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Mar. 03, 2014

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108 THE JOURNAL OF COMMERCE MARCH 3.2014 QUARTERLY SHIPPER OUTLOOK SPECIAL REPORT By Mark Szakonyi MORE RAIL SHIPPERS are facing capacity constraints and planning for average rate hikes of about 2.8 percent. Shippers' expec- tations for rate increases have slipped a bit from last year, but for the 13th consecutive quarter they still expect the hikes to be the highest among all freight modes. "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 re-pricing opportunities for everyone but Union Pacifi c have also contributed to slower pricing gains," Wolfe Research said. The fi rm said shippers' rate expectations are historically understated because inter- modal shippers, which face less aggressive price increases, are overrepresented, and coal and grain shippers are underrepre- sented. Shippers said BNSF Railway and UP are the most aggressive in raising rates, fol- lowed by CSX Transportation and Norfolk Southern Railway. "More shipper friendly regulations and RAIL SHIPPERS GRAPPLE WITH CAPACITY, RATE ISSUES SHIPPERS PLAN TO keep shifting cargo to cheaper but slower transportation modes this year, but there are signs the migration is slow- ing. For example, 31 percent of shippers said they planned to move some of their domestic air express volume to the ground, compared with 34 percent in the prior quarter. The same deceleration in the shift can be seen in shippers' plan to trade down from priority to deferred air freight. Twenty-eight percent of surveyed shippers said they plan to shift some volume from priority express to standard/deferred, a 4 percentage-point decel- eration from the previous quarter. With this in mind, Wolfe Research expects FedEx to face margin pressure in its Express division unless its International Priority traffi c accelerates or it can fi t low-margin Economy loads out of its owned aircraft. FedEx's Interna- tional Priority volume fell year-over-year in the last three months of 2013. Shippers told Wolfe Research they have shifted 9.6 percent of their express volume on average to lower-priced deferred air freight services and they expect to shift another 4 percent in the future. Shippers may move more of their cargo from expedited air freight to deferred service or even ground, but the freight shift toward ocean shipping seems to be petering out. Seventeen percent of surveyed shippers said they planned to move some freight from air services to ocean shipping, the lowest level recorded by the sur- veys in three years. — Mark Szakonyi AN EXPEDITED SLOWDOWN

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