Rail Raises the Roof on Rates

In its most recent Freight Pulse Survey, equity research firm Morgan Stanley says shippers expect some of the largest rate increases ever from railroads. Shippers report they expect to see rail rates rise 5.9% in the next six months. Intermodal rate increases are expected to be 3.6%.

Freight Pulse 10, a semi annual survey of shippers conducted across Logistics Today readers and National Industrial Transportation League members in the U.S. and Canada, reports shippers are confident about the economy (7 on a 10-point scale) and expect steady, if moderate, increases in freight volumes. But modal choices are increasingly centering on finding ways to reduce costs.

In the truckload area, shippers are increasing the number of carriers they use and are turning to transportation intermediaries to find lower-cost carriers. Capacity issues of the last few months have moderated somewhat, reaching a level shippers perceive as nearly balanced. On the 10-point scale used in the survey, shippers reported truckload capacity was 5.2, just a notch above the 5.0 “balanced” rating. This compares with a 6.1 reported in September 2005 and a high of 7.7 (where 10 = very tight) in September 2004.

Rates on truckload freight are expected to rise only 3.6% over the next six months, slowing from an anticipated 4.3% reported last September. Shippers, however, have been underestimating truckload rate increases since May 2002. The expected 4.3% of September 2005 turned into an actual increase of 6.8%, according to the Freight Pulse Survey. The prior survey in March 2005 predicted a 4.7% rate, but actual increases were 6.8%. The largest gap was between the September 2004 forecast of 6.0% and an actual increase of 9.9%.

Rail rate increases were reported at a pace below 3% for the first six Freight Pulse Surveys, covering May 2001 through March 2004. At that time, the rate of increase went up by more 1.5 times to 4.4%, where it remained in March 2005. Last September, it rose above 5%, reaching 5.6%. The current shipper forecast of a 5.9% increase is likely to be sustained through the end of 2006 and could go as high as 7.4% in 2007.

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