Logistics Costs Are Trending Downward

Although rail costs are up, trucking costs continue to decline.

Manufacturers who rely on the railroads for relatively inexpensive freight transportation should prepare themselves for an expected increase of 5.4% in rates in 2008, according to the Freight Pulse survey conducted by equity research firm Morgan Stanley. Meanwhile, based on the responses from companies using various modes of transportation to move their freight, virtually no rate increases (0.4%) are expected from the truckload carriers, and very modest hikes (1.2% to 1.5%) are anticipated from less-than-truckload carriers.

A typical shipper comment (the survey includes companies that use various modes of transportation to move their freight, referred to broadly as "shippers") says, "Railroads will continue to charge what the market will bear." Nevertheless, according to Morgan Stanley analyst William Greene, "Shippers seem to see more value from rail service as 'value for the dollar' improved for the majority of U.S. carriers." The fastest growing segments for rail volumes are utility coal and international intermodal (combining rail with another transportation mode, such as trucking or ocean carrier), but otherwise rail volumes are expected to remain sluggish.

As for motor carriers, the current availability of trucks is at its highest point in at least the past five years, which could put manufacturers back in the driver's seat when it comes to having some leverage over the transportation providers. "A number of shippers claim that carriers are offering steep and/or unsustainable discounts to win market share," Greene notes. "Many shippers tell us they are using the soft freight environment to lock-in multiyear contracts with minimal increases."

Rail Freight Rates Expected To Rise
Mode

Rate Increase

Volume Increase

Rail

5.4%

0.5%

Truckload

0.4%

3.3%

Regional LTL

1.5%

3.0%

National LTL

1.2%

1.8%

*Less-than-truckload
Source: Freight Pulse 12, conducted by Morgan Stanley with Logistics Today and the National Industrial Transportation League (NITL). Forecasts reflect expectations for 2008 freight rate increases.

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