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Home » Transportation report: Rising fuel prices will drive higher costs
Transportation report: Rising fuel prices will drive higher costs
Fuel surcharges together with market forces will push parcel and LTL rates to record highs, while truckload growth rate will ease, Q2 outlook report shows.
Shippers continue to struggle with high transportation costs, driven by surging fuel prices and other market forces that are raising rates across the board, according to a second-quarter outlook report from Cowen Research and third-party logistics services (3PL) provider AFS Logistics.
The companies’ Cowen/AFS Freight Index analyzes AFS Logistics’ freight data across transportation modes, including less-than-truckload (LTL), parcel express, parcel ground, and truckload. The most recent report, released April 12, predicts record-high rate levels for parcel and LTL shipments, in particular, driven mainly by high fuel surcharges.
AFS manages $11 billion in freight spend for clients in North America. Its quarterly index offers a forward-looking view of transportation industry trends.
“Rising fuel prices are no secret. The average cost of diesel in the U.S. going up over a dollar in just a month made plenty of headlines, and in a tight capacity market carriers are responding with significantly higher fuel surcharges,” Tom Nightingale, CEO of AFS Logistics, said in a statement announcing the quarter-two results. “Shippers should expect rising rates across the board, as those higher fuel surcharges join the usual suspects like capacity constraints, GRIs [general rate increases], firm pricing policies and steep accessorial increases to intensify upward pricing pressure.”
Market conditions have pushed LTL carriers to adjust fuel surcharge tables, which drove considerable increases in fuel-related costs in the first quarter of this year. According to Cowen/AFS data, the average fuel charge among LTL carriers grew from 28.3% in the fourth quarter last year to 42.1% in March. Parcel costs grew as well. Both FedEx and UPS implemented changes to fuel surcharges, resulting in increases of 129% in express parcel and 89% for ground parcel compared to last October, according to Cowen/AFS data, which measures the net effective fuel charge, which is the actual fuel paid as a percentage of total spend across its network.
In a separate interview, Nightingale said he expects increases and higher costs to continue.
“Fuel is going to remain fairly hot, although I think we’re getting through some of the worst [of it],” he said, adding that industry consensus calls for fuel to remain high throughout the summer driving season. “[It was] $3.61 for diesel in early January and now we’re up to $5.14 at the beginning of Q2. The expectation is we’ll probably wind up in a more reasonable $4 to $4.50 range, but that’s still high.”
The index predicts slowing rate growth in the truckload market, primarily due to softening demand. The monthly data point to continued rate-per-mile increases, but at a slower pace compared to last year. The index is expected to grow from 25.2% in the first quarter to plateau at 27.1% in the second quarter, “a lower growth rate than previous quarters,” according to the research.
“The correlation between price and distance remains strong, and the overall miles per shipment increased 3.2% in Q1 compared to the previous quarter,” the researchers wrote. “Market forces like the driver shortage and higher labor costs continued to support cost-per-shipment growth in Q1 2022, but early data indicates truckload demand in 2022 will be softening compared to 2021.”
The increasingly complicated landscape calls for a holistic approach to managing logistics and transportation spending, Nightingale said.
“The best strategies … are not just attempting to establish more favorable incentives on surcharges, or on fuel, or on a specific mode. It [requires] looking at the portfolio of transportation needs across all modes,” he explains. “In addition to the clear benefits of working with a 3PL who can optimize your cost structure and carrier mix, both shippers and 3PLs should be looking at alternate mode options such as converting parcel to LTL, LTL to multi-stop truckload, truckload to volume LTL, and of course looking for non-premium parcel options that still meet required time in transit. Looking across modes like this can enable shippers to unlock opportunities to save on their transportation spend.”
Victoria Kickham started her career as a newspaper reporter in the Boston area before moving into B2B journalism. She has covered manufacturing, distribution and supply chain issues for a variety of publications in the industrial and electronics sectors, and now writes about everything from forklift batteries to omnichannel business trends for DC Velocity.