Rising insurance and labor costs may be putting severe pressure on trucking companies' profit margins, but data from the Bureau of Labor Statistics show that LTL operators have managed to push through rate hikes anyway. In September 2002, less-than-truckload (LTL) carriers reported a 1.4% increase in average rates over August levels. Compared to a year ago, LTL rates actually rose a solid 4.1%, though this could be a one-month anomaly resulting from the recent demise of Consolidated Freightways Corp. Rates charged by truckload operators, meanwhile, fell 0.5% between September 2001 and September 2002.

With dockworkers locked out at 29 West Coast ports, a drop in average rates charged for waterborne shipping seemed like a minor matter in September. Nonetheless, rates for deep-sea foreign transportation of inbound freight fell 1.0% from August to September 2002, while average rates for outbound deep-sea transportation fell 0.5%. As for inland waterways, rates for shipping freight on the Mississippi River increased 2.2%, driven by a 0.9% hike for shipping refined petroleum products and a 4.3% increase for non-energy-related products.

Rail rate inflation appears to be subsiding. In the third quarter of 2002, average linehaul rates rose 1.9% over numbers from the same period a year ago. That's a weaker inflation rate than the 2.6% hike reported in the second quarter of 2002 and the 2.3% increase in the first quarter. But this trend doesn't mean all shippers fared so well. Lumber industry shippers, for example, saw rail rates rise 4.6% in September from year-ago levels. Over the same period, rates for hauling chemicals rose 2.5%, while rates for hauling transportation equipment increased 2.3%.

Nobody's more familiar with the inflation game these days than buyers of aircargo service. In September 2002, average rates reported by U.S.-based airlines for scheduled aircargo service rose 8.6%, driven by a 6.7% rate hike for hauling property and a 17.9% surge in average rates for moving mail. U.S. airlines are in trouble, with huge losses reported in the third quarter, and speculation over bailouts and possible mergers persists. By the end of the year, we expect average rates in the airline industry to be up 3.7%. Our forecast for a 1.8% average rate hike in 2003 will surely need to be revised upward.

Shipping Containers

Buyers of shipping containers finally have some negotiating leverage. Although average prices for fiber cans and drums rose 4.4% in the first nine months of 2002, manufacturing costs increased only 0.5% over the same period, resulting in a margin increase of $2.34 for each $100 of product sold. As for metal barrels, per-unit manufacturing costs rose 7.8% in the first nine months of 2002, while prices increased by 8.3%. Nonetheless, our analysis shows that producers have room to discount current market prices by more than 3.0%.

Fuel Prices

Prices for refined petroleum products soared 6.2% in September 2002, though average prices for refined gasoline products increased just 1.9%. Our current forecast for all refined petroleum products calls for prices to advance 2.3% in 2002's final quarter (barring an attack on Iraq). Our forecast is driven primarily by a need among petroleum producers to offset a short-run rise in per-unit refining costs. Margins, however, remain well above their five-year average level, which minimizes any need for additional price hikes.