, along with the impact of wildfires, natural disasters and continued capacity correction.
- But a sustained shift toward shorter-haul shipments, defined as those of 500 miles or less, drove the total cost per shipment down to 5% above pre-pandemic levels, the lowest point in over three years.
- In Q2, the rate per mile index is projected to show a slight quarter-over-quarter (QoQ) decline to 5.5%, the ninth straight quarter with rates between 4.3% and 5.9% above the 2018 baseline.
- Despite economic headwinds and cautious market sentiment, LTL pricing continues to show strength. In Q1, general rate increases (GRIs) took effect and the net fuel surcharge per shipment increased 4%, exerting enough upward pressure to overcome decreased length of haul and sustained low weight to drive a 1.5% QoQ and 0.5% year-over-year (YoY) increase in cost per shipment.
- The era of parcel price increases announced on a predictable, annual cadence with plenty of advance notice for shippers is over. Over the past 18 months, FedEx and UPS have pursued a different strategy as they fight for revenue in a low demand environment, with more frequent, subtle pricing changes that take effect more quickly.
- Despite carriers’ emphasis on pricing discipline, the average discount in ground parcel increased 1.9% QoQ in Q1. Yet ground parcel pricing remained exceptionally strong, as the cost per package rose 4% QoQ to a record-high quarterly average in Q1, driven by rate increases, surcharge adjustments and higher billed weight. The ground parcel rate per package index is expected to decrease from 31.3% in Q1 to 29.5% in Q2 2025, which still represents a 2.6% increase YoY.
- Express parcel pricing grew in line with seasonal trends in Q1, with GRIs and fuel surcharge increases powering a 5.2% QoQ increase in cost per package. But volume growth remains a challenge in the domestic express parcel market. This is in part driven by carriers’ own success in optimizing ground networks, enabling shippers to shift volume to less expensive ground service for similar performance, but is also exacerbated by competition from an increasingly diverse carrier landscape.
“After 26 months of contraction, the purchasing managers index finally reversed course with two months of growth early in Q1, but March data shows it’s back to contraction, which underscores some of the headwinds facing the freight market,” says Aaron LaGanke, VP, freight services, AFS. “Truckload typically feels the impact of macroeconomic forces and trade policy first, then LTL has more of a delayed reaction. For now, LTL carriers are effectively navigating a low-demand environment with a focus on profitable lanes, contractual relationships and reliable freight, rather than chasing volume with pricing concessions.”
“These latest changes introduce even more complexity for shippers to digest and negotiate. If they overlook any one of these subtle updates, they can find themselves subject to punitive provisions like a blanket payment processing fee that’s in effect a 2% price hike,” says Mingshu Bates, chief analytics officer and president of Parcel, AFS. “If you look at the state of the market, these changes fit the carriers’ stated aims of prioritizing network efficiency and revenue quality.”
