UPS Freight hikes non-contract rates 6.9%

UPS Freight, the less-than-truckload (LTL) unit of transport and logistics giant UPS Inc., today announced a 6.9-percent general rate increase on North American non-contractual shipments, the unit's second non-contract rate increase in the past 10 months.

The increase, which takes effect Aug. 1, follows a 5.9-percent rate hike implemented last October. Nearly half of UPS Freight's business moves under tariffs rather than through contractual relationships. UPS Freight is the nation's fourth-largest LTL carrier.

UPS Freight spokesman Ira Rosenfeld said the increase reflects the costs of investments made in new technology, equipment, and network improvements. It also helps the trucker offset what has been, until recently, a significant escalation in diesel fuel prices, Rosenfeld said.

Rosenfeld said the rate increase was not aimed at culling unprofitable freight from the carrier's system by forcing some shippers to pay more or look elsewhere for service. The spokesman added that the hike doesn't reflect a tightening of capacity, saying that space remains fairly abundant across its network.

The move by UPS Freight comes as the LTL sector, which has been battered in recent years by weak demand, overcapacity, and destructive rate wars, seems to be turning the corner. In a research note issued today before the UPS Freight announcement, investment firm Wolfe Trahan said that with the exception of troubled YRC Worldwide Inc., it expects all of the publicly traded LTL carriers to be profitable in the second quarter. That would be the first time in nearly three years that so many of the carriers would be in the black in the same quarter, the firm said.

In the note, the firm said LTL pricing is "going in the right direction as the largest carriers remain very focused on improving rates." The firm forecasts that second-quarter yields—measured in revenue per hundredweight net of fuel—will increase 4.9 percent from the same period a year ago. That is up from a 2.8-percent yield improvement year over year in the first quarter.

Carriers will also benefit from what has been a dramatic drop in diesel fuel prices. As of June 27, the average nationwide price for a gallon of diesel stood at $3.88, a near 20-cent a gallon drop from April levels, according to the Department of Energy's Energy Information Administration.

Last week, FedEx Freight, a unit of FedEx Corp. and the nation's largest LTL carrier, announced that it returned to profitability in its fiscal fourth quarter after six consecutive quarters of operating losses. Yield rose 13 percent in the quarter over the same period a year ago, with about one-third of that gain due to the impact of higher fuel surcharges. The balance of the yield gains came from actions that effectively took less-profitable freight out of the unit's network, as evidenced by an 8-percent decline in its average daily shipment count.

As carriers report second-quarter results, it is expected that tonnage growth will have decelerated due to a general economic slowdown and tighter inventory controls that have reduced retailer ordering and manufacturing output. However, the industry got some positive news today when the Institute for Supply Management's (ISM) manufacturing purchasing management index expanded to 55.3 percent from 53.5 in May. Many economists had predicted a further decline in June from the May results. Pricing pressures lessened, while inventory builds picked up slightly, the report said.

According to Wolfe Trahan, LTL tonnage historically has a 76-percent correlation with the ISM index results.