Prices for less-than-truckload service increased for the fourth consecutive month, up 1.7% in November 2002. Compared to a year ago, LTL prices are up 7%, which is the sharpest price hike since January 2001. These increases reflect a significant change in the pattern of trucking rates and could be a precursor to even greater rate increases in 2003. However, with the U.S. economy still just puttering along, we think recent increases in truckload prices won't translate into significant inflation in 2003. For one thing, truckload operators continue to struggle to hike prices. In November, for example, TL prices rose a meager 0.2%.

Average prices for shipping by water rose 1.9% in November 2002. Sounds like smooth sailing, until you compare recent prices to year-ago levels. Overall, prices for ocean shipping jumped 8.3%, the largest year-over-year price hike since February 2001. Worse still, the damage seems to have come from multiple sources. Prices for inbound foreign transportation soared 27.3% over the past year. Domestic deep sea transportation prices, meanwhile, rose 5.4% and Mississippi River transportation increased 3.3% during that same period.

Linehaul operators pushed through a 0.4% average price hike in November. The biggest increases were for chemicals and related products. Those rates rose 2.4% compared to the previous month, and were up 5.5% from a year ago. Bulk commodity shipping, meanwhile, continues to provide little help to rail operators looking to increase revenues. Prices for shipping coal fell 0.5% from November 2001 to November 2002. Over the same period, prices for shipping stone, clay and glass products dropped 3.1%, while rates for food products fell 0.4%.

International aircargo volumes appear to be on the rebound, which is likely to raise rates slightly. Prices reported by domestic air carriers for scheduled flights, by contrast, failed to reveal much pricing pressure. In November 2002, prices for scheduled air shipments within the United States actually fell 2.5% from October's levels. Even so, those rates were up 7.6% compared to the depressed price levels of a year ago. Air courier prices, meanwhile, continued on a more sedate route, up just 2% in November 2002 from year-ago levels for domestic service, and up 4.4% over the same period for international air courier shipments.

Fuel

After four consecutive increases, prices for U.S. sales of all refined petroleum products fell 9.7% in November, while gasoline fell 11.6%. But refining costs rose 3.2%, and the price/cost disparity burned $7.87 from margins for each $100 of product sold. As a result, we expect refined petroleum prices to continue upward through the first half of 2003, reaching a short-run peak by summer and declining thereafter. A very modest economic recovery and a reduction in Middle East tensions are key assumptions behind this forecast.

Corrugated boxes

Prices for corrugated and solid fiber boxes rose for the fourth consecutive month, up 0.1% in November. Increases in materials costs, such as a 5% gain in pulp over the last 12 months, are one reason box prices are under pressure and are expected to post a gain of 1.6% in 2003. Between 2002:Q4 and 2003:Q4, industry margins will tumble by $1.35 for each $100 of product sold. In 2004, industry prices will fall 1.8%, but margins will remain fairly stable thanks to reduced spending on raw materials.