Plan For Carriers to Hold Rate Increases

Jan. 10, 2006
The seasonal retail peak may have passed, but post holiday fulfillment and earlier Asian imports in advance of the Lunar New Year plant shutdowns are

The seasonal retail peak may have passed, but post holiday fulfillment and earlier Asian imports in advance of the Lunar New Year plant shutdowns are contributing to steady volumes. (See Pacific Container Lines at 85% Capacity) North American railroads were reporting continued volume growth in the closing weeks of 2005. Weekly intermodal traffic, the element that includes retail shipments, was tracking ahead of the year-to-date growth rate as 2005 came to a close.

With the lunar new year falling at the end of January, 10 days ahead of the 2005 holiday plant closings, the Asian supply chain will barely catch its breath between the fourth-quarter peak shipping season and a peak created by the plant shutdowns. There has been little change in capacity that would suggest any softening of pricing pressures for shippers. Fuel prices have stabilized somewhat, but demand has remained strong.

In early October, when Morgan Stanley released its Freight Pulse 9 survey, shippers were forecasting rate increases for the six months through April 2006 would average higher than the prior survey (which covered the period from April to October 2005). Rail shippers said they expected an average 5.6% increase. This compares with a 4.4% increase forecast for the earlier period. Less-than-truckload rates were expected to grow at a slower pace than in the previous period, rising 2.6% for regional LTL and 2.9% for national LTL. Shippers anticipated a 4.3% increase in truckload rates.

Many of the underlying factors driving the transportation market remain relatively unchanged. Truckload capacity is still constrained by driver availability and has been affected by new hours of service rules which went into full force January 1st. (The Federal Motor Carrier Safety Administration still must address the issue of onboard recorders which, though they have little or no impact on efficiency, will add cost for carriers required to install them.)

Railroads have made only slow progress in improving network speed and reducing terminal dwell time. Shippers may have contributed to some gains in the most critical lanes as they shifted some inbound cargo from West Coast ports. Incentives to move cargo in off-peak hours through the Port of Los Angeles were credited with improving overall performance, but it is difficult to separate this from any diversions that occurred at the same time. Improvements in overall rail performance in Southern California may be offset by the aftermath of hurricanes in the Gulf Coast region and increased intermodal volumes at the ports that benefited from cargo diversions.

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