Q2 Cowen/AFS Freight Index shows sequential declines and annual gains

The new edition of the Cowen/AFS Freight Index, which was recently released by New York-based investment firm Cowen Inc. and Shreveport, La.-based 3PL and freight audit and payment company AFS Logistics LLC, showed how the duo of higher carrier fuel surcharges and record-high inflation have impacted multiple modes, in tandem with flattening modal growth trajectories, seasonal factors, still-high fuel costs, and softening demand.

The index made its debut in October 2021. The companies said that the objective of the quarterly Freight Index is to provide institutional clients of Cowen with predictive pricing tools for various sectors—including less-than-truckload (LTL), full truckload shipping (TL), and parcel shipping (separately focusing on express and ground).

The companies explained that the by leveraging AFS’s access to freight data across various modes, coupled with applying advanced analytics like machine learning algorithms, they have developed models that they said provide a complete picture of the data’s depth and richness. And they also highlighted how along with the large amount of historical data, they are evaluating and selecting current macro- and micro-economic factors, which are built into their historical models, which includes the most recent GRI (general rate increase) announcement from a major parcel carrier. What’s more, Cowen and AFS noted that the Cowen/AFS Freight Index “offers a unique and comprehensive review of both past performance and the forecasted outlook for the immediate future quarter.”

In a previous interview with LM, AFS Chief Executive Officer, Tom Nightingale explained that that the forward-looking nature of the report serves as a key differentiator of the report compared to others in the market.

“We are actually predicting where rates will go, not just where they have been,” he said. “We are also breaking down LTL, TL, and parcel (into two sub-categories) so it makes it [the Freight Index] unique in that regard.”

Nightingale said that in the new edition of this report that inflation is working as a double-edge sword, in that it is pushing prices up, while also limiting demand as purchase power shrinks.

And he added that coming off of a record-breaking Q1 in the previous report, the data shows the likelihood that these growth trends are more likely “to subside but not tumble,” with the index remaining elevated in comparison to its 2018 baseline and on an annual basis.

“Businesses are shifting modes and re-optimizing carrier networks proactively to limit their exposure to higher pricing, but carriers are using fuel surcharges and other accessorials as subtle but effective tools to expand revenue,” he said.  

The Index issued the following takeaways across the modes it covers:

• truckload rates are expected to flatten in Q3, going from 24.1% in Q2 to 26.5% in Q3, due to seasonal adjustments based on historical data and attributable to things like the end of produce season and manufacturers and retailers gearing up for the holiday rush;
• truckload miles per shipment was off 6.7%, from Q2 to Q3, driven by inventory build-up and port congestion, with demand softening and Q2 year-to-date cost-per-shipment down 4.9%, and linehaul cost-per-shipment down 5.2% in Q2 but up 14.5% annually;
• LTL average fuel surcharge went from 34% in Q1 to 47.6% in Q2, with fuel representing 20.7% of total cost-per-pound through June, well ahead of 2021’s 13.4%;
• LTL weight per shipment was down 4.4% sequentially, while cost-per-shipment headed up 6.8%. with the report noting that LTL rate per pound will remain high in Q3, with annual growth continuing to slow, and the Q3 LTL index pegged at 54.0%, down from Q2’s 54.8%; and
• express parcel rates saw a 7.9% increase, from the first quarter to the second quarter, paced by fuel surcharges, weight, service mix, and 2022 general rate increases, with the Q3 express parcel freight index pegged to be down from Q2’s all-time high, of 5.5%, to 2.2%, and the Q3 ground parcel index is expected to come in at 25.7%, down from Q2’s record of 27.7%

Addressing the truckload findings in the index, Cowen analyst Jason Seidl wrote in a research note that the better-than-expected pricing trends index’ data suggests may be a function of capacity coming out of the marketplace, which Cowen believes could be doing so at a rate higher than expectations.

“That said, we are still cautious on TL pricing in 4Q and 2023 due to the macro-economic backdrop,” he wrote.