Source: Elizabeth Baatz, Thinking Cap Solutions. E-mail: ebaatz@ice-alert.com

Trucking rates rose for the fifth straight month, gaining 0.7% in February. Inflation hit hard across the trucking spectrum, but long-distance LTL took the biggest hit. Average prices charged by LTL truckers soared 2.7% and now are perched 8.5% above year-ago levels. Long-distance TL rates increased at a more manageable 0.5% pace, ending up just 3% above February 2007 price levels. Rates for local general freight, meanwhile, fell 0.5% in February, but remained 8.4% above a year ago. Thanks to the recent LTL boost, our revised forecast shows average prices in the entire trucking industry increasing at a 3.1% pace in 2008. Our first look at 2009 predicts a slower 1.5% annual price hike.

The domestic air freight industry pushed through a 4.1% price increase from January to February 2008. Compared to the same month a year ago, air freight prices were up an atypically strong 11.4%. This was not a one-month fluke. Jet fuel cost overruns mean airlines have some negotiation chips on their side. Petroleum refiners, for example, are charging 49% more now for wholesale jet fuel than they charged in February 2007. Shippers can expect domestic air freight inflation to continue flying high and the inflationary surge has been incorporated into our forecasts. We now estimate that air freight prices will escalate at a 6.6% pace in 2008 before slowing to a 0.7% inflation rate in 2009.

Water transportation rates increased by an average of 1.9% in February. For those shipping on the Great Lakes and Saint Lawrence Seaway, the potential for inflation-related sea sickness was of special concern as here prices surged 4.4%. Coastal and intercoastal shipping companies also posted a big 4.1% one-month price hike. Inland water freight transportation prices, meanwhile, slowed a bit to a 1.8%. Average prices for these three water transportation industries (Great Lakes, coastal, and inland waterways) were up 18%, 8.4%, and 16.7%, respectively, from the same month a year ago. Overall, water transportation industry prices are now forecast to increase 6.6% in 2008 followed by some modest quarterly price cuts in 2009.

With air, water, and trucking rates all rising, shipping by rail has become relatively more attractive. Rail companies cut their average transaction prices by 0.5% in February, breaking a string of six consecutive monthly price hikes. Despite the most recent price cut, our forecast for rail industry inflation has been revised upward significantly. If our March estimate holds true, then rail industry transportation prices will be up 11.9% in the first quarter of 2008 compared to the same period a year ago. Our revised forecast now calls for rail industry prices to increase at an 8.6% annual pace in 2008 followed by a 3.7% average price increase in 2009.