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

In July our trucking industry price index increased 0.5% from a month ago and 4.1% from a year ago. Breaking down the price action, we see that less-than-truckload carriers continued to push through the biggest price hikes. Also in July, LTL prices gained 1% while TL tags declined 0.1% from the previous month. Compared to a year ago, LTL and TL prices were up 6.4% and 4%, respectively. We expect LTL to be an inflation driver, but the long-run trend now suggests TL may be of greater concern. Looking at the 12-month moving average inflation rate, TL prices have risen from a 0.1% drop in July 2002 to 1.3% in 2003, then to a strong 4.4% inflation rate in 2004.

Average prices to fly both people and freight increased a modest 0.2% in July from a month ago and 0.6% from a year ago. Prices for scheduled flights on U.S.-owned airlines grew 3% from a month ago and 1.3% from a year ago. Yet because of sharp price declines in February and March, scheduled airfreight tags weren't much higher than they were in January 2004. More concerning to shippers was that average prices charged by air couriers rose 1.3% from June to July. Compared to a year ago, international air courier tags were up 7.1%. Domestic air courier prices increased 8.2% over the same period. These data reflect transaction prices, not list prices, and include fuel surcharges.

While economists who focus on macro trends might have missed it, shippers who rely on ocean carriers to move freight did not: July 2004 marked the end of a long bout with inflation. Average prices for deep-sea service fell 4.1% from a year ago. That was the first year-on-year price decline since May 1998, and it marked a sharp turnabout from the 23.9% price jump that was logged in the quarter ending July 2003. Inflation hasn't been completely relegated to a watery grave, though. In July, average prices for shipping on inland waterways increased 5% from a year ago, while those for shipping on the Great Lakes and St. Lawrence Seaway grew 0.7%.

Rail freight prices inched up 0.5% from June to July. Carload and intermodal freight for both rose by one-half of a percentage point. A cursory look at this one-month data point, however, might make you miss an important trend. Over the three-month period ending July 2004, rail prices in the intermodal arena rose 4.3% from a year earlier. That was the sharpest rise since the data was first collected in December 1996. More importantly, July's 4.3% hike caps a 20-month string of quarterly price hikes. Exactly when that trend will slow down or reverse remains to be seen. Prices for shipping coal, transportation equipment, metal ores, and farm products increased by a respective 1.1%, 3.6%, 4.6% and 10.8% compared to a year ago.

U.S. steel mills increased average prices by 16.3% in the second quarter of 2004 and are forecast to end the year with prices up 27.2%. Producers of locomotives and railroad rolling stock will be hard hit. In June, this industry saw its costs jump 10.7% from the previous year. With locomotive prices up only 4.6% over the same period, the industry lost $2.96 in manufacturing margins for every $100 worth of product sold. Heavy-duty truck manufacturers also saw costs jump 3.1%, causing a $1.49 loss in margins per $100 of product sold. To restore margins to year-ago levels, average prices would have to jump by 4.8% for locomotives and 2.2% for heavy-duty trucks. Manufacturers, however, will hike locomotive prices by only 1% in 2005. Heavy-duty truck makers are projected to boost prices by 3.3%.