General Rate Increases in the LTL Industry: How They Work and Current Trends
Less-than-Truckload (LTL) carriers use General Rate Increases (GRIs) to make changes to their base rate to address increased costs in their industry. These increased costs have been higher than usual recently, leading to above-average GRIs and questions from many businesses concerned about this substantial increase in shipping expenses.
To help address that concern, here’s an overview of GRIs and who they impact, along with a look at some GRI trends.
Basics of General Rate Increases
When carriers’ costs increase, they are forced to announce a GRI to recoup some expenses. Recently, these increases have been higher than normal due to increased costs associated with hiring and retaining drivers and fuel prices as well as increased investment in real estate, equipment, and tech to accommodate rising demand.
An expert in the industry explains that “LTL GRIs are essentially a rebalancing of that carrier’s lane index based on demands in the market, their linehaul network and rising costs they’ve incurred.” The use of GRIs “allows them to bump rates higher if they have elevated costs to cover and also ratchet them down lower to capture more freight if they are in lanes with excess capacity.” As a result, demand plays a major role in GRI assessment and implementation.
Increases are generally announced in the third or fourth quarter of a year and are implemented in the first quarter of the following year. Big companies announce their shifts first, and then smaller carriers follow their lead.
It’s important to note that GRIs don’t impact all customers and often are only applied to a relatively small percentage of businesses. Customers with frozen carrier rates, under a contract, or individual pricing arrangement won’t be subjected to these increases. While rate increases can impact all companies, they often have the most significant impact on small and midsize businesses.
What to Expect in 2022
General Rate Increases average around 4-6% per year. For example, quarter one of 2021 saw GRI increases of between 5 and 6%. However, increases for 2022 appear to be coming in higher than average. For example, in December, Forward Air announced a 7.9% GRI that took effect on February 1st.
Strong LTL demand is expected to continue. That coupled with rising carrier costs associated with hiring and retaining employees and fuel costs means that above-average GRI increases should be expected this year.
Taking the Guesswork Out of Logistics
The reality is that even a 6% GRI increase can have a significant impact on a business’s bottom line. At ClearFreight, we understand how LTL pricing works and what businesses should anticipate in the year ahead. Contact us today to hear more about our supply chain solutions and learn how we can make logistics easier for you.