Source: Elizabeth Baatz, Thinking Cap Solutions.

Due to a slowing economy, negotiation leverage is shifting to shippers. However, escalating fuel costs are giving truckers plenty of rationale for higher prices. The latest price surveys from the Labor Department show confusion with LTL tags falling 0.7% in August while TL prices increased for the fifth straight month, up 0.3%. Looking more closely at LTL and TL price trends, we have revised our 2008 forecasts. LTL inflation is expected to weaken in the first three quarters of 2008, before picking up in the final quarter as cost pressures mount. TL price escalation will be steadier, but more modest. In the end, the annual inflation rate expected for the LTL and TL markets in 2008 is 1.1% and 1% respectively.

In the air freight market, we are stymied in our analysis, restricted to the domestic airline industry. Transaction prices for flying cargo and mail on scheduled flights haven’t changed much over the past three months, down 0.8% in June, up 0.1% in July, and unchanged in August. All that followed an unexpectedly 3.8% one-month price hike in May. We are forecasting these prices will bounce around at a slower pace and will register an annual inflation rate of 1% in 2008. Now, U.S.-based freight forwarders have taken a page out of the domestic airline industry’s flight book by hiking their transaction prices a sharp 4.3% in August. That jump is unprecedented in the freight forwarders industry. Will it hold?

We are taking a more cautious approach to price forecasts for water transportation. Uncertainty has increased as prices for the inland waterways time series continue to bounce around unexpectedly. Labor Department surveys of companies that ship cargo on intracoastal waterways show prices popped up 9.8% from July to August. That so altered the takeoff point for our forecast that we were forced to raise the 2008 annual inflation rate for inland waterways service to 4.5%, which will follow an estimated 4% price hike in 2007. For the entire U.S.-based water transportation industry (deep sea, inland waterways, and Great Lakes), our 2008 forecast now calls for aggregate prices to rise a conservative 1.1% as negotiation leverage shifts in favor of buyers.

Average prices charged by railroads took a sharp turn upward in August as average prices charged for carload service increased 1.7% from the previous month and intermodal tags jumped 2.1% at the same time. Some of that August price hike was expected, as is typical for the season. Our forecast continues to call for a relatively sedate 1% annual inflation rate in 2008 for all rail service with carload tags up 1.1% and intermodal prices up 1%. It is unclear if the cyclical downturn in rail inflation will level off or not. We are betting the slide down in inflation will bottom out in mid-2008 because cost and margin pressures remain too compelling for rail industry negotiators.