Rate update

If you are a shipper, you already know this, but it is my job to report on it anyhow. Data from Cass Information Systems in conjunction with investment firm Avondale Partners mostly showed gains for both truckload and intermodal rates in April.

First, the truckload data. Cass and Avondale reported that April truckload linehaul rates were flat when compared to March and up 6.9 percent annually, which was slightly below a 7.2 percent annual hike in March.

The organizations explained that rates “have likely moderated due to a share shift towards intermodal.” That sentiment is not entirely surprising, given how strong domestic intermodal has been over the last several quarters. The combination of lower rates, coupled with truck-like service, albeit with longer transit times, continues to make sense for many shippers, and why shouldn’t it really?

Still not sold on intermodal? Then consider this analysis from Avondale Partners: “We continue to believe 6-9 percent rate increases are possible for 2012 as capacity continues to slowly tighten and demand for truckload services continues to increase.”

And as we all know, capacity is clearly impacted by government regulation—of which there is not shortage of in the truckload sector. With regards to truck drivers hours-of-service regulations set to take effect in mid-2013, many carriers are saying that it will add to transit times, while not adding capacity. How is that productive? Don’t ask me. I don’t work for the government.

In fact, at last week’s NASSTRAC Logistics Conference & Expo, U.S. Xpress President John White said that the pending HOS changes could eventually result in a 3-to-5 percent utility drop or even more.

And he added that his company is looking for 5-to-7 percent rate increases in its lanes.

“The era of managing costs down on the truckload side is almost a tsunami relative to the costs we are faced with,” he said. “In the last 1.5 years, we have dropped idle by about 40 percent and on top of that have dropped dead-head by about 15 percent. But yet on a 500-mile move because of fuel costs, the cost to move a load is up by about $5 per load, despite these significant idle and deadhead reductions.”

All these things, along with some others, factor into the estimated rate hike to be certain.

Looking at intermodal rates, Cass and Avondale reported that intermodal linehaul rates were up 2.1 percent from March to April and up 2.4 percent annually. They noted that the increasing prices in intermodal are further evidence of growing demand created by the share shift from truckload.

Even though intermodal prices are still trending up, it is not at the same rate as truckload.

This analysis by Avondale helps to explain why that is the case:

“We believe that intermodal service providers could see some modest gains in pricing in the near term due to high fuel prices, however we continue to believe that over the intermediate term, the large number of containers coming on line and aggressive pricing by carriers focused on ramping up their intermodal businesses will keep pricing grounded.”

Regardless of what mode you use, you need to be prepared to pay more. It is a fact. The best way to prepare for this, experts say, is to do your homework and be prepared to budget for these hikes into your transportation and logistics budgets.