High-Wire Act (page 2)

-- Logistics Management, 9/1/2005

Page 2 of 4
Expecting Higher Rates

With rates and fuel prices rising steadily, it's no surprise that many respondents said they were expecting to pay more for transportation services in 2005. At 44.8 percent, truckload shippers were most pessimistic, while 36.1 percent of buyers of regional less-than-truckload (LTL) services said they were anticipating higher transportation costs. As for national LTL shippers, 28.2 percent were planning on spending more in 2005. That was a huge jump over last year, when only 4 percent of those buying national LTL service said they were spending more than they did the previous year.

More than a quarter of ocean shippers—28.7 percent—said they were bracing for higher freight bills. Likewise, 28.1 percent of intermodal shippers were anticipating higher freight charges. (For complete details, see Figure 1, below.)

When survey participants were asked to identify which factors were driving up transportation rates, they laid much of the blame on fuel surcharges. On a 5-point scale, with 5 representing a very negative factor that would help increase rates and 1 representing a very positive factor that would lower rates, respondents rated fuel surcharges at 4.26. Port congestion was ranked second, with a rating of 4.0. Next came driver turnover and hours-of-service regulations, which tied at 3.7. (See Figure 2.)

Clearly shippers are struggling to gain control over many factors that are raising freight costs. Whether they're fighting a losing battle is still unclear. "Shippers are still in a reactive mode," says Mary Holcomb, associate professor at the University of Tennessee and a study co-author. "Many of the factors that are contributing to high transportation costs can't be changed at the company level alone." More Intermodal, Less Truck

Researchers asked survey takers to break down their transportation spending by category, and their responses indicated that they're cutting back somewhat on their use of for-hire trucking services. For instance, respondents said that they are spending on average 10.6 percent of their transportation dollars on national LTL this year, compared to 12.7 percent last year. And they're expecting to spend 9.9 percent of their freight dollars on regional less-than-truckload carriers, as opposed to 10.2 percent in 2004. Even truckload spending is being scaled back, to 28.9 percent versus 29.8 percent last year. This decline in spending on trucking services may indicate that soaring fuel surcharges are encouraging shippers to revamp their modal lineup.

Further evidence of that shift can be found in the upswing in spending on intermodal transportation. Respondents spent only 1.8 percent of their transportation budgets on intermodal shipments last year. This year, they're devoting 5.6 percent to intermodal. Rail usage also increased, rising from 5.2 percent in 2004 to 5.9 percent in 2005. Private fleets showed small gains, with spending increasing from 13.1 percent of transportation budgets last year to 13.7 percent in 2005.

Reflecting the continuing surge of imports into this country, shippers increased their spending on ocean services from 4.8 percent in 2004 to 6.6 percent today. (See Figure 3.)

Last year, the Masters of Logistics study detected an erosion in the core-carrier concept, under which shippers tender the bulk of their freight to a selected group of preferred transportation providers. This year's results were mixed. But the percentage of truckload shippers who said they were expecting to use more carriers held more or less steady, with 33.2 percent in that group in 2005 compared to 34.4 percent last year. The percentage of shippers who were expecting to use more ocean carriers, moreover, dropped from 28.1 percent to 16.4 percent. Continued...