Rates for less-than-truckload (LTL) service got a relatively big boost at the end of the second quarter. According to surveys from the Bureau of Labor, rates charged for LTL service in June 2002 rose 1.7% from May levels and 5.2% from year-ago levels. Truckload operators, as usual, did not fare as well. Average rates for TL service in June 2002 increased 0.5% from May and actually fell 0.4% from the prior year's level. As for what lies ahead, we expect overall trucking rates, which we forecast at an aggregate level (for intercity, local and courier trucking services), to rise 0.9% in 2002 and 2.1% in 2003.

Rates for shipping freight over the nation's rails show no signs of falling. In fact, average rates charged to move transportation equipment increased 0.3% from May to June 2002 and a sticker-shocking 15.3% over year-ago levels. Rail operators pushed through big rate hikes from June 2001 to June 2002 for hauling several other commodities, such as lumber (8.5%), processed metal products (4.7%) and metal ores (3.4%). Overall, we forecast rail rates to rise 1.9% in 2002 but only 0.8% in 2003.

Inflation in water transportation rates made some waves in June. Overall, rates for shipping freight over water with U.S. carriers rose 2.4% from May 2002 levels and 4.2% from June 2001. That increase was driven largely by inbound deep-sea foreign transportation, whose rates jumped 7.6% from May levels. By contrast, rates for deep-sea domestic shipping dropped 0.1% from May to June and rates for transport via the Mississippi River tumbled 1.7%. Our forecast calls for overall water transportation rates to rise 1.5% this year and 2.3% in 2003.

Average rates for shipping property and mail on domestic airlines' scheduled flights fell 1.4% from May to June 2002. When all is said and done, we forecast these rates will be up 8.2% in 2002 and 1.9% in 2003. Rates for services provided by freight forwarders, which reflect changes in rates charged by dedicated aircargo carriers, inched up just 0.1% in June 2002 from the previous month and up 0.4% from rates charged the same month a year ago. As for air courier services, rates for shipping domestically stood unchanged from May to June, while international air courier rates fell 2.3%.

Materials handling equipment

Ever since tariffs were imposed on imported steel, the materials handling industry has experienced erosion in margins that can be traced directly to higher steel costs. Makers of conveyors and conveying equipment face the most serious inflation challenge. Since March, per-unit spending on manufacturing in this industry increased 0.77%, while industry product prices tumbled 0.87%, reducing margins by 96 cents for each $100 of product sold. The same margin damage is seen in the elevator and hoist, crane and monorail industries.

Fuel

U.S. petroleum refiners got a big bottom-line boost recently, but buyers saw few of the benefits. Per-unit manufacturing costs in the petroleum refining industry fell 7.3% in June thanks to a 9.8% drop in prices paid for U.S.-produced crude and a 6.6% decline in prices for foreign crude. Yet our analysis shows that refiners passed along less than one-tenth of these savings to buyers and thereby expanded their margins by $6.38 per $100 of product. Overall, the refining industry dropped average prices just 0.6%.