Manufacturers are Bearish on the Economy

There's sometimes a bright side to an economic recession, and for manufacturers, that small bit of sunshine comes from the limited rate hikes they can expect to see from their transportation providers, at least when it comes to trucking companies. Rate increases from both truckload and less-than-truckload (LTL) providers are predicted to be less than 1%, based on equity research firm Morgan Stanley's latest Freight Pulse survey of preferred transportation modes by manufacturers.

Of course, the reason rates are staying so low is that the amount of freight manufacturers expect to be shipping in 2009 will also be on the decline, although Morgan Stanley analyst William Greene reports there's "nothing in our survey results that suggests a catastrophic downturn in volumes." Despite an abundant capacity of available transportation as well as softer demand, manufacturers should expect pricing to stabilize, Greene says, in part because some companies are concerned about the financial health of many carriers. "Negotiating substantial rate decreases today may leave [manufacturers] unable to find capacity when the cycle turns, he observes, but adds that "it remains to be seen how long this strategy will hold if the economy faces a sharper downturn."

Based on the survey, some manufacturers are concerned about the planned integration of YRC Worldwide's long-haul network, basically combining Yellow Transportation and Roadway. Perhaps hedging against possible service interruptions, 14% of survey respondents say they will reduce volume with Yellow and/or Roadway due to the announced merger, Greene notes.

Meanwhile, the volume of freight being shipped by rail will remain flat, which in this economy means manufacturers should expect a 4% rate increase, as companies continue to turn to the railroads as an alternative to reduce their transportation costs. Nevertheless, Morgan Stanley forecasts rail volumes will fall by 4% to 5% in 2009, largely due to the economy.

Anecdotally, Norfolk Southern got the highest score from respondents for on-time deliveries, and it is the only railroad where manufacturers expect better volume growth over the next six months. FedEx National, Con-way and ABF ranked as the best LTL carriers for service.

See Also

• Big Shifts Underway in Transportation
• 10 Supply Chain Initiatives to Survive and Thrive in this Downturn