LTL General Rate Increases in 2022

Transcript

 What are GRIs? 

LTL carriers use general rate increases (GRIs) to make necessary adjustments to their base rates. Rate increases are made to general tariff codes to account for cost inflation across a carrier’s network. An LTL tariff is a rate matrix that defines shipping rates for shipments based on their weight, dimensions, freight class, and origin and destination zip codes. Carriers will typically announce a GRI percentage based on the expected average increase the rate adjustments will have across all of the impacted accounts.

 

Why are GRIs Introduced?

While most general rate increases are made to account for inflation, some may be made to account for other factors in the LTL shipping market. For instance, recent GRIs by some carriers have been made to account for additional investments in real estate, equipment, and technology required to accommodate the surge in freight demand over the past two years. In addition, some carriers have implemented GRIs to cover the incremental costs of hiring (or rehiring) and retaining drivers and warehouse workers or to account for the 40% year-over-year increase in fuel costs over the past six months. Whatever the particular reason, GRIs are meant to balance the carrier’s lane index to counterbalance customer demand, freight network expansion, or rising costs.

 

Who is Affected by GRIs?

General rate increases are happening in all areas of the domestic and international freight markets, from parcel service to full truckload (FTL) to LTL shipping. The global shipping market is inundated with volume, and it will take the shipping industry some time to build up the infrastructure and resources to meet the current freight demand. So, those who feel like LTL is being hit especially hard by GRIs, know that the issues are occurring across the board.

However, while most GRIs raise an LTL carrier’s base rates across the board, not all rates are directly affected by the percentage announced. Many LTL carrier pricing arrangements with shippers start at a base rate but involve account-specific negotiated discounts that protect shippers from a full general increase. GRIs are typically implemented at the beginning of the year in markets where demand and costs are high. In looser capacity markets, carriers may choose not to introduce a GRI or may reduce the increase to avoid shippers leaving the carrier for another provider with a more favorably priced capacity.

 

GRIs in 2022

Due to the continuing surge in freight volume demand and a massive hike in fuel prices in the past year, many carriers introduced 5-6% GRIs at the beginning of 2021 and again midway through the year, and late 2021 and early 2022 have already seen additional percentage increases from a number of major carriers. The most significant driver of general rate increases in the current market is demand. Capacity is tight across the board in LTL right now, and the rise in freight volume has required carriers to invest significant capital into hiring additional personnel, acquiring real estate for more service and distribution centers, and purchasing additional equipment and technology, all aimed at accommodating the surge in LTL shipping demand. Because of this, GRIs in 2021 and 2022 have been and will be higher than those previously seen over the past decade. Major LTL carriers like Saia, Forward Air, FedEx, and Yellow have already introduced multiple general rate increases of 5-8% in the last year, and those trajectories are expected to continue.

 

What Does This Mean for Shippers?

In a nutshell? GRIs mean higher prices. With the LTL freight market as chaotic and congested as it is right now and no end in sight to the demand that the pandemic and the influx of eCommerce has had on the freight industry, shippers must expect prices to go up incrementally for some time. However, general rate increases are not the only levers carriers have for yield improvement, and most are predominantly focused on achieving profitability and capturing desired rates through regular negotiations. In addition, many carriers are evaluating and optimizing their accounts to replace lower-margin customers with freight that better fits their network. For shippers, this means that establishing good relationships with your carriers by providing value, flexibility, and consistency and adhering to LTL freight best practices are the best ways to secure capacity and negotiate reasonable rates in a crowded market.

Image of trucks lined up in a parking lot

 What are GRIs? 

LTL carriers use general rate increases (GRIs) to make necessary adjustments to their base rates. Rate increases are made to general tariff codes to account for cost inflation across a carrier’s network. An LTL tariff is a rate matrix that defines shipping rates for shipments based on their weight, dimensions, freight class, and origin and destination zip codes. Carriers will typically announce a GRI percentage based on the expected average increase the rate adjustments will have across all of the impacted accounts.

 

Why are GRIs Introduced?

While most general rate increases are made to account for inflation, some may be made to account for other factors in the LTL shipping market. For instance, recent GRIs by some carriers have been made to account for additional investments in real estate, equipment, and technology required to accommodate the surge in freight demand over the past two years. In addition, some carriers have implemented GRIs to cover the incremental costs of hiring (or rehiring) and retaining drivers and warehouse workers or to account for the 40% year-over-year increase in fuel costs over the past six months. Whatever the particular reason, GRIs are meant to balance the carrier’s lane index to counterbalance customer demand, freight network expansion, or rising costs.

 

Who is Affected by GRIs?

General rate increases are happening in all areas of the domestic and international freight markets, from parcel service to full truckload (FTL) to LTL shipping. The global shipping market is inundated with volume, and it will take the shipping industry some time to build up the infrastructure and resources to meet the current freight demand. So, those who feel like LTL is being hit especially hard by GRIs, know that the issues are occurring across the board.

However, while most GRIs raise an LTL carrier’s base rates across the board, not all rates are directly affected by the percentage announced. Many LTL carrier pricing arrangements with shippers start at a base rate but involve account-specific negotiated discounts that protect shippers from a full general increase. GRIs are typically implemented at the beginning of the year in markets where demand and costs are high. In looser capacity markets, carriers may choose not to introduce a GRI or may reduce the increase to avoid shippers leaving the carrier for another provider with a more favorably priced capacity.

 

GRIs in 2022

Due to the continuing surge in freight volume demand and a massive hike in fuel prices in the past year, many carriers introduced 5-6% GRIs at the beginning of 2021 and again midway through the year, and late 2021 and early 2022 have already seen additional percentage increases from a number of major carriers. The most significant driver of general rate increases in the current market is demand. Capacity is tight across the board in LTL right now, and the rise in freight volume has required carriers to invest significant capital into hiring additional personnel, acquiring real estate for more service and distribution centers, and purchasing additional equipment and technology, all aimed at accommodating the surge in LTL shipping demand. Because of this, GRIs in 2021 and 2022 have been and will be higher than those previously seen over the past decade. Major LTL carriers like Saia, Forward Air, FedEx, and Yellow have already introduced multiple general rate increases of 5-8% in the last year, and those trajectories are expected to continue.

 

What Does This Mean for Shippers?

In a nutshell? GRIs mean higher prices. With the LTL freight market as chaotic and congested as it is right now and no end in sight to the demand that the pandemic and the influx of eCommerce has had on the freight industry, shippers must expect prices to go up incrementally for some time. However, general rate increases are not the only levers carriers have for yield improvement, and most are predominantly focused on achieving profitability and capturing desired rates through regular negotiations. In addition, many carriers are evaluating and optimizing their accounts to replace lower-margin customers with freight that better fits their network. For shippers, this means that establishing good relationships with your carriers by providing value, flexibility, and consistency and adhering to LTL freight best practices are the best ways to secure capacity and negotiate reasonable rates in a crowded market.

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