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The latest “State of the Freight” Report Highlights Shippers’ Expectations of Higher Rates

Wolfe Trahan & Co. is a Wall Street research firm that has a strong focus on freight transportation. Each quarter they survey several hundred American shippers in a variety of industries and create an extensive report that documents their findings.

The Q1 2011 report, issued in March, summarized data collected towards the end of the fourth quarter 2010. Excerpts from the report were captured in a recent Supply Chain Digest On-Target Newsletter. Among the highlights, shippers are expecting freight rates to rise significantly over the next 12 months with the overall average in the range of 6.5 percent (including fuel). This reflects increases in both shipping volumes and freight rates. They also see the supply/demand pendulum swinging back in the carriers’ favour. Shippers predict the highest rate increases over the next 12 months in intermodal, followed by ocean shipping, truckload carriage, and rail.

Capacity has been a hot topic over the past year. Despite the recent improvements, however, a strong 77% of respondents expect to see very tight or somewhat tight truckload capacities over the coming year. Wolfe Trahan says this is the highest number seen on this measure since mid-2004, and notes that was followed by a multi-year pricing upswing for the carriers and a mini-"capacity crisis" in 2005-06. The company believes some of the concern about TL capacity stems from what shippers perceive as the potential impact of new U.S. government regulations, specifically CSA 2010 and proposed new changes to current Hours of Service rules. The report found an amazing 92% of shippers were opposed to changing the current maximum driving time of 11 hours down to 10, as the U.S. Federal Motor Carrier Safety Administration is considering right now.

Shippers expect truckload rate increases before fuel surcharges to average 3.1% over the next 12 months. On the LTL side, the vast majority see the market right now as "balanced"; with only 6% perceiving tight LTL capacity.

As a result of the combined impact of tighter truckload capacities and higher rates, shippers expect a rather significant increase in the percent of their freight volumes that will go intermodal. Thirty-eight percent of shippers are looking to move more freight via intermodal versus over the road truckload, up from 30% in Q3. Another 16% said they had already moved freight from truck to intermodal over the past year. This was the largest shift from truck to rail since mid-2008. About 36%, however, said they would not move any freight away from trucking because intermodal shipping did not meet their business or transport needs.

Other highlights of the report include:

  • Thirteen percent of shippers have already fully integrated CSA 2010 BASIC safety rankings into their carrier selection process, and another 72% say they will do so in the future, leaving just 15% in total who did not indicate they planned to do so. Additionally, 66% of shippers said they had entered into discussions with current carriers which were flagged with alerts from the safety reporting system.
  • Thirty-eight percent of shippers say they have seen parcel shipment costs rise as a result of the new approaches to dimensional weighing (DIM) taken by UPS and FedEx at the beginning of the year, including 11% saying the result was at least a 5% increase in parcel shipping costs. Twenty-six percent of respondents, however, say they have been able to negotiate no changes to those formulas.
  • Shippers see ocean freight rates decelerating. On average, respondents expect ocean rates to increase 2.7% this year, down from expectations for a 3.9% increase in rates last quarter. Wolfe Trahan says spot rates have declined of late 27% from their 2010 peaks.
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