Trucking rates forecast to roll higher
Trucking firms are expected to capture their biggest rate increases in years in 2011, adding another threat to growing inflation worries.
Analyst Benjamin Hartford of research firm R.W. Baird estimates rates will rise 5%, the most since 2005. After falling from 2007 to 2009, truck rates edged up 2% last year, he says, and could surge in coming weeks in advance of Easter retail sales.
Driving the rebound: an intensifying recovery combined with soaring diesel costs, stricter safety regulations and tighter capacity.
"By the second half, shippers will be willing to pay premiums," says Tommy Hodges, chairman of Titan Transfer, a carrier in Shelbyville, Tenn.
The latest contributor to higher rates is rising oil prices stoked by turmoil in the Middle East. That's helped push diesel prices up about 20% since September. Other factors:
Tighter capacity. In December, the government began publicizing the safety ratings of trucking firms under tougher inspections that took effect about a year ago. As a result, many businesses have shied away from using carriers that got warnings, even though they operate safely, says Tom Sanderson, CEO of Transplace, which manages freight delivery for businesses.
Sanderson says the new ratings will drive some carriers out of business and reduce fleets 5% to 10% in the next couple of years. That would worsen a 15% drop in trucking capacity the past four years, Hartford says, after thousands of carriers shut down in the recession.
Higher equipment costs. Truck prices have jumped 25% the past five years, Hartford says. Like many carriers, Mike Card, president of Combined Transport in Central Point, Ore., put off replacing aging vehicles in the downturn, but bought 60 trucks this year, up from 20 in 2010.
Restrictions on driver hours. Proposed new rules would limit the number of hours drivers can work, forcing carriers to hire more drivers and buy more trucks even amid a looming driver shortage.
For retailers, rising freight costs "obviously put a strain on things," says Jon Gold, vice president of the National Retail Federation. Gold says "it's too early to say" if retailers would pass the increased delivery costs to customers.
Hartford says consumers eventually would feel the effects. Delivery costs are a small portion of the retail price for most products.
Yet, higher costs for commodities such as food and cotton are lifting wholesale prices, and some retailers say they'll be passed to consumers. Many economists predict a 2.5% inflation rate in 2011, the highest since 2008.