The trucking industry is waiting for an economic recovery, but demand continues to slump. Nonetheless, between November 2000 and November 2001, average prices for less-than-truckload (LTL) service increased 3.0%. More surprisingly, truckload carriers managed to make a 0.1% rate hike stick. Unfortunately, we don't expect to see much in the way of an economic rebound until the end of the second quarter at the earliest. As a result, we forecast average prices for trucking and courier service will rise just 2.5% in 2002, after a 3.3% hike in 2001 and a 4.1% rise in 2000.

The global economic slowdown is taking its toll on shipping lines too. Average rates for shipping freight over water fell from October to November 2001 in all of the categories we track, except outbound deep-sea service. Following a 16.0% price drop in October, inbound service saw a further decline of 7.0% in November. Average prices for Mississippi River service fell 4.0% due to a 7.6% decline in rates for shipping refined petroleum products. These drops are sharper than expected, so a downward revision to our water price forecast is likely.

Rail service is more reliable now and people are prepared to pay for it. So says John Snow, chairman and chief executive of CSX, explaining the industry's rising prices. Price data reported by the Labor Department seem to bolster his assertion. Between November 2000 and November 2001, average rates for shipping several items rose, including primary metals (4.6%), lumber (3.7%), and processed foods (2.3%). But the real shocker came in transportation equipment shipping, where average rail rates jumped 27.7%. Will this increase stick?

According to Labor Department surveys, rate hikes in November 2001 brought air courier rates up more than 4.0% above year-ago levels. Meanwhile, prices to ship cargo via scheduled flights dropped substantially from those charged a year ago. These divergent trends mean shippers must continue to separate their forecasts for overnight cargo and overnight mail. Looking ahead, shipping packages will get more expensive. The U.S. Postal Service is requesting a 10.0% price hike for express delivery, while Airborne, UPS and FedEx all have announced plans to raise rates by 3.5% or more this month.

Materials Handling Equipment

Logistics managers who buy materials handling equipment are probably aware that prices are rising for conveying equipment (1.6%) and for hoists, cranes and monorails (1.8%). What you may not know is that while prices have been rising, manufacturing costs have been falling (down 0.7% for conveyors) or slowing down (up only 0.06% for hoists, cranes and monorails). Assuming other costs are held constant, margins have increased by $1.59 per $100 of product sold in the conveyor industry and by $0.76 in the hoist and crane industry.

Inflation

With oil prices plummeting and interest rates dropping, it might appear that inflation is coming to an end. Not so! A look at factors affecting logistics costs shows plenty of potential trouble spots. For example, in November 2001 the average price for services rendered to aircargo carriers rose 6.7% from year-ago levels while rates for vessel docking and undocking service at the nation's harbors rose 2.7%. We are also seeing price hikes for aircraft engines, low-bed trucks and surprisingly, even engine oils.