Pricing Across the Transportation Modes

By Elizabeth Baatz, Thinking Cap Solutions -- Logistics Management, 12/1/2006

TRUCK
Average prices charged by LTL carriers fell 2.2% in October. That was the largest single-month price cut since the U.S. Bureau of Labor Statistics started reporting the data in 1992. The second-largest monthly LTL price cut occurred in February 1998, and that was only a 1.5% drop. As for the truckload market, average prices declined 1.2% in October. That too was notable, as the largest monthly price decline seen previously occurred in December 1995, when tags fell 1.3%. This price weakness was more pronounced than expected, so forecasts have been revised downward. All told, overall trucking industry prices are now forecast to increase just 2.1% in the final quarter of 2006 compared to the same period a year earlier, and are expected to rise 3.3% in the last three months of 2007.

% CHANGE VS.:	1 month ago	6 mos. ago	1 yr. ago
General freight - local	-1.1	0.4	1.8
Truckload	-1.2	0.6	1.3
Less-than-truckload	-2.2	-1.8	0.8
Tanker & other specialized freight	-0.4	0.7	1.8

AIR
New analysis of trends in the domestic air freight industry has resulted in a substantial revision in our forecast. In October, the average price for shipping freight on scheduled flights run by U.S.-owned airlines dropped 1.3%. Thanks to a big 4.2% monthly price cut last August, average prices in October 2006, as reported by the U.S. Bureau of Labor Statistics, stood 1.2% below year-ago price levels. That was the first year-on-year price drop since June 2004. Thanks to recessionary fears, we think average annual inflation in domestic air freight as measured by BLS will now be only 3.9% in 2006, as opposed to the 5.4% rate we had been predicting. Accordingly, instead of a substantial acceleration in prices in 2007, our forecast now calls for a meager 0.2% inflation rate.

Air Pricing Trends

% CHANGE VS.:	1 month ago	6 mos. ago	1 yr. ago
Scheduled air freight	-1.3	-1.9	-1.2
Chartered air freight & passenger	0.3	2.0	7.3
Domestic air courier	-0.5	3.0	7.8
International air courier	-0.4	3.5	14.1

WATER
In October 2006, another 3.6% price hike beset shippers who moved freight via inland waterways. Recent discussions with shippers indicated that continuing price hikes are related to severe equipment shortages that simply are not being resolved quickly enough. One shipper said that before Hurricane Katrina, rates for moving cargo in the Gulf via smaller barge companies were running $50 to $100 a day. Now, the price range is $200 to $225. With these new insights, our forecast for shipping on inland waterways now calls for average prices to increase 18.5% in the final quarter of 2006 compared to the same period a year earlier. In 2007, average prices are predicted to be up 14.5%, instead of the 7.6% we had previously forecasted. Until construction of new barges picks up more steam, shippers will continue to suffer.

Water Pricing Trends

% CHANGE VS.:	1 month ago	6 mos. ago	1 yr. ago
Deep-sea freight	0.0	-0.4	0.8
Coastal & intercoastal freight	0.0	3.4	5.6
Grt. Lks.-St. Lawrence Seaway	-0.7	0.2	6.8
Inland water freight	3.6	14.5	13.0

RAIL
It’s difficult to interview Wall Street analysts about the railroad industry without rethinking our forecasts for average rail industry prices. In October 2006, average prices increased 0.7%, with a 0.9% hike in carload prices and no change in intermodal. Taking into account some of Wall Street’s price forecasts, we now predict the escalation rate for rail-freight service will be 7.9% in the final quarter of 2006 compared to the same period a year ago, not 6.1% as we had previously forecast. In the last three months of 2007, rail prices will continue to escalate at a 6.1% pace, up from the former 4.1% prediction. In 2007, average annual price hikes will be 7.2% for intermodal service and 7.7% for carload service.

Rail Pricing Trends