The Recovery Is Going to Cost You

The Recovery Is Going to Cost You

Manufacturers should plan now to pay more for transportation as the economy improves.

The economy's recovery is a welcome sight to U.S. manufacturers, but inevitably with recoveries come increased logistics costs. Manufacturers already saw rate hikes in the range of 5% to 6% from several national less-than-truckload companies last fall, and according to a recent survey, more rate hikes are likely throughout 2011, from all domestic transportation modes.

In a survey of manufacturers' expected transportation budgets for the next six months, conducted by equity research firm Morgan Stanley with IndustryWeek's sister publication Material Handling & Logistics, respondents reported they anticipate both rate and volume increases, as companies (referred to in the survey as "shippers") begin replenishing their inventories. Morgan Stanley is predicting "a sustainable economic recovery, i.e., no double-dip," according to analyst William Greene. "Shippers expect continued, robust volume growth," Greene says.

Large shippers foresee volume growth in their use of truckload carriers (the least expensive trucking mode) of 3.8% over the next six months, with small shippers expecting growth of 2.9%. And that volume growth, it is believed, will lead to rate hikes between 2.6% (small shippers) and 2.9% (large shippers) for truckload freight carriage.

Part of the reason truckload rates are rising and will continue to rise is a feeling on the part of some shippers that the railroads aren't supporting faster inventory turnover. As Greene notes, rapid turnover is emerging as a key tactic among manufacturers hoping to take full advantage of the recovery. Orders are outpacing inventory, suggesting opportunities for restocking.

However, survey respondents anticipate paying more for rail, too, with a rate increase of 3.1% expected (compared with the 2.5% increase shippers expected in a similar study conducted a year ago). That rate hike comes despite shippers reducing somewhat the amount of freight they plan to move by rail. For 2011, shippers are seeing a volume increase of 2.4%, but a year ago they anticipated an increase of 2.6%. Even so, volume growth on the rails is at its highest point since 2004.

See Also:
Five Things You Need to Know About Material Handling
Essentials of Inventory Management

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