Shifting Gears

Oct. 8, 2003
Lower-cost transportation is the order of the day, and it’s likely to stay that way until shippers regain their confidence in the U.S. economy

Lower-cost transportation is the order of the day, and it’s likely to stay that way until shippers regain their confidence in the U.S. economy. In fact, shippers are less optimistic about the state of the economy now than they were just six months ago, according to the exclusive Freight Pulse survey conducted by analyst firm Morgan Stanley ( with Logistics Today.

Given such an erosion of confidence, volume increases have
been and will continue to be modest. Any growth there is will go to truckload carriers, shippers report, as price will drive freight to truckload ahead of national less-than-truckload (LTL) carriers. Shorter-haul regional LTL will see marginally better volume growth than its long-haul counterpart.

Larger shippers — those with transportation budgets over $5 million — are showing a distinct preference for intermodal. They will increase intermodal volumes in the fourth quarter of 2003 to reach a 7.2% year-on-year volume increase, Morgan Stanley predicts. Smaller shippers are also showing a preference for intermodal, with a 2.9% increase in volume expected by year’s end.

Though intermodal will see the largest gain in volume percentage-wise (see Intermodal outpaces trucking figure), both large and small shippers say they will be increasing truckload volumes as well. Shippers appear to be willing to sacrifice a little transit time for cost reductions. Another driving factor behind the higher volume increases in truckload is the nature of the freight. Truckload carriers tend to handle more consumer shipments, while LTL depends more on industrial product shipments. That said, shipper trends indicate a move to consolidate traditional LTL shipments into multi-stop truckload.

Despite the removal of capacity last fall when national LTL carrier Consolidated Freightways closed its doors, shippers perceive there is still excess capacity in the LTL sector. For that reason, they are forecasting — and expecting — lower rate increases for LTL carriers.

Reflecting their low tolerance for rate hikes, shippers expect a modest 2.2% rate increase for both national and regional LTL. This is lower than shippers forecast six months ago, when they expected national LTL rates to rise 2.7% and regional LTL to increase by 2.4%.

LTL pricing levels should remain competitive until there is a more significant increase in tonnage levels to absorb the excess capacity.

In the short term, Yellow Corp.’s acquisition of Roadway Express is not expected to remove any significant capacity from the market. Truckload capacity viewed as more balanced, but rate increases are forecast to be 1.8% in the recent survey vs. 2.1% expected in the previous survey. Given predicted increases in use of truckload, capacity could shift from “balanced” to “tight.”

Nearly half (49%) of the shippers responding to the survey indicate they will be shipping less freight by national LTL carriers. That trend is expected to continue as most of those shippers shift freight to regional LTLs. As with the move to truckload, shippers confirm that price is one of the main factors moving them away from the national LTL carriers.

Asked what was the most significant factor in their increased use of intermodal, shippers overwhelmingly said
“lower cost.” Truckload fuel surcharges is second on the list.

Generally, shippers feel over-theroad truckload service is priced at a 20% premium compared with rail intermodal. That gap is expected to widen over the next year as truckload carriers face increased insurance costs and higher equipment prices due to new emissions requirements.

Rail rates are expected to show more momentum because railroads have been aggressive in applying fuel surcharges and rail cost adjustment factor increases. Western railroads are poised to receive the largest rate hikes.
Improved rail service drove a 6% increase in intermodal volumes. Other contributing factors include higher truckload pricing and increased Asian import demand.

Logistics Today will examine the rail/intermodal industry in greater depth next month. LT

September, 2003

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outpaces trucking

Expected volume increases for surface transportation
(2003 vs. 2002)

Intermodal 5.1%
Truckload 3.3%
Regional LTL 1.7%
National LTL 1.0%

Shippers continue to scale back use of national LTL

Amount of freight shipped via national LTL carriers vs. three years ago

Less 49%
Same 27%
More 24%

Amount of freight expected to ship via national LTL carriers three years from now

Less 44%
Same 40%
More 15%

Rate increases to be
modest or nonexistent

Expected 2003 rate increases by mode

National LTL 2.2%
Regional LTL 2.2%
Truckload 1.8%
Intermodal 0.7%

All data are from the Freight Pulse report, a semi-annual survey conducted in June 2003 by Morgan Stanley with Logistics Today.

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