For shippers, an improving economy generally leads to an inevitable hike in freight transportation rates, and that’s exactly what’s occurred in recent months, with several national less-than-truckload companies having already implemented rate increases of between 5%-6%. And based on the results of a recent survey of shippers, you should look for rate increases to continue, across various modes of transportation, particularly truckload and rail.
In fact, all modes of transportation examined in equity research firm Morgan Stanley’s Freight Pulse 20 study (conducted with MH&L) will see both rate and volume increases, an indication that companies are confident enough in the recovery that they’re replenishing their inventories. That matches up with Morgan Stanley’s outlook that we will see “a sustainable economic recovery, i.e., no double dip.” (The Freight Pulse survey was conducted prior to the recent uprisings in the Middle East, and subsequent spikes in fuel costs.)
“Shippers expect continued, robust volume growth,” observes Morgan Stanley analyst William Greene, particularly in their use of truckload carriage. Large shippers in particular foresee volume growth of truckload of 3.8% over the next six months, with small shippers expecting growth of 2.9%.
As a result of the increased volumes, shippers anticipate rates for truckload carriers (generally the least expensive motor carriage mode) to also head north, with 79% of all respondents expecting an increase in truckload rates.
When asked what factors are impacting their decision to keep more volume with truckload carriers (as opposed to the even more economical alternative, rail), the most frequently heard response was, “rail doesn’t support faster inventory turnover.” Indeed, rapid turnover is emerging as the key to shippers taking full advantage of the recovery, with orders currently outpacing inventory, suggesting opportunities for restocking, Greene notes.
Another trend to keep a close eye on is reaction to the Compliance Safety Accountability (CSA) program launched in December 2010 by the Federal Motor Carrier Safety Administration (FMCSA). This program, according to U.S. Transportation Secretary Ray LaHood, aims to make it easier for the government to identify unsafe commercial trucks through the implementation of the Safety Measurement System. The SMS is designed to analyze all safety-based violations to determine a motor carrier’s on-road performance.
According to the FMCSA, the SMS looks at a carrier’s on-road performance in seven categories—unsafe driving, fatigued driving (Hours of Service), driver fitness, controlled substances/alcohol, vehicle maintenance, cargo-related and crash indicator—and then gives each carrier a safety score. As of February 2011, that information is then made available to the public via the FMCSA’s website.
When asked if CSA and carrier safety scores would be a factor in upcoming rate negotiations, 19% of the respondents to the Freight Pulse survey said yes, these scores would be a significant factor, with another 39% saying the scores would be a moderate factor. Also, more than half (55%) said they would not use a carrier with poor CSA scores at any price.
| Mode | Rate Increase (large shippers/small shippers) | Volume Increase (large shippers/small shippers) |
| Intermodal | 2.8%/2.6% | 2.8%/1.5% |
| Truckload | 2.9%/2.6% | 3.8%/2.9% |
| Regional LTL | 2.3%/2.3% | 2.1%/2.6% |
| National LTL | 2.5%/2.3% | 1.8%/1.7% |
| Rail* | 3.1% | 2.4% |
| * large and small shippers combined Source: Freight Pulse 20, conducted by Morgan Stanley with Material Handling & Logistics Forecasts reflect expectations for freight rate and volume increases in the second and third quarters of 2011. | ||
