Manufacturers are Bearish on the Economy

Dec. 10, 2008
Freight volumes are expected to decline in 2009.

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.

Mode Rate Increase Volume Increase
Rail 4.0% 0.0%
Truckload 0.7% -1.2%
Regional LTL* 0.6% -0.3%
National LTL 0.8% -1.9%
*Less-than-truckload
Source: Freight Pulse 15, conducted by Morgan Stanley with Outsourced Logistics

See Also

Popular Sponsored Recommendations

Empowering the Modern Workforce: The Power of Connected Worker Technologies

March 1, 2024
Explore real-world strategies to boost worker safety, collaboration, training, and productivity in manufacturing. Emphasizing Industry 4.0, we'll discuss digitalization and automation...

3 Best Practices to Create a Product-Centric Competitive Advantage with PRO.FILE PLM

Jan. 25, 2024
Gain insight on best practices and strategies you need to accelerate engineering change management and reduce time to market. Register now for your opportunity to accelerate your...

Transformative Capabilities for XaaS Models in Manufacturing

Feb. 14, 2024
The manufacturing sector is undergoing a pivotal shift toward "servitization," or enhancing product offerings with services and embracing a subscription model. This transition...

Shifting Your Business from Products to Service-Based Business Models: Generating Predictable Revenues

Oct. 27, 2023
Executive summary on a recent IndustryWeek-hosted webinar sponsored by SAP

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!