Freight rates to inch up in 2012

by Array

TORONTO: Supply chain professionals got a look at the economic landscape, as well as what to expect in terms of where freight rates and fuel surcharges are heading, during a breakfast conference September 27. The event, called Transportation Strategy: Planning for 2012 in Uncertain Times, was organized by Nulogx and the Supply Chain & Logistics Association of Canada and, focused on rate forecasts from economic and logistics experts.

Expect to see slow growth in freight rates going into 2012, according to Dr. Alan Saipe. Saipe, president of Supply Chain Surveys who teaches executive courses at the Schulich School of Business, addressed the full conference room during the event. Rates should grow by between one and two percent until the end of 2012, unless the economy dips again into recession (which was unlikely), Saipe said.

The figure comes from the Canadian General Freight Index produced monthly by Nulogx. Since 2009, the index has tracked changes in market rates for general freight movements in Canada and includes information on truckload and less-than-truckload rates for domestic and cross-border movements.

Meanwhile, fuel surcharges averaged 18.7 percent up until June, he said, and he expects that number to drop by the end of 2011. “But surprises do happen and I really expect some up and down in fuel surcharges this year,” Saipe noted.

In the long term, there will be an upward trend in the cost of crude oil, Saipe said, which affects diesel fuel costs. He predicted the crude costs would eventually remain at about $70.

Meanwhile David Newman, analyst with Cormark Securities who specializes in transportation, painted a picture of a global economy struggling to right itself. Canada remained among the strongest economies in the G7, while the US economy remained in the doldrums. There were still no new job growth south of the border and the housing market remained deflated. Still, eight- to nine-percent annual growth in Asia has helped Canada’s economic prospects

The economy should see a more substantial recovery by the middle of 2012, Newman said. “The bottom line is we’re in a period of weakness,” he said. “We’re not in a full-blown, ugly recession like in 2009.”

The seminar also featured a panel that discussed prospects and conditions for the future. While declining to guess how much rates would increase, Dan Einwechter, CEO of Challenger Motor Freight, noted they would in fact increase. An aging population, fewer drivers and equipment shortages would all play a factor in the rise.

“For all those reasons, they’re going to go up,” he said. It’s important that carriers help minimize the effect of that by having the best cost of delivery that meets client models, he said, such as using more space on the trailer and focusing on collaboration.