Trucking rates continue to increase, partly as a result of a reduction in capacity. A record 3,670 trucking operators shut down in 2000, according to analysts at A.G. Edwards & Sons. Now, demand for trucking services is picking up and truckload carriers have less competition. As for less-than-truckload operators, rising costs will keep the pricing pressure on. Still, without a large increase in freight volumes, we forecast trucking prices on average will increase at a 2.8% pace in the 12 months ending June 2002, down significantly from the 4.5% hike recorded the previous year.

Waterborne transportation rates are on the rise. According to data from the U.S. Bureau of Labor Statistics, average prices for deep-sea foreign transportation of freight in June 2001 rose 9.2% from May levels and 8.1% from June 2000 levels. The biggest bump was recorded for inbound freight, where rates rose 16.2% in June over year-ago levels. Despite this, average prices for all water freight services rose only 6.8% in the 12-month period ending June 2001, slowing from 9.1% in June 2000. In the next 12 months, we forecast that price inflation will slow even further.

Price escalation for rail service appears to have passed its peak. In the second quarter of 2001, average linehaul operating prices rose 1.4% from the same period a year ago. That's down from the 1.7% year-ago price hikes recorded in both the last quarter of 2000 and the first quarter of 2001. Our forecast calls for average rail prices to rise at a mere 0.4% year-ago pace in the first quarter of 2002. The momentum from last year's price hikes and the drop in interest rates (which should lift the economy) will keep railroads on an aggressive pricing track.

Shipping freight on scheduled airline flights became a bit more expensive as average aircargo rates increased 1.8% between June 2000 and June 2001. Average prices for domestic air courier service rose 2.0% and international air courier service rates increased 0.8% over the same period. In the 12-month period ending with June 2001, average air transportation prices increased 4.2%. That strong showing forced a re-evaluation of our forecast. We now project that average air transport prices will increase 1.0% by the end of 2001 and another 1.0% by the end of 2002.

Lift Trucks

If you're in the market for a new lift truck, you'll have some negotiating leverage. In June 2001, producers in the U.S. industrial trucks industry raised prices 1.5%—the largest one-month increase since December 1987. This hike caps off a 12-month period during which prices soared 2.8%, while the cost of making a typical unit rose just 0.6%. Given these numbers, we calculate that manufacturers could reduce average product prices by 2.15% and still earn a fair return.

Capital Equipment

Prices for used trucks are low thanks to a record number of trucking industry bankruptcies. As a result, manufacturers of new trucks face extreme pricing pressure. In June 2001, average prices for trucks weighing 10,000 pounds or less declined 2.9% from year-ago levels, while prices for trucks weighing more than 33,000 pounds fell 2.1%. Low interest rates and a glut of used equipment make capital equipment a bargain today.