Expedited transport 2009: The only thing certain is continued uncertainty. If proposed rate increases are an indication, one might well conclude that there is a seller’s market for U.S. expedited transport services, spawned by the robust economic growth. Nothing, however, could be farther from reality.
The U.S. economy is now officially in recession, a fact that shippers and carriers have intuitively known and dealt with for some time. As a result, we think rate increases proposed for 2009 are driven more by hope than reality, and that carriers are being overly optimistic about the outlook for shipping activity and downward pricing pressure. We believe air and surface carriers alike will again fail to realize the full benefit of their announced rate actions.
The slowing U.S. economy will continue to suppress growth in shipping volumes, reduce capacity constraints and force carriers into a less aggressive pricing posture with all types of shippers. History shows that slowing economic growth allows buyers of expedited transport services to mitigate the impact of carrier rate initiatives.
Even when the economy is enjoying above-average growth, carriers have been largely unsuccessful in imposing their pricing will on customers. With few minor exceptions, carriers have experienced relatively anemic growth in actual net yields.
Our recent studies indicate that U.S. domestic air package carriers realize only 72.5 percent of announced rate increases, even with significant growth in fuel surcharges and the number and cost of accessorial and user fees. U.S. domestic less-than-truckload carriers realized just 85.5 percent of their announced increases. Only U.S. domestic ground parcel carriers were able to achieve realized yield growth that met their rate goals.
This data begs one central question: If carriers couldn’t fully pass through their rate increases during a period of accelerating economic growth, how do they expect to achieve their pricing objectives when economic and shipping activity is slowing? The answer is: They won’t be able to, and they’ll have to make up the difference in other ways.
What does this mean for shippers? They need to understand the full impact of rate increases, especially proliferation of accessorial fees that, if left unchecked, often more than offset any benefits achieved by pushing carriers for rate discounts off the base tariff.