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

Inflation in the trucking industry swerved in a new direction as the inflation rate for truckload services exceeded that for less-than-truckload for the first time since 1995. In the fourth quarter of 2003, average TL prices were 2.5% above year-earlier figures. The underlying dynamics of the TL marketplace call for inflation to continue speeding up as carriers attempt to cover higher fuel costs, ballooning insurance payments, and expensive investments in new trucks with environmentally friendly engines. Meanwhile, LTL prices decelerated from a 6.2% inflation rate in Q1 of 2003 to 3.6% in the second and third quarters, before slowing further to 2.3% in the fourth quarter.

Domestic air cargo prices dipped a bit in December as the average price for scheduled U.S. flights fell 0.6% from the previous month. Prices for nonscheduled U.S. flights held steady, as did prices charged by freight forwarders. Airlines will have to hike prices to cover rising costs, including the cost of jet fuel. In December, jet fuel prices offered by U.S. refineries increased 7.9% from November and were up 10.1% from the same month a year earlier. Prices for fueling services offered by domestic airports, meanwhile, rose 7.9% over December 2002 levels. With these cost pressures hanging on, inflation in air cargo services most likely will pick up in 2004.

"Steady as she goes" seems to have been the call among water carriers in December as our aggregate water transportation index fell a mere 0.2% from November levels. The industry may be under pressure to roll back more of last year's extraordinary price hikes. Average prices for inbound liner services stood unchanged from November to December. Prices for inbound foreign transportation, however, were 11% higher than those reported in December 2002. For the year, those prices were up more than 26%. Overall prices for Mississippi River traffic were down 1.7% from the previous year, despite the fact that prices for shipping refined petroleum rose 8.9%.

After struggling to raise rates in 2003, U.S. rail haulers finished the year with an average price hike of 2.1%. Boxcar shippers saw prices rise 3% from December 2002 to December 2003, while intermodal prices were up 2.6% over the same period. Shippers of farm products—still recovering from a shortage of grain cars—suffered the biggest hikes, up 5.6%. Chemicals shippers, meanwhile, saw prices increase 4.6%. Prices for transportation equipment grew 4.4%, and those for lumber were up 3.9% from a year ago. But metals shippers enjoyed some price relief. Prices for hauling primary metal products actually fell 0.1%, while those for metal ores rose just 1.1%.

End-market demand for forklifts fell 1.5% in 2003 but is forecast to rise 1.4% in 2004 and 0.8% in 2005. That will help manufacturers raise prices. They need to do so soon: In December, for example, the cost to manufacture a lift truck grew 1.4%, while the average sale price rose only 0.7%. That caused a 47-cent drop in manufacturing margins for every $100 of product sold. To restore margins to average levels of the last five years, manufacturers must hike prices by up to 1.5%. The situation is similar in the conveyors market, where demand fell 0.7% in 2003 and is forecast to rise 1.8% in 2004 and 1.1% in 2005. In December, manufacturing costs rose 1.7% while prices were up just 0.6%, thus per-unit margins lost 66 cents for every $100 worth of product sold. We expect conveyor prices will rise about 1.2% in both 2004 and 2005.