Shippers lock in lower rates
Sixty-four percent of shippers expect that rate increases for the rest of 2007 won’t exceed 5 percent; majority are taking advantage of extra capacity to better manage peak season.
By Jeff Berman, Senior Editor -- Logistics Management, 9/1/2007
WALTHAM, Mass. — As available truckload and rail capacity continues to rise over the course of this year, more than half of the logistics, supply chain, and transportation managers responding to a Logistics Management survey report that they’ve been able to lock in lower rates due to the current surplus.
According to the findings of the study completed by 477 LM readers in July, 64 percent of respondents believe they will be able to take advantage of the current extra capacity as peak season kicks into gear—although 62 percent report that they expect freight rates to increase throughout the rest of 2007.
However, of those shippers expecting freight rate hikes, 64 percent said that they expect rates to rise a mere 5 percent or less, 33 percent predict a 5-10 percent bump, while only 3 percent forecast a hike of 10 percent or more.
“Our rates are holding steady [year to date] and we don’t expect to see any increases in 2008,” says Ryan Boccelli, director of logistics for Stonyfield Farm Inc. in Londonderry, N.H. And with less volume being moved on the highways, Boccelli adds that Stonyfield has seen a steady decrease in detention times and missed appointment fees during the course of this year.
Boccelli’s experience isn’t entirely surprising in a year that has seen steady declines in volume on the highways and railroads. The monthly American Trucking Associations tonnage reports and the weekly Association of American Railroads freight volume totals certainly support Boccelli’s claims. The market has also seen myriad reports from industry analysts noting that freight transportation is mired in a so-called “freight recession.”
With summer coming to an end, the ongoing dip in freight volume appears to be working to create what the Stifel Nicolaus Transportation Group is calling a “muted” peak season. Much of this sentiment, according to analysts on a recent Stifel conference call, stems from ongoing declines in the housing and automotive sectors on the truck side and year-over-year declines in intermodal and coal loadings on the rail side.
This echoes what Bill Zollars, CEO of YRC Worldwide Inc., recently said in an Associated Press report regarding current economic conditions heading into peak season: “I think the economy is a lot softer than what people are saying…The demand we expected has not materialized. We don’t foresee a normal seasonal peak—at least not yet.”
According to Eric Starks, president of transportation research firm FTR Associates, like last year, shippers will have the “upper hand,” albeit slightly, during peak season. “I have a hard time seeing rates shifting one way or the other [heading into peak season],” says Starks. “Our analysis tells us that capacity levels are probably back to historical averages. The 64 percent of shippers expecting rates to increase by 0-5 percent is telling, because it is on the lower end of things, and my sense is that truck rates may creep up but only from -1 percent to 1 percent between now and the rest of the year.”
On the rail side, Starks expects a 3- to 5-percent rate increase for the rest of 2007, which, he says, is much better than the 8- to 10-percent range in past years.
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