Rate Outlook: The Money Pit (page 3)
-- Logistics Management, 1/1/2005
Page 3 of 3
Importers can expect on average to pay between $1,850 and $1,900 to move a twenty-foot equivalent unit (TEU) to the United States. Rates in the reverse direction will remain low—between $800 and $850 per TEU for exports from the United States to Asia. "Because of the surplus capacity, it's difficult for lines to achieve any freight rate increases on export cargo leaving the United States," Fossey says.
Rate hikes for other trade lanes are likely to be even lower. Fossey looks for increases of 3 to 4 percent on shipments coming out of Latin America, while slowing trade volumes will keep rates for inbound shipments from Europe fairly flat.
The steady flood of imports, along with the continuing diversion of highway freight to the rails, continues to impact railroad capacity. In the past year, railroads hired more crews and upgraded track and terminal infrastructure as they struggled to meet a surge in demand for intermodal and boxcar traffic.
Although railroads took steps to solve their congestion problems, they'll still suffer this year from tight capacity—and that, of course, spells higher rates. "It will vary by railroad and lane, but rates will be up substantially this year," predicts Farrukh Bezar, who heads the freight practice at consultants Booz Allen Hamilton in McLean, Va.
Accuship's Kauffman forecasts that western rail carriers will jack up rates by 6 percent while their Eastern brethren will boost pricing by 5 percent. Burns, on the other hand, foresees rail rates overall rising by 3 or 4 percent. The JPMorgan analyst adds that if shippers want more capacity, they'll have to pay higher rates to support the railroads' ability to invest in personnel and infrastructure.
Given all those factors, it appears beyond doubt that shippers will be paying more to move freight in all modes this year. Unfortunately, it also looks like rates will rise even faster than the general rate of inflation. (See Figure 3.)
Only another recession might prevent that from happening. Says Clair: "Rates are going to go up for the next year several years unless the economy falls flat on its face."
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