In April, less than truckload (LTL) freight carriers announced 4-6% general rate increases for non-contract shipments. General rate increases are typically announced anywhere from late May to early July. The April announcement came much earlier than usual. What does this mean to shippers and why did this occur? GRI, or general rate increase, is the average amount by which carriers’ tariff rates increase applied to base rates. It is extremely difficult for an individual shipper to calculate how this rate increase will impact their bottom line. The percentage increase will vary based on shipping region, weight breaks, zip codes and freight classes. Working with a logistics broker can help shippers understand the rate increase and even help keep their costs down.
Five factors that caused the general rate increase:
- Driver retention issues. The trucking industry is simply not attracting new drivers, combine that with an aging driver population, and you have capacity issues. The way to attract new drivers is to offer a higher salary and better benefits, which will drive up the carrier rates and hit the shippers.
- Many carriers are not adding to their fleet of trucks. This only adds to the capacity crunch.
- The 2013-2014 Polar Vortex that had a hold on much of the Eastern United States had an economic impact. Consumer spending decreased and weather-related delays and maintenance for trucking companies increased, thus having a negative impact on earnings.
- High fuel costs. This can affect consumer spending, jobs, food prices and travel.
- Central Transport’s acquisition of Vitran Express this past fall/winter. This merger resulted in significant service disruptions within the combined company’s new network and at least temporarily forced shippers to shift their LTL volume to alternative carriers which further constrained LTL capacity.
As truckload capacity continues to be constrained this causes an influx of shippers desperate to move their larger shipments via LTL spot volume shipments rather than via truckload. This further inhibits the LTL carrier network capacity and causes LTL carriers to increase their spot rates or even refuse certain larger size shipments. LTL networks are not built to handle the large volumes of these types of moves.
Partnering with a third party logistics company, like PLS Logistics, can help shippers mitigate and manage costs. 3PLs keep negotiated rates locked in. They force the carriers to compete against each other for the business and often use their muscle with the carriers to eliminate GRI.
Looking to learn more about LTL pricing? Download the eBook on the 7 Factors that Determine LTL Pricing.