| February 01, 2006

Outlook 2006
Strong demand and good prices for trucking services are expected to continue in 2006, according to Fitch Ratings.

The global rating agency, based in New York and London, said the economy has been slowed somewhat by higher energy costs, but truck transport should remain relatively strong in 2006.

The company expects real gross domestic product to grow by 2.8 percent next year, compared to 4.2 percent in 2004 and a forecast 3.6 percent in 2005.

Long-haul LTL volumes are stable, and regional LTL has continued to grow because of just-in-time inventory management, the company said. Raw materials shipments are expected to moderate, although truckers serving foreign-owned auto factories in the Southeast are forecast to experience some growth.

Fuel surcharges have become key in shipping prices, with surcharges accounting for more than 50 percent of some trucking firms’ unit revenue increases, the company said.

“As fuel surcharges have become a larger component of the pricing structure, shipping customers are paying more attention to the effect it is having on their overall shipping costs and will likely begin to more actively negotiate the surcharge along with the base rate,” said the Fitch report. “As a result, the distinction between base rates and surcharges may begin to blur.”

Although fuel costs and increased demand for CDL holders will affect expenses, trucking should see increases in profitability and operating cash flow, the company said. Some carriers are expected to buy trucks before the lower emissions requirements become effective in 2007, Fitch said.

Some trucking companies will have more cash flow than has been typical, Fitch said. This cash may be used for acquisitions, especially in the LTL sector, and the largest companies are expected to invest overseas, Fitch said.
-Jill Dunn

Shippers Favor Fuel Surcharges Over Rate Hikes
Shippers are more likely to pay a higher fuel surcharge than a base rate increase in 2006, according to a third-quarter shipper survey.

Moreover, the fuel surcharges being paid to truckload carriers vary little with the size of the carrier, according to The Supply Chain Indicator, recently released by the investment firm Bear Stearns.

Although the first quarter of the year is traditionally slow, shippers surveyed stated they did not expect to push back on the fuel surcharge.

Truckload capacity remains tight but is more balanced than a year ago, while LTL capacity has stayed mostly balanced, Bear Stearns reported. Its survey, however, was conducted in early October, before the full impact of hurricanes Katrina and Rita.

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