Is the Recovery Real? Will it Last?

March 1, 2004
Morgan Stanley's sixth semi-annual survey of shippers, Freight Pulse VI, indicates the highest confidence levels in the U.S. economy since the survey

Morgan Stanley's sixth semi-annual survey of shippers, Freight Pulse VI, indicates the highest confidence levels in the U.S. economy since the survey was begun in 2001. Ranking overall economic strength at 6.9 on a 10-point scale, subscribers to Logistics Today responded to the survey saying they will be shipping higher volumes on virtually all modes in the coming year.

A majority of shippers (65%) also report inventories are in line with planned levels set at the beginning of the year. Only 15% say inventories are above planned levels. The remaining 20% say inventories are below planned levels.

Most news on freight volumes is positive. Rail volumes should increase 3.3%, truckload volumes will rise 5.4%, regional less-than-truckload will increase 4.8%, and national LTL by a mere 2.3%. Shippers also reported they anticipate increasing intermodal volumes by 4.5% (the Association of American Railroads reported intermodal loadings increased 10.1% in the week ended March 20 and 6.9% for the first 11 weeks of 2004 vs. the same period in 2003).

The improving economic picture is not without challenges when it comes to logistics. For one thing, truck capacity is getting tighter and carriers report concerns over a looming driver shortage. That's a bad combination for shippers who report rate increases at levels well above those of the last survey (June 2003). Truckload rates are expected to rise 3.7%, well ahead of the 1.8% reported nearly a year earlier. National LTL carriers should also hold a 3.1% increase vs. the 2.2% reported last June. (Rate increases exclude fuel surcharges, which are typically a pass-through expense.)

Hours of service rules that took effect in January are affecting shippers, leading to increased fees. However, 40% of shippers say they are under long-term contracts and are currently unaffected by the charges. Expectations are that those shippers who do not make operational changes to improve dock performance will be unable to continue to avoid charges once their contracts expire.

A combination of factors is leading nearly a third of shippers to consider shifting an estimated 14% of their freight from truckload to other modes. Most will shift to intermodal.

Two mergers/acquisitions are on the minds of shippers. Yellow's acquisition of Roadway has led to some erosion of service for Roadway customers. Over a quarter of shippers currently using Roadway or Yellow say they would reduce the amount of freight they move on the combined Yellow-Roadway organizations.

In contrast, the experience for Airborne and DHL shippers has been more positive. Very few shippers report any disruption from the merger process. Fully 50% of shippers say they will increase the volumes they ship with the merged DHL/Airborne. Another 39% say they will keep volumes at current levels, leaving only 11% reducing volumes.

Watch Logistics Today's May issue for more details from the Morgan Stanley Freight Pulse VI survey.