Transportation Management Focus: You Move It, We Write About It  
 
 

- June 7, 2010 -

Logistics News: Mood Starts to Shift as Shippers Expect Freight Rate Increases, Capacity to Tighten, according to Latest State of the Freight Report

75% Expect Truckload Capacity to Further Tighten; Biggest Rate Hike seen for Ocean Shipping


 
 


SCDigest Editorial Staff  

SCDigest Says:
The report notes that “the spot market typically leads contractual pricing both up and down, although contractual rate increases are seemingly taking longer to develop than initially expected."

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The State of the Freight Report from the newly renamed Wolfe, Trahan & Co. (formerly Wolfe Research, with this quarterly report dating back to Ed Wolfe’s days as a transportation sector analyst for Bean Sterns before its collapse) for the second quarter has just been released, with shippers definitely seeing supply and demand in the transport markets finally starting to swing back somewhat towards carriers.

 

Every quarter, Wolfe Trahan receives survey responses from approximately two hundreds shippers representing tens of billions in freight spend. In the end, the analysis is geared towards stock picking in the transport sector, but contains many data points that are of interest to shippers and logistics professionals as well.

 

In the Q2 2010 report, Wolfe Trahan sees further signs that volumes and rates are continuing to rise amid the wobbly economic recovery. On average, for example, shippers expect their overall transportation budgets for the next 12 months to rise 5.3% (that would include both volume, rate and fuel surcharge increases), up from 3.1% expected in Q1 and an amazing 12% decline that was expected over the next year in the Q2 2009 report.

 

As they see volumes rising and capacity staying down, most shippers are also expecting to see rate hikes across almost every mode. As shown in the figure below, those expectations are led by predictions for the highest rate increases for ocean shipping, with global airfreight, truckload carriage and regular rail all not far behind. Wolfe notes that ocean spot rates are up about 100% versus this time in 2009.

 

Not surprisingly given these expectations, shippers also see capacity continuing to tighten in the US truckload market. The report says that for the first time in nearly two years, fewer than 50% of respondents saw overcapacity in the TL sector. Additionally, 75% of shippers expect that capacity to tighten further over the next year, the highest percentage since 2004.

 

While contract rail rates are expected to rise about 3% over the next 12 months, up from predictions for a 1.9% increase in Q1, rail service is seen as slipping.

 

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“While rail service metrics (e.g., dwell times and rail speeds) reached historic highs in the first half of 2009 into reduced volumes and less congested networks, service metrics began to deteriorate in the second half of the year, as absolute volume levels began to improve off the bottom,” the report notes. The “Big Four” Class I US rail carriers saw a 3.2% decrease in average train speeds year over year in Q1, and dwell times increased 11.5%. Some of this though may be due to a tough winter, especially on the East coast.

 

 

Note: Shown is the Inverse of Dwell Times so Improvements in

both Dwell Times and Speeds can beIndicated by Upward Movement

 

Other report highlights:

 

  • While there is definitely some inventory building occurring, driving much of the increase in freight volumes, companies are still cautious, with just 21% of respondents saying their inventory levels were above seasonal norms, and 56% saying they were lower than usual (though that’s down, however, from 65% who said that in Q1.) 
  • Overcapacity is still seen in the less-than-truckload (LTL), with 61% of respondents perceiving LTL overcapacity, though that is down somewhat from the 71% who saw it that way in Q1. Respondents were about split as to whether LTL capacity would tighten in the next 12 months. 
  • Rail is expected to take some market share away from trucking, with average expectations of moving 5.2% of current volumes from truckload to rail over the next 6-12 months, versus plans to move just 3.9% of volumes from rail to truck during the same period. Shippers expressed concern about rising fuel costs both over the past year and in the future, causing many to look at rail/intermodal as an alternative, according to the report. 
  • On average, respondents said rail is about 11% cheaper than TL for an equivalent move, consistent with Q1 data. That gap would likely increase if fuel costs start heading north again. 
  • While shippers overwhelming support (71%) the Surface Board Reauthorization Act of 2009, which would increase regulation on rail carriers and eliminate so-called “bottleneck” pricing (see Is New STB Re-authorization Bill Looming Soon?), only 16% expect that if the legislation passes it will actually reduce rail freight rates. 
  • 44% of respondents see TL spot market rates as remaining below their contractual rates, but that is also down from 55% in Q1. The report notes that “the spot market typically leads contractual pricing both up and down, although contractual rate increases are seemingly taking longer to develop than initially expected.”

 

 

Any reaction to this latest “State of the Freight” report? What are you seeing in terms of capacities and rates in any of the modes? Let us know your thoughts at the Feedback button below.

 

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