Source: Elizabeth Baatz,Thinking Cap Solutions. E-mail: ebaatz@ice-alert.com

As the economic recovery finally begins to manifest itself in higher shipping volumes, rates are on the rise in some segments of the trucking industry. LTLs reported a 1.4% price hike from August to September. Truckload carriers, on the other hand, registered no change, and local haulers saw a 0.2% price decline. With wages and fuel prices still high, carriers will be under pressure to cover increasing costs in 2004. Our aggregate trucking index now sits at 133.7 for Q4 of 2004. That represents a 33.7% increase over the base period (June 1993 = 100). We're calling for a 3.1% rise in 2004 following a 2.8% overall gain in 2003, but the risk of even bigger rate hikes remains strong.

We expected higher fuel and labor costs would have an impact on air cargo prices, but the Labor Department's September surveys showed the airlines exhibiting remarkable restraint. Prices for scheduled domestic flights held steady from August to September. Likewise, prices for nonscheduled flights increased just 0.1% over the same period. Air courier services stood pat, while freight forwarding services fell 1.5%. We don't expect that will last long; average prices for scheduled flights are expected to close the final quarter of 2003 up 4.4% compared to a year ago. By the last quarter of 2004, those prices will be 4.8% higher than prices for the same period this year.

We've revised our forecast for prices charged by U.S.-based water carriers, pushing it strongly upward. The problem: Numbers for 2003's second and third quarters, up 10.6% and 10.8%, respectively, from the same quarters last year, simply swamped our previous forecasts. We now project ocean liner and barge prices will rise 9.9% in the last quarter of 2003 and 7.6% in Q4 of 2004, compared to year-ago levels. That translates to an annual increase of 10.3% in 2003 and 8.7% in 2004. The big challenge remains managing inbound ocean prices. In September, inbound liner prices grew 24.6% compared to year-ago numbers, while outbound liner prices were up 4.9%.

Railroads say demand for freight services is rising, which tells us rate hikes could be in the offing. That might well be true: If the inflation rate for rail services accelerates, then the inflection point for higher rates should be just around the corner, due to the fact that we are near a business-cycle trough (the third quarter of 2003). Until we see some evidence in the U.S. Labor Department's data, though, we'll stick to a conservative forecast. Assuming a lackluster recovery in 2004, we're forecasting a 1.3% average price hike in 2004 following a 1.5% hike in 2003. If railroads start raising rates substantially, though, we'll revise our forecasts to 2.1% in 2004 following a 1.7% gain in 2003.