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

LTL carriers appear to be stepping on the accelerator. In the first quarter of 2004, average LTL prices increased 1.7%, significantly faster than the 0.6% inflation rate seen in the last quarter of 2003. For the 12-month period ending March 2004, LTL prices grew a modest 3.3%. We forecast LTL average prices to grow at a 4.3% rate by the end of 2004. Truckload carriers are breathing a sigh of relief as inflationary trends help push their rates up, too. Prices for TL service actually fell 0.3% in 2001 and increased a slow 2.3% in 2003. In February and March 2004, however, prices rose 1.9% and 0.3% respectively. Given that fast start, we now are forecasting average TL prices to rise 3.6% by the end of 2004.

Shippers who rely on moving freight in the bellies of U.S. aircraft may have been surprised to see average prices rise 2.9% from year-ago levels in the first quarter of 2004. But compared to the first quarter of 2003, when prices soared 6.1%, the most recent price hike certainly was bearable. Our forecast is equally bearable: We see air cargo prices charged by U.S. carriers up 4% in 2004. Freight forwarders bearing the added burden of security-related paperwork surely were troubled by prices that declined 1.4% between the first quarter of 2003 and the first quarter of 2004. Overall, prices charged by freight forwarders, will rise 1.5% by the time all the data for 2004 have been tallied.

Shippers that contract with U.S.-based carriers enjoyed a respite in early 2004. Average prices for deep-sea transportation fell 2.5% in the first quarter of 2004 on the heels of a 2.8% drop in the last three months of 2003. That might not sound like much of a break, until you realize that deep-sea services rose 8.4% in the third quarter of 2003 and 6.2% in the second quarter. Our 2004 outlook, meanwhile, remains pegged at a relatively mild 9% inflation rate for all of this year. Providers of inland water transportation likewise pushed through a 3% average price cut in 2004:Q1, but that did not completely offset a 5.7% price hike in the last three months of 2003.

Inflation rates for hauling freight over the rails continue to compare favorably to other modes of transportation. From the last quarter of 2003 to the first quarter of 2004, prices increased just 0.7% for carload traffic and an even more modest 0.2% for intermodal trailers on flatcars. Overall, rail freight tags grew 2.6% in 2003 and were up 2.9% in the first quarter of 2004 from the same quarter a year ago. Our forecast calls for prices to increase 3.5% in 2004. A strengthening domestic economy will be the impetus for this change. Watch out for stiffening price tags for farm products, chemicals, and non-metallic minerals. These three commodities saw carload freight rates rise between 1.7% and 1.3% from the end of 2003 to the first three months of 2004.

In early May, national gasoline prices hit $1.84 per gallon and diesel tags topped off at $2.27 in California and $1.71 nationwide. Four projected factors that DOE cited as likely to cause price hikes have become a reality: (1) high growth in worldwide demand for oil; (2) higher freight rates; (3) a cut in crude oil production by OPEC and a commensurate decline in fuel oil inventories; and (4) unrest in Iraq and Venezuela. The result: Private forecasters say gasoline prices will average more than $2 per gallon this summer and may remain there as November's presidential election approaches. A fanatical strike on Saudi Arabian oil fields now seems much more likely than U.S. control of Iraq's oil production. If exports from Saudi Arabia are interrupted, we could see $50 per barrel of oil.