Rail Rates Rise Again

May 24th, 2006 at 06:26am David Bush - Iasta

In a recent post, we quoted a recent Purchasing Magazine article that stated analysts expected an upward trend in base pricing in 2006 and that freight buyers would continue to pay high fuel surcharges.

Recently, Purchasing Magazine posted this article that indicated that rates have already increased between 6.8% and 8.5% on some major railways, compared to the average increase of 10% for all of 2005! And, in an even more recent post, they indicated that the 36% rise in retail gasoline prices and the 19% inflation in diesel fuel costs have resulted in increasing fuel surcharges across the board. They noted that Swift Transportation and J.B. Hunt Transport Services collected a combined total of $189 M in fuel surcharges, up 53% from last year.

If this trend continues, overall rail rates could rise even more then predicted (and more then double freight rate increases in 2005) when you consider that Union Pacific and Burlington Northern Santa Fe alone collected $2.12 B in surcharges last year (which was up 312% from 2004)!

What does this mean to you? If you don’t already have a freight strategy in place, you should formulate one ASAP. If your volume is insufficient to negotiate mid to long term contracts with preferred carriers, then your supply strategy should include suppliers who maintain their own fleets or have agreements in place with major carriers and can negotiate favorable contracts. Furthermore, the expected costs should be factored into every affected purchasing decision as the impact may be considerable when considering bids from geographically dispersed suppliers.

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Entry Filed under: General, Global Supply Issues/Risk, Suppliers