Freight Rates Expected to Keep Rising on Capacity Issues

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FORT LAUDERDALE, Fla. — The unanimous view from shippers and other participants at the National Industrial Transportation League meeting was that freight rate increases, particularly in trucking, will keep accelerating for two years or more because of unrelenting capacity issues.

Though the amount of the increase may be uncertain, the direction outlined during the meeting here was not.

“I haven’t met a shipper yet who said they haven’t seen a rate increase,” said Paul Newbourne, senior vice president at Armada, which provides logistics services to restaurants and other retailers. Typically, he said, the increases were in the high single digits, with amounts of 20% or more not uncommon.

“There is lots of inflationary pressure,” he said. “You can expect those truckload and intermodal operators to pass them along. The harsh reality is that the environment is competitive. There is going to be some upward [price] mobility.”



Randy Brown, vice president at grain company Cargill, also said he expects rates to rise, as did Elton Poisler, a logistics manager at chemical manufacturer duPont.

Ken Hoexter, a Merrill Lynch analyst, told the shipper group he believes the truck freight markets are similar to the 2004-2006 period, when rates soared and driver turnover hit a record level.

“We expect pricing to rise for multiple years,” Hoexter said. “The question is how strong those pricing increases will be. The truck market is very strong.”

He noted that less-than-truckload carriers have published rate increases twice this year, which is only the third time in the past 20 years that the pricing environment has been strong enough to support that.

John Larkin, a Stifel Nicolaus analyst, said capacity reductions driven by a lack of qualified drivers could push rates up in the 5%-to-8% range in the months ahead.

Justin Long, a railroad analyst at Stephens Inc., said, “The [pricing] direction seems pretty clear.”

In that industry, the coming increase will top the 2% to 3% seen this year, he believes, though he didn’t estimate an amount.

The only possible bright spot for shippers in the pricing world is the prospect for lower fuel surcharges as crude oil prices decline.

However, Larkin noted that some fleets still could see benefits even as fuel-surcharge revenue changes because improved miles per gallon in newer equipment creates an additional cost advantage beyond lower fuel prices.

 

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