Readers of a certain age might recall this prediction from comedian George Carlin's Hippy Dippy Weatherman: "Weather forecast for tonight: dark. Continued dark overnight, with widely scattering light by morning." In the spirit of the late, great Carlin, I offer a prediction for freight rates in 2011: up.

Trust me, I've got experts who will back me on this.

If you want to know how much more shippers are going to pay, however, my crystal ball gets a bit cloudy. So we turn to John Haber, executive vice president for transportation spend management with NPI, a company that specializes in evaluating transportation and technology purchases. Let's take it one mode at a time.

Parcel. We start here because Haber believes this is the most problematic sector for shippers in 2011. And the reason has nothing to do with rising fuel prices, constricting capacity or any of the other usual economic drivers. It's because UPS and FedEx, the two behemoths who control the national parcel market, are simultaneously altering their dimensional rate factor. The DIM factor takes into account both the weight and size of a package, so that lightweight, bulky items don't get an unfair break on rates. Under the old formula, you divided the cubic size of a domestic ground or air package by 194 to determine its dimensional weight in pounds. As of January 3 of this year, the dividing number was changed to 166. The net result, says Haber, will be an increase of between 13 and 30 percent in package shipping costs over 2010. On top of that, both major carriers are raising rates between 3 and 9 percent, depending on the distance carried.

What can shippers do about it? Not a whole lot. There are a number of regional parcel carriers that offer a lower-cost service, but they're not in every market, and they lack the national networks that distinguish UPS and FedEx. So for the most part, if you can't pass it on to your customers, get ready to eat the increase.

Ocean. This is the area that has given shippers the most headaches in recent years. Following a period of steep discounting of ocean container rates, they were hit with whopping increases by profit-starved carriers in 2010, right in the middle of valid service contracts. And the carriers, who point to lagging volumes in the latter half of 2010, are seeking similar rises this year. The Transpacific Stabilization Agreement is recommending that its members impose increases of $400 per 40-foot container for cargo moving from Asia to U.S. West Coast ports, and $600 for all other destinations.

Whether the latest round of increases will stick is another matter. Capacity levels are up in the major trades, even though carriers continue to lay up most of the ships that they took off line in the trough of the recession. "It's really hard to tell what's going to happen," Haber says. Much depends on the state of the U.S. economy coming out of the first quarter. Nevertheless, he believes shippers won't see the huge increases that they experienced in 2010. Things should get even tougher for carriers in the 2013-2014 period, when they are expected to add massive amounts of new capacity in expectation of the opening of a third set of locks at the Panama Canal.

Truckload. Look for "pretty significant price increases" in this sector, as carriers struggle to recover from their financial implosion of 2008-2009, caused by soaring fuel prices, overcapacity and steep discounting. A lot of trucking companies went out of business, taking with them vehicles that won't be returning to the market anytime soon. And new regulations on truck safety could take between 5 and 8 percent of the current driver workforce out of the market, Haber says. Add to that the expectation of a new fuel-price spike - London-based Sanford C. Bernstein & Co. has predicted a level of $90 a barrel for 2011, while others say the price could top $100 - and you have a scenario in which truckers must raise their rates in order to survive.

Less-than-truckload. "It's going to be tough as well," says Haber. Last year saw a couple of rate increases, even as industry revenues continued to slump. The biggest wild card, of course, is the struggling LTL giant YRC Worldwide, which is burdened by huge operating costs, including a hefty union contract. The International Brotherhood of Teamsters has made a number of concessions, as well as given the company more time to raise money and reduce its debt, but the jury is out on whether the deal is enough. "This is the make-or-break year for YRC," Haber says. If the company goes under, expect a sudden drop in capacity and a spike in LTL rates.

Rail/intermodal. In the world of commercial transportation, this is one of the few success stories of recent years. Shippers are flocking to intermodal as a cheaper alternative to truckload transport. Service quality has improved dramatically over the past few years. And rail stocks are among analysts' top picks of 2011, a situation that would have seemed inconceivable a decade or two ago. Credit Warren Buffett, with his "all-in" bet on Burlington Northern Santa Fe Corp., for seeing rail's fresh potential as a profitable investment.

That's all good news for the railroad business, but what does it mean for shippers? Higher rates, of course. Haber says increases up to now have been "pretty significant," although not as much as those in parcel and truckload. Expect that trend to continue, as railroads exploit their newfound respect in the shipper community.

Airfreight. It looks as though some excess capacity will be appearing after the Chinese New Year, thanks to high inventory levels all round. Shippers relying on air freight have replenished their stocks from extremely low levels over the past year or so. The availability of extra space should help to hold down price increases in 2011. "The environment looks more attractive than last year, when we saw double-digit increases," Haber says.

It doesn't take a comedian to predict that manufacturers, retailers and consumers will all feel the pinch of higher rates this year. That's supposed to be a good sign for the economy, because it signifies a resurgence of consumer demand and spending. All we need now is actual recovery, in the form of more jobs, to match it. And that's as tough to predict as the weather.

- Robert J. Bowman, SupplyChainBrain

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