UPS Freight underprices rivals by increasing general rates only 5.9 percent

UPS Freight, the less-than-truckload (LTL) arm of UPS Inc., said late Friday it would raise rates by 5.9 percent on non-contract traffic in the United States, Canada, and Mexico.

The increase, which takes effect July 16, underprices three of UPS Freight's chief rivals, FedEx Freight, Con-way Freight, and ABF Freight Systems Inc., which all announced what are known as "general rate increases," or GRIs, of 6.9 percent on non-contract traffic.

UPS Freight, the nation's fourth largest LTL carrier, last raised non-contract rates last August. That 6.9-percent rate hike followed a 5.9 percent general rate increase in October 2010.

Generally speaking between 20 percent and 40 percent of all LTL traffic doesn't move under contract (the percentage varies by carrier). GRIs, however, are considered as a starting point for contract negotiations with some of the nation's biggest LTL users, which comprise the balance of the carriers' business.

Shippers who don't want a contract but are reluctant to pay the carriers' tariff rate can ask a carrier to insert an exception clause in the filed rate. Failing that, the shipper would have no choice other than to accept the carriers' rate or pull the business.

Michael P. Regan, president and CEO of Elmhurst Village, Ill.-based consultancy TranzAct Technologies Inc., said LTL contract rates are headed up at their fastest pace in years. Regan says his firm has met with several trucking executives over the past two months, and he believes that carriers will achieve base rate increases of between 3.5 percent and 4.5 percent in contract negotiations. That translates into rate increases equal to between 60 percent and 70 percent of the published GRIs, "which is higher than normal," Regan said.

Regan said carrier executives have told him that the supply-demand scales are "reasonably balanced" on most traffic lanes. If U.S. gross domestic product (GDP) growth exceeds 2.5 percent, however, rates may rise even higher as demand further outpaces what has become a static supply of capacity, he added. But such a increase in GDP seems unlikely given the economic slowdowns in Europe and China and recent softness in the U.S. economy.