SCDigest editorial staff
The News: Bear Stearns releases its latest quarterly shippers report.
The Impact: The data in general shows the supply-demand balancing improving somewhat in all modes (truck, ocean and rail), while shippers and Bear Sterns expect the greatest pricing pressure to come for rail transport.
The always interesting Bear Stearns quarterly shipping survey was released this week, covering responses in Q4, 2005 from over 1000 shippers. Highlights of this quarters report include:
TL Capacity Continues to Balance
While capacity is still tight, the supply-demand balance appears to be improving. In Q4 2005, 73% of respondents described capacity as “tight” or “extremely tight” – a large majority, but down from 89% that felt that way in Q4 2004.
Expectations for Continued Improvement
30% of the respondents believed that over the next year capacity will further tighten, down from 70% in Q4 2004 and 54% in the previous quarter. Conversely, 32% expected “somewhat more” TL capacity in the next 12 months, up substantially from 15% in Q3 and just 7% in Q4 2004.
Modest Rate Hike Expectations
Shippers on average expect TL rates (before fuel surcharges) to increase 2.8% for new contracts, down from 3.3% in Q4 2004. They expect to see smaller increases in LTL rates, with an average increase of 2.4% expected, down from 2.6% expected rate increases in Q4 2004.
Payments to Large and Small Carriers the Same for Most
65% of respondents said their base rates between large and small carriers were basically the same. 7% said they paid “somewhat higher” base rates to small carriers, while 25% said the same about large carriers. Just 2% said they paid “materially higher” base rates to large carriers. The same holds true for fuel surcharges, with 90% saying there is no difference between surcharge payments to large and smaller carriers.
Yellow Roadway Service/Price Issues Rise
The number of shippers who have not seen service level decreases or increased fees from the merged LTL carriers fell from 80% in Q3 2005 to 57% in the fourth quarter.
Rate and Fuel Surcharge Issue Increasingly Hard to Untangle, Especially in Parcel
Rate expectations were for very low increases for UPS and Fed Ex, but this was in part because “the discussion of base rate increases and fuel surcharges have been increasingly intertwined.” Interestingly, the report notes that while dollars per shipment including fuel surcharges are up substantially for both carriers, if you net out the surcharges the average dollar yield on most services for both carriers is actually down recently.
Price Drives Movement to DHL
Though the percent of respondents planning to move more parcel volume to DHL stayed relatively flat at 32%, 55% of those cited price as the main driver of switching parcel carriers.
Rail Velocity and Dwell Times Deteriorate
A variety of factors (hurricane Katrina and Rita overhang, bad weather in the west, flooding and track washouts on Union Pacific’s track in Kansas, some maintenance work, and increased volumes) cause rail speeds and dwell times to decrease in Q4. The report notes that “CSX continued to suffer from sluggish network operations, as we have yet to see meaningful results from the implementation of its One Plan operating strategy.” (see SCDigest story Rail Carrier Norfolk Southern Uses Technology to Drive Big Efficiency Gain, Feb. 2, 2006).
Shippers Expect Rail Capacity to Remain Stable
59% of shippers expect rail capacity to remain about the same, with 27% expecting increased capacity and 23% tighter capacity. 33% said terminal operations were the greatest capacity issues, while 32% said it was the availability of rail cars.
Modest Movement To/From Rail
Only 8% of respondents shift volumes percents between rail and truck, with roughly half increasing the percent going to rail and half the other way. However, the percent moving volume from rail to truck was down to 4% of respondents in Q4 versus 8% in Q3. Poor service or coverage, along with rising rail rates, are the main drivers of shippers moving from rail to truck, while truck capacity issues and lower overall costs were the main drivers of those moving from truck to rail.
High Rail Rate Increases Expected
Respondents on average expect rail rate increases of 3.5% in 2006. The report notes, “These are relatively large rate increases compared to years past despite very difficult comparisons [i.e., large recent increases as a base], and we believe the survey data support the story of sustained momentum in rail increases through at least 2006 and likely into 2007.”
Expectations for Container Shipping Increases
While 60% of respondents expect to pay more to secure container shipping on ocean vessels in 2006, that’s down from 78% in Q3. The report notes data from Clarkson Research Services, which finds ocean pricing is now starting to decline for the first time in several years. However, much of that margin for now is being captured by the forwarders, and decreases passed onto shippers will take a bit longer.
Import Container Volumes Continue to Grow
Respondents reported an increase of 13% year-over-year in TEU volume in Q4, which is a higher rate of increase than previous quarters. However, demand is largely being met by increasing capacity among carriers.
How does the Bern Stearns survey data compare with your experience and expectations? Do you believe the supply-demand equation in transportation is starting to improve in some or all modes? Let us know your thoughts.
Article key words: transportation, logistics, rail carrier, trucking, ocean shipping, logistics costs |
