Part-load carriers use general fare increases (GRIs) to adjust base fares. The increases are applied to general rate codes and vary by track and weight level. Some LTL pricing agreements with shippers operate from a base rate schedule and use account-specific negotiated discounts. The base rate will increase when an IRG is taken, but shippers will continue to apply their discounts to the new rates. The percentage change announced by the carriers corresponds to the expected average increase in tariff adjustments on all the accounts concerned.
Increases are used to deal with cost inflation across an operator’s network. Recently, carriers have incurred additional costs associated with hiring and retaining drivers and dockworkers, and fuel prices have increased more than 40% year-on-year in the past six months. In addition, due to increased demand, many carriers are making additional investments in real estate, equipment and technology.
“GRI LTLs are essentially a rebalancing of this carrier’s track index based on market demand, its transportation network and the growing costs it has incurred,” said Curtis Garrett, vice president of pricing and carrier relations at Recon Logistics. “This allows them to raise fares if they have high costs to cover and also lower them lower to capture more freight if they are on tracks with excess capacity.”
Average base rate increases are usually announced in the third or fourth quarter, with implementation typically taking place in the first quarter of the following year. Large carriers are normally the first to announce increases, with smaller carriers issuing similar fare increases shortly thereafter. Small and medium-sized businesses are often the most affected by the changes, but not exclusively.
“The shippers who are impacted by the GRI each year are not necessarily smaller and without contracts. The contract is outside of that. The base rates agreed to for use in the pricing program are what dictates whether or not a shipper will be subject to GRI, ”Garrett continued.
Garrett explained that there are three types of base rates normally used. Current carrier rates (subject to a GRI), frozen carrier rates (not subject to GRI) and a neutralized or standardized base rate such as a Tsar, or reference rate, from the SMC3 data provider that is not subject to a GRI . He noted that when a GRI is issued, the frozen base fares will experience a “rocking effect” as the discounts are adjusted “to maintain an amount of fare revenue somewhat parallel to the carriers’ current base fares.”
The impact of GRIs affects only part of a carrier’s overall customer portfolio. Only 25% of ArcBest’s (NASDAQ: ARCB) asset-based activities are subject to a GRI. The remainder of its shipments are under contract or on an individual price arrangement. About 20 to 25% of Saia’s (NASDAQ: SAIA) revenue comes from a GRI.
In looser markets where supply is plentiful, carriers either do not issue GRIs or increases fade as shippers may turn to other suppliers who have capacity at a favorable price. The reverse occurs in an environment where capacity is constrained. If the market is strong enough, carriers can take multiple IRGs in the same calendar year.
Most carriers have installed a GRI of 5% to 6% in the first quarter of 2021. However, many have already implemented a second increase for 2021, in some cases at higher levels, given freight volumes. robust and lacking in capacity.
Yellow (NASDAQ: YELL) implemented a 5.9% increase on November 1, ArcBest (NASDAQ: ARCB) implemented a GRI of 6.9% on November 15, and Estes implemented a 5.9% increase on November 29.
FedEx Freight’s (NYSE: FDX) 5.9% GRI in most areas begins Monday. On the same day, Old Dominion’s 4.9% increase (NASDAQ: ODFL) goes into effect. While the average increase is expected to remain unchanged from 2021, Old Dominion’s GRI will only be installed 10 months after its most recent increase.
Forward Air (NASDAQ: FWRD) has announced a GRI of 7.9%, but it won’t take effect until February 1.
The GRI is not the only lever available to a carrier to improve its performance. Most carriers focus on the overall profitability of the account and capture the desired rates through regular negotiations. Additionally, many are using a strong freight backdrop to replace low-margin accounts with better network-fit customers and freight.
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