Subscribe to our free, weekly email newsletter!


Transportation and logistics news: Higher rates are coming, say analysts

By Jeff Berman, Group News Editor
May 24, 2010

Before volumes for motor carriers began their gradual recovery earlier this year, it was not a secret that shippers were getting significant leverage when it came to rate negotiations with carriers for nearly a three-year period.

With a surplus of capacity, high operating costs, contentious relationship with their credit arms, and slim margins, carriers knew they could not be choosy—especially when it came to getting business and keeping trucks on the road. But the way things are shaping up now, it appears carriers may be getting some welcome relief in the form of higher rates, and shippers might as well bank on that, according to Charles W. “Chuck” Clowdis , Jr., Managing Director-Transportation Advisory Services, at IHS Global Insight.

In a research brief, Clowdis painted a definitive landscape of the myriad reasons, higher rates are en route.

“Since 2006, the rate levels in the transportation marketplace have favored the buyer of transport service,” wrote Clowdis. “More capacity pursued less available freight as the economy retracted. As capacity decreases and becomes more valuable to serve the released consumer demand, carriers will become more aggressive in seeking rate increases.  Increases in the 7-10% range have already been signaled by the industry.”

Other factors pointing to higher rates identified by Clowdis include the need to service debt incurred by many of the carriers that resorted to borrowing—at high interest rates–

to sustain themselves during the downturn. He added that carrier shareholders have been patient during the downturn and will expect improvement in share prices and dividends driven by better earnings: demands which he said will be met by increased rate levels.

What’s more, increased rates are likely to occur due to: owner-operators offering less capacity as the economy gains steam; a possible reoccurrence of a driver shortage; carriers making fewer investments to upgrade fleet assets that are more fuel efficient and require less maintenance.

Robert W. Baird Inc. analyst Jon Langenfeld echoed this sentiment, explaining that with carriers not buying trucks as frequently and capacity tightening over 2010 and 2011, the trucking industry is at a stage where it has not been in about five or six years.

“For shippers and carriers, this means higher rates are coming,” said Langenfeld. “The economy is stronger than people give it credit for. Higher rates are coming…but it is hard to say how long it will last; it could be anywhere from two-to-six quarters. Rates are going up for shippers. If you want to run a strong supply chain and a precision inventory network, you need carriers to be healthy. Right now, they are not, and you will see that through this cycle.

With higher rates on the horizon, Langenfeld said now is a good time for shippers to meet with carriers to lock in rates for the next 12 months.

Shippers, meanwhile, are less than thrilled at what is ahead of them.

“I see a lot of trouble explaining to our management why we need…rate increases,” said Candace Holowicki, Masco Corp. logistics manager at the National Shippers Strategic Transportation Council (NASSTRAC) Annual Conference in Orlando. “I’m trying to be an advocate for both sides of this, but I can’t give everyone a 20 percent increase, so don’t ask …the money is not there.”

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

With no fuel tax increase likely ahead of this year’s mid-term elections, trucking interests in Washington are moving to Plan B in their attempt to shore up funding for badly needed infrastructure improvements.

Crowley Maritime Corporation has acquired majority ownership of Accord Ship Management (HK) Limited and Accord Marine Management Pvt. Ltd.

To catch a rising economic tide this year, the Port of Long Beach will need to modernize and find new efficiencies to move increasing amounts of cargo at a faster pace, said experts gathered earlier this month for the Port’s 10th annual “Peak Season Forecast” at the Long Beach Convention Center.

They are an annual rite of passage, general rate increases (GRIs) in the less-than-truckload (LTL) sector of the trucking industry. But is anyone paying attention? And more importantly, is anyone actually paying these announced GRIs, this year in the 3.9 to 5.4 percent range?

Article Topics

News · All topics

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2013 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA