Capacity Crunch Easing, Price Increases Moderating, According to Bear Sterns Survey

The equity research arm of investment banking firm Bear Sterns (New York) released its second quarter analysis of major, publicly traded players in the air freight and surface transportation markets. Here are some highlights from the Bear Sterns Second-Quarter 2006 Shippers Survey:

  • Truckload and less-than-truckload capacity is less tight.
  • More firm truckload pricing. According to the Bear Sterns Shipper Survey, shippers expect an effective base rate increase of 3.4% for 2006 prior to fuel surcharges and accessorial costs from their truckload carriers.
  • LTL overcapacity. LTL capacity perceptions increased year over year in the second quarter, as 39% of respondents indicated modest LTL overcapacity in the market compared to only 11% who indicated tight LTL capacity.
  • LTL pricing stable. LTL pricing has remained stable since the second quarter of 2004, as surveyed shippers expect LTL pricing increases of about 2.5% year over year in 2006.
  • Shippers comply with fuel surcharges. Sixty percent of survey respondents comply fully with the assigned truckload fuel surcharge, 98% pay at least 50% of the standard fuel surcharge requested. Seventy-two percent of shippers responded that there was no difference between their payment of surcharges between large and small TL carriers. About 18% of our shippers indicated they were paying "somewhat higher" fuel surcharges to larger providers.
  • Rail service improves. Rail service has improved, with CSX, Canadian National, and Canadian Pacific improving the most. Although 28% of shippers still expect rail service to deteriorate during peak season, this is down considerably from 53% a year ago. Shippers expect to pay a 4.4% average rail rate increase in 2006, up from 3.7% in the first quarter.
  • Rail rate increases to continue. The anticipated average rate increase indicated in second-quarter 2006 by rail shippers was 4.4%, compared with 3.7% in the first quarter 2006 and 3.5% in the year-ago period. This marks the highest average year-over-year rate increase expectation since Bear Sterns has been doing the survey.
  • Domestic air cargo continues to grow. Total ATA domestic (point to point within the U.S.) airfreight revenue ton-miles thus far in 2006 have shown a 3.2% year-over-year increase, compared to 0.4% growth during 2005.
  • Increasing ocean containership pricing. More shippers expect year-over-year increases and fewer shippers expecting either flat rates or a year-over-year decrease in container ship rates. Approximately 51% of survey respondents expect some sort of ocean container ship rate increase, up dramatically from the 36% that expected an increase in first-quarter 2006.
  • Actual containership pricing down. According to Clarkson Research Services, ocean container pricing has recently inflected and is now down year over year for the second quarter in a row, the first time this has occurred in several years. Iinternational freight forwarders will benefit more than general shippers from the increased ocean capacity that continues to enter the market.
  • Nationwide port volume growth strong, but moderating. May’s 8.8% year-over-year growth in total imported TEU volumes is down from the 14.8% import volume growth in April and the 10.4% rate of growth recorded during both 2005 and year to date in 2006. Export volume growth of 3.3% year over year during May represents improvement from April’s 3.7% decline.
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