Wednesday, July 06, 2011

LTL Rate Hikes Become Self-Fulfilling Prophecy

The mainstream analyst community gets it almost right on the upward trend in LTL trucking freight rates.  Sure, it's easy to forecast freight rate hikes when an industry leader like UPS raises its rates by 6.9%.  It's intriguing to note that competitor ABF Freight Systems just raised its rates by the exact same amount.  I disagree with the analyst community consensus that rate increases are due to tightening capacity.  They're missing a few things. 

In ABFS's case, the UPS rate increase gives them the cover they need to try to return to profitability.  ABFS has had negative net income since 2009 and this rate increase may be their best shot at a positive quarter for a while.  The U.S. trucking industry as a whole will soon feel the effects of a slowdown in goods orders; read my last blog post on shipping for a prelude of what's coming.  LTL truckers who raise rates are trying to squeeze whatever extra dollars they can out of this economy before GDP growth slows markedly in Q3 2011.  I can't say I blame them. 

Full disclosure:  No position in UPS or ABFS.