Shippers expect continued rise in freight rates

By James Haughey -- Logistics Management, 12/15/2004

Sponsored by:
Source: Logistics Management and Reed Research Group

BOSTON-Shippers are still struggling with rapidly rising freight rates and inadequate freight capacity according to a post-Thanksgiving survey by Logistics Management. Shippers say they expect no relief from high rates next year, with 52 percent blaming high fuel costs. However, shippers report that they don't anticipate further deterioration in the availability of freight services.

Eighty-two percent of shippers reported freight rate increases during the fourth quarter-only 2 percent reported a decline. Half of the shippers said they experienced less availability of freight services during the fall quarter with only 14 percent reporting improved availability.

The survey results are consistent with steep price increases for freight services reported for October and November in the Producer Price Index. According to the monthly survey of sellers by the Bureau of Labor Statistics Freight, rates overall increased about 1 percent in November. Air freight rates were up 1.3 percent, LTL rates rose 1.2 percent and TL rates increased 1 percent. Both intermodal and express/parcel rates were 0.6 percent higher. These were the largest monthly increases for most modes since freight rates began to soar last May.

Shippers expect carriers to expand capacity enough in the first quarter of 2005 to keep the availability of freight services constant. Improved availability is expected by 31 percent of the shippers responding to the survey, while 30 percent expect the capacity situation to worsen. Any improvement, however, will demand substantial capacity expansion since 54 percent of shippers expect better business conditions in the next quarter. The consensus of economic forecasts for the next quarter is for 4-percent plus GDP growth at an annual rate, a slightly larger gain in manufacturing production and continued double-digit gains in both exports and imports.

Shippers expect freight rates across all modes to average about 4.5 percent more in 2005 than in 2004. The 2005 average freight rate for LTL in the Producer Price Index will be up 4.5 percent from 2004 if the average monthly rate next year matches the LTL rate at the end of 2004. This suggests that shippers expect some retreat in fuel costs and freight rates at some point in 2005-and it may be starting already.

Diesel pump prices are now 5 percent below the early November peak; as a matter of fact, the U.S. Department of Energy predicts a further decline from the current $2.06/gal. to $1.90/gal. by the end of 2005.

82% of shippers experienced logistics and transportation service rate increases in the current quarter and half of all shippers also experienced less availability of logistics and transportation services.

Shippers expect truckload rates to increase 4.6% in 2005 compared to 2004 and LTL rates to increase 4.3%. These anticipated rate increases approximately match the increasaes that occurred in 2004.

Shippers expect air cargo rates to rise 4.6% in 2005 compared to 2004, more than double the increase that occurred in 2004. However, ocean freight rates are expected to rise only 3.9%, considerable less than the 2004 increase.

Shippers expect 3.8% price increases for express and parcel rates in 2005 compared to 2004. This is less than the inflation expected for any other mode. Higher fuel costs get most of the blame for rising freight rates but capacity shortages also contributes significantly to rising rates.

54% of shippers expect improved business conditions in the first quarter of 2005 but they do not expect the availability of services from their logistics and transportation service suppliers to worsen.