Executive Briefings

Transportation Costs Are Down--Is That Good News?

Manufacturers are always looking for a way to lower costs, and right now, with the trucking industry caught in a slump, 2008 should see some of the lowest pricing for transportation since the recession at the start of this century. While the price breaks represent good news for manufacturers, the underlying cause for the lower costs is reduced volumes of freight, i.e., less stuff is being made that needs to be transported. And that's not-so-good news. As Bill Zollars, president of trucking company YRC Worldwide, said recently, the current "soft economy" his company operates in has all the look of another recession.
On the other hand, according to William Greene, an analyst with equity research firm Morgan Stanley, while manufacturers are "more cautious about economic trends, they're not signaling a recession." It could be that manufacturers are still sensitive to the steep price hikes they had to endure a couple years ago when the economy was rapidly expanding and trucks were hard to come by. Out of frustration as much as desperation, many companies ended up shifting some freight to the far less expensive (and some would say, less reliable) railroads. As 2007 comes to a close, while the trucking companies are finding it very difficult to increase their rates, or even hold firm on current rates, the railroads are continuing to ask for--and get--rate increases.
Source: Industry Week, http://industryweek.com

Manufacturers are always looking for a way to lower costs, and right now, with the trucking industry caught in a slump, 2008 should see some of the lowest pricing for transportation since the recession at the start of this century. While the price breaks represent good news for manufacturers, the underlying cause for the lower costs is reduced volumes of freight, i.e., less stuff is being made that needs to be transported. And that's not-so-good news. As Bill Zollars, president of trucking company YRC Worldwide, said recently, the current "soft economy" his company operates in has all the look of another recession.
On the other hand, according to William Greene, an analyst with equity research firm Morgan Stanley, while manufacturers are "more cautious about economic trends, they're not signaling a recession." It could be that manufacturers are still sensitive to the steep price hikes they had to endure a couple years ago when the economy was rapidly expanding and trucks were hard to come by. Out of frustration as much as desperation, many companies ended up shifting some freight to the far less expensive (and some would say, less reliable) railroads. As 2007 comes to a close, while the trucking companies are finding it very difficult to increase their rates, or even hold firm on current rates, the railroads are continuing to ask for--and get--rate increases.
Source: Industry Week, http://industryweek.com