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May 26, 2014

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56 THE JOURNAL OF COMMERCE MAY 26.2014 TOP 100 IMPORTERS AND EXPORTERS By Mark Szakonyi U . S . S H I PPE R O P TI M I S M about volume growth hasn't been this high since The Hurt Locker won the Academy Award for Best Picture and an Iceland volcano dis- rupted European flights in 2010. Shippers surveyed by Wolfe Research in March and April said they expect their volumes to rise 3.6 percent on average over the next year. There are positive signs for restocking and building of inventory, as well. About half of the 100 shippers surveyed by the New York-based investment research firm, said they plan for more shipping activity, compared with only a quarter of shippers who said the same thing three months ago. Don't expect a mad scramble for more inven- tory, though, because only 16 percent of the shippers said their stocks were somewhat or materially below targeted levels. The rise in shipping activity is set to kick into a higher gear in the second half of 2014, thanks to pent-up demand following a brutal winter and increased importing prior to the June 30 expiration of the dockworker con- tract at West Coast ports, according to Wolfe Research. Sixty-three percent of surveyed shippers plan to make up for volume lost in the winter, while 37 percent think that traf- fic is lost completely; 17 percent didn't see their loads suffer at all. Fear that the International Longshore Warehouse Union will disrupt supply chains while negotiating a new labor contract with waterfront employers has about half of ship- pers planning to accelerate imports. More than half of those surveyed also plan to divert cargo to ports other than those on the U.S. West Coast, with East and Gulf Coast ports the favorites at 85 percent, followed by Canadian ports, 55 percent. Interestingly, none of the shippers plan to divert imports through Mexican ports, a result of the extra sailing days from Asia and the higher cost of moving freight to the inland U.S. The forecast ramp-up in activity isn't bal- looning shipper budgets as one might think, however. Surveyed shippers, whose trans- portation budgets total more than $17 billion, expect their transportation spend to expand 2.5 percent, down from the 3 percent pace they expected last quarter. The pullback in forecast budget growth largely results from lower year-over-year fuel surcharges. With the exception of truckload, ship- pers believe pricing growth will slow for most modes. Shippers are gearing up for truckload pricing to rise 2.4 percent over the next 12 months, a 1.9 percentage point accel- eration from their expectations last quarter. Shippers' truckload pricing expectations are the highest they've been in two years, after those surveyed saw rates rise on average 3.6 percent in the first three months of 2014. A tightening of capacity in the last three months and expectations for even less avail- able truckload space is driving shippers' rate forecasts. Fifty-six percent of the surveyed shippers are planning for tighter truckload capacity, while 22 percent think capacity will stay constant and 2 percent plan for a significant amount to enter the market. "With better demand, ongoing head- winds related to hours of service (rules) and with most (truckload) carriers maintaining their existing fleets, we believe (truckload) capacity will likely remain tight over the remainder of the year," Wolfe Research said. The gap between truckload spot pricing and what shippers are paying in contractual rates was at its widest point since Wolfe Research began surveying shippers in 2007. Spot truckload rates were about 4.1 percent higher than contractual rates in the first three months of 2014. "While (truckload) spot rates have moderated from first quarter levels, overall we expect (truckload) spot rates to remain above contractual rates for the remainder of the year and to support higher contractual rate increases," Wolfe Research said in its second quarter 2014 shipper survey report. With less-than-truckload capacit y slated to stay balanced, shippers plan to pay 1.5 percent more for the services over the next 12 months. That's a 0.3 percentage point decline from pricing expectations in the last quarter. Even railcar pricing appears to be chugging forward at a lower speed, a move welcomed by shippers, many of whom are frustrated with poor service. Shippers told Wolfe Research that rail service during the harsh winter was the worst it had been in nearly 10 years. Shippers rated BNSF Rail- way the harshest in terms of service. Those surveyed said BNSF had the most severe capacity issues, with CSX Transportation, Norfolk Southern Railway and Union Pacific slightly better. Railcar pricing increased 2.5 percent on average in the first quarter, outpacing all other transportation modes. Although shippers' average pricing forecast was 0.4 percent- age points less than what they experienced i n the first three months, railcar pricing still is expected to rise 3 to 4 percent, Wolfe Research said. UP was the most aggressive in seeking railcar rate hikes in the first quarter, followed closely by BNSF. "Overall rail pricing gains have deceler- ated recently due to some negative mix from fast-growing intermodal but weak coal vol- umes, while fewer legacy contract repricing opportunities for everyone but Union Pacific have also contributed to slower gains," Wolfe Research said. Shippers are planning for far more mod- erate intermodal rail price increases after seeing rates on average inch up 1.3 percent in the first quarter. They expect the same level of price rises over the next 12 months, a slight decrease from the 1.7 percent rise shippers forecast last quarter. "We believe intermodal rates ultimately Shippers Riding High Wolfe Research survey finds shipper optimism to be highest in four years

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