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March 18 2019

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42 The Journal of Commerce | March 18 2019 www.joc.com Surface Transportation THE PRICING POWER held by truck- ing companies in 2018 will likely diminish in 2019 but not disappear. Thanks to healthy freight demand and uncertainty about future capac- ity, trucking firms still have pricing leverage over their shipper custom- ers, despite an eight-month slide in spot market truck pricing, various economic indices and comments by shippers show. The latest Cass Freight Index, along with reports from the Ameri- can Trucking Associations, Truck- stop.com, and DAT Solutions show a rather stable US transportation industry on a route to continued but slower growth in 2019. That still could mean "higher-than-average" expansion, with the trajectory of contractual shipping rates bending downward later in the year. A trucking sector pricing analysis from IHS Markit, parent of The Journal of Commerce, makes a similar forecast. The IHS Markit Producer Price Index for the US long-haul truckload sector shows year-over- year pricing gains slowing from 8.2 percent in the 2018 fourth quarter to 2.15 percent by the end of this year, according the company's Pricing and Purchasing Service. Long-distance less-than-truck- load (LTL) fares a bit better, with year-over-year percentage change in the IHS Markit PPI for the LTL sector dropping from 4.89 percent in last year's fourth quarter to 2.98 percent by year-end. The LTL index peaked with a 7.79 percent in- crease in the second quarter last year, while the long-haul truckload PPI's highest annualized gain was a 9.07 percent increase in the third quarter. Lower gains are still increases, however. Most shippers expect to sell and ship more goods in 2019, and they anticipate higher, not lower, shipping and logistics costs, according to comments made during recent fourth-quarter earnings calls. Freight and logistics costs "remain high, but stable," Patricia Little, chief financial officer of The Hershey Co., said Jan. 31. Although freight costs have "sta- bilized," they haven't stabilized "at a better number," Little told Wall Street analysts in an earnings call transcribed by Seeking Alpha. "Going into 2019, we don't see a real reduction in those [costs]," she said. "We think we're doing a good job of optimizing freight and logistics, but there's still a base level of inflation in that." The Coca-Cola Co. had a slightly fizzier outlook. "Let's draw a line be- cause the good news is 2018 has end- ed," CEO James Quincey said during a Feb. 14 earnings call. "While freight costs are expected to remain above historical levels, we do not expect to see the same level of year-over-year increases as we saw last year," he told investment analysts. "I would expect based on what's happening ... we're going to be in better shape from a transportation point of view as we go through the year," Walmart President and CEO Doug McMillon said in the retailer's Feb. 19 earnings call. "And it is help- ful that gas prices are in the range that they are in, and we hope that continues to be the case." "Stabilizing patterns" are visible in "almost all of the underlying freight flows," Donald Broughton, founder and managing partner of Broughton Capital, said in the monthly Cass Freight report for January, which he authored. Recent declines in ship- ment volumes and shipper expendi- tures are off all-time highs set in late 2018, Broughton said. Annualized comparisons are increasingly difficult because 2018 was such a strong year, he said. The Cass report now looks back two years for a comparison with freight activity before the US economic surge in late 2017 and 2018. Although shipments in January were down 0.3 percent year over year, they were up 12.2 percent from a much softer January 2017. Pricing power stalling Indices indicate slower growth this year for US trucking companies despite healthy demand By William B. Cassidy "We do not expect to see the same level of year-over-year increases as we saw last year." -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% Jul-11 Jan- 12 Jul-12 Jan- 13 Jul-13 Jan- 14 Jul-14 Jan- 15 Jul-15 Jan- 16 Jul-16 Jan- 17 Jul-17 Jan- 18 Jul-18 Jan- 19 Cass Fr eight Shipments Cass Fr eight Expenditures Cass Freight Index: Shipments slip 0.3% year over year in January Source: IHS Markit © 2019 IHS Markit Year over Year Change Year-over-year change in Cass Freight Index and Cass Freight Expenditures Trucking | Rail | Intermodal | Air & Expedited | Distribution

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