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Heavy Traffic on Road & Rail  Reprint permission
Sluggish rail service and surging volumes are keeping upward pressure on rail rates, and shippers loading increasing amounts of freight onto the system say they expect the trend to continue in 2005. At truckload giant J.B Hunt, where intermodal transportation makes up roughly a third of its $2.5 billion in annual revenue, rate increases in the third quarter were "significantly better than any prior period," the company said in its third quarter earnings report, adding that "the need to increase those rates at even a faster pace is evident." The trend is expected to hit carload users as well. Shippers who have not pre-booked freight capacity are either being quoted exorbitant rates or they are not finding capacity at all in the midst of one of the busiest peak shipping seasons on record. Respondents to Morgan Stanley's most recent "Freight Pulse" survey said railroad rates, excluding fuel surcharges, are expected to increase approximately 4.4 percent over the next six months. That's more than double the rate of the financial firm's prior six surveys over the past three and a half years. Volume growth, which slipped back from a 3.3 percent rate in Morgan Stanley's March survey to 2.6 percent, is still the second-highest rate since the surveys began in May 2001. The report noted there was a strong correlation between a shipper's expected future volume growth and service. Respondents said they intend to expand their volumes on Norfolk Southern, one of the best performing railroads, by 8.5 percent, but pull back by 3.4 percent on Union Pacific Railroad, one of the worst. "While the magnitude of these figures from respondents appear overstated, directionally they make sense," the report said. The capacity squeeze on the rails is exerting strong pressure on highways, where a chronic driver shortage is driving trucking rates higher as well. Arves said the high driver turnover rate is one of the biggest factors contributing to capacity shortfalls. To address the problem, the industry must increase average driver salaries from $40,000 to $60,000 per year, he said. "There's room in the cost structure to do that," Arves said, "but so far we as an industry haven't addressed this problem, which is why we've got close to a 100 percent driver turnover rate."
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