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

Truckload carriers are burning rubber now. In the second quarter of 2004, average list prices increased 4.2% from the second quarter of 2003. That's the largest price hike since the Bureau of Labor Statistics began its survey of trucking companies in June 1992. Logistics managers are more used to managing inflation for their LTL business. In the second quarter of 2004, average prices charged by LTL truckers rose 5.2% above year-ago levels, but that's considerably lower than the 9.5% inflation rate that LTL companies pushed through in the fourth quarter of 2000. When all is said and done, we forecast the entire trucking industry to hike prices an average of 3.2% in 2004 and 2.2% in 2005.

Rate wars may temporarily be coming to the air cargo business, if recent prices charged by domestic airlines on scheduled flights are any indication. This last quarter, domestic airfreight prices fell 3.3% compared to a year earlier, despite a 1.6% price hike from May to June. But airfreight bargains are unlikely to last with the steep and uncertain cost of fuel. We forecast aggregate prices to increase 2.2% in 2004 and 3.8% in 2005. Freight forwarders, meanwhile, will increase their average prices 1.1% in 2004, up from a meager 0.4% increase in 2003. Domestic and international air couriers are also expected to raise prices, by a respective 5.8% and 4.8% this year.

Year-over-year prices for deep-sea shipping increased just 3.8% in the quarter ending June 2004, after rising 8.6% in the first quarter of 2004 and soaring 22.4% in the second quarter of 2003. That inflationary break was helpful since prices for shipping freight on inland waterways took an unexpected jump of 4.4% in the second quarter of 2004 on the heels of a 0.7% price decline in the first quarter. With costs rising for water transportation support activities, however, it seems unlikely that prices will get much better over the next 12 months. Prices for marine cargo handling and navigational services have both increased in the three-month period ending in June.

Rail transportation prices increased 0.3% from May to June, the thirteenth consecutive monthly increase. Average prices for hauling commodities in rail cars grew fastest—up 0.4%—while the price for moving goods in trailers on flatcars fell 0.2%. Logistics managers should note that carload service is flashing an inflationary signal; in the six months ending June 2004 these prices increased 3.6% above the same period a year earlier. At this rate, we would see a 3.7% annual price hike by the end of 2004. Those who count on rail cars to move farm products, chemicals, or lumber and wood products should be especially concerned. Rail car service prices for these three industries steamed past year-ago levels by 8.6%, 5.4%, and 4.7%, respectively.

Manufacturing costs for materials handling equipment have exploded. From June 2003 to June 2004, costs grew 13% for makers of elevators, 11.4% for conveyors, 10.3% for lift trucks, and 9.8% for hoists and cranes. Since November, prices for overhead cranes, hoists, and monorails have jumped 2.8%. That's the strongest price run-up on record in the past decade, but producers still wound up on the short end of the inflation stick. During the last six months, industry margins lost $3.64 for each $100 worth of hoists and cranes sold. All materials handling manufacturers have been hurt by higher costs for basic and fabricated steel inputs. Bottom line: When suppliers come knocking, buyers will need to steel themselves against some compelling cost-based arguments for higher prices.