Transportation Costs Trending Down In 2007

Dec. 28, 2006
The cost of shipping goods by truck this year will grow much more slowly than in recent years. But don't expect much to change when shipping by rail.

On the transportation pricing front, the good news for manufacturers is that the cost of shipping goods by truck will grow only slightly, and at a much slower pace than in recent years. The recent Freight Pulse survey from equity research firm Morgan Stanley, based on feedback from companies using various modes of transportation to move their freight -- truckload, less-than-truckload (LTL) and rail -- indicates softer demand in the marketplace for motor carriers.

The bad news, though, is that the cost to ship by rail is still on the rise, and according to William Greene, an analyst with Morgan Stanley, "actual pricing will likely come in stronger than our survey results," which suggests rail rates will rise by 6.4%. In the previous Freight Pulse study, conducted in spring 2006, survey respondents predicted a rail rate increase of 5.9%. There is a feeling, at least, that railroad service is improving somewhat, as respondents gave the railroads an overall score of 6.1 (out of a possible 10) for "delivery when expected." As Greene points out, though, that score is "well below the 7s or 8s that are common among other top-tier transportation companies, [such as] parcel and trucking."

When asked to rate the current state of the economy, using the same 1-10 scale, respondents gave it a score of 6.7, the lowest score since summer 2003, suggesting some concerns over an economic slowdown. A softer economy, however, also means that many manufacturers will likely shift some volumes back to truckload carriers rather than using an intermodal strategy involving the railroads. "[Companies] have not seen a market with this much truckload capacity during peak season in several years," Greene notes.

Rail Rates Will Continue To Rise Sharply
Mode Rate Increase Volume Increase
Rail 6.4% 1.3%
Truckload 2.5% 4.7%
Regional LTL* 1.5% 4.0%
National LTL* 1.6% 2.9%
*Less-than-truckload Source: Freight Pulse 11, conducted by Morgan Stanley with Logistics Today and the National Industrial Transportation League (NITL)

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