Analyst says "freight recession" may be coming to an end

Jeff Berman, Group News Editor -- Logistics Management, 5/14/2008

ORLANDO, Fla.—Even though economic numbers don’t necessarily indicate it, the US economy is in a recession, but the good news is that the “freight recession” appears to be coming to an end, according to Jon A. Langenfeld, transportation analyst for Robert W. Baird & Company.

Speaking to a roomful of transportation and logistics executives at the National Shippers Strategic Transportation Council’s (NASSTRAC) annual conference, Langenfeld explained that the freight recession began in early 2006, when freight tonnage indices began to fall precipitously due largely to declines in the housing and automotive markets. Retailer performances, with ongoing contractions, also played a major part in dragging down freight transportation volumes, according to Langenfeld.

“We are a lot closer to the end of the freight recession than the beginning,” said Langenfeld. “But carriers won’t likely feel this for another 9-12 months.”

When the US economy does eventually rebound, Langenfeld said that a “freight pricing renaissance” will take hold, which will provide a lot of opportunity and risks from a transportation services providers’ standpoint and a shippers’ standpoint.

Pricing is likely to go up over the next five years in order for carriers to justify investments and build capacity, said Langenfeld. And when the current market environment turns in the next year, things may get worse on the pricing side for shippers, with rate increases potentially in the six to eight percent range.

“Pricing is going up and [shippers and carriers] need to prepare for that,” said Langenfeld. “If they are not prepared for it they will be in trouble, because this is something that is going to shape profitability of all companies for the next 3-5 years.”

Langenfeld also revealed some of the pricing “myths” that existed in the marketplace over the last five or six years: from 2003-2006, there was a common perception that truckers specifically took advantage of shippers given the rate environment; railroads were generating excess profit due to monopoly power; the parcel market prices like an oligopoly due to a lack of competition; and fuel surcharges are a source of profit.