Driven by surging bulk commodities, the robust North American transportation sector is experiencing tight availability and high freight rates, pointing strong improvement in 2011.
US trucking strong, but uncertain in face of rising fuel costs
According to industry experts, supply is currently tight in the US trucking sector, a situation that could be compounded by the upcoming produce season, when non-perishable items--like steel--take a backseat. While the most recent reports on truck tonnage (data available from December) still show fluctuations, the trend is expected to pick up in future repots. For now, the American Trucking Association's Truck Tonnage Index showed a 2.2 percent increase in December after dropping 0.1 percent in November.
ATA Chief Economist Bob Costello said he is generally positive about the results, while still remaining slightly cautious about the "see-saw" pattern reported by many carriers. "Fleets continue to tell me that freight volumes are very choppy--up one week, but down the next," said Costello. "That is a trend that is likely to continue this year as the economy is not growing across the board yet." However, Costello said it was a positive sign for the economy that December results reflected the highest level in 27 months. "I continue to expect truck freight tonnage to grow modestly during the first half of 2011 and accelerate in the latter half of the year into 2012," Costello said.
In other US trucking news, ATA President and CEO Bill Graves issued a statement last week regarding a renewed effort between the US and Canadian governments to streamline the flow of trade and improve security. "The trucking industry appreciates the efforts of President Obama and Prime Minister Harper to advance the cause of trade between the United States and Canada," said Graves. "This agreement is a positive first step to increasing the competitiveness of businesses on both sides of the border."
According to Graves, trucks carry about 60 percent of the value of trade between the two countries (with Canada remaining the US' largest trading partner). "Removing bottlenecks and speeding the flow of goods across the border will not only help carriers in both countries," said Graves, "but also their customers who depend on timely and efficient cross-border operations."
Bulk commodities tighten North American rail availability
Surging volumes of bulk commodities such as iron ore, coal and scrap, have tightened availability on North American railways, resulting in a lack of eagerness from rail companies to negotiate freight rates. Also helping to hike prices are surging fuel surcharges-for most major railroads, surcharges will be 21.5 percent in March, based on January average fuel prices of $3.288 per gallon. While only slightly up from February's surcharge of 20 percent, March's rate this year is substantially higher than in years past: March 2010 rates were 16 percent, and in March 2009, rates were only 10.5 percent. Unfortunately, historical data also show that typically, rates rise in spring and continue rising throughout the summer.
However, the overall improvement in the North American rail sector, particularly the US, is all but assured, especially if the high rate of investment--both public and private--continues. In the AAR's official response to President Obama's State of the Union address, the association noted that "It has been the $480 billion in private capital spent by America's freight railroads over the past 30 years that today makes our national freight rail network the envy of the world."
Already, 2011 rail volume data show a continuation of the sector's upward trend. According to the Association of American Railroads, cumulative carload totals of rail traffic volume for the first six weeks of the year on 13 reporting US, Canadian and Mexican railroads was 2,184,554, a 4.8 percent increase from the same period last year. Containers and trailers registered a higher rate of growth, at 7.2 percent year-on-year. As for specific products, metallic ore shipment increased 8.2 percent, metal products increased by 11.9 percent, and iron and steel scrap shipments were 7.9 percent higher.
US barge market faces too many shipments and not enough ships
As with the North American rail sector, the US barge market has seen a surge in bulk commodity business, namely iron ore and coal. US exports for both products has swelled recently, so much so that shipments have overwhelmed not only the availability for uncovered barges (the usual type for bulk), but the availability of covered barges (which usually handle materials sensitive to exposure) as well. Barge lines are running the show, and most companies are not eager, to say the least, for import cargo shipped up the Mississippi river--any business they are able to take on is primarily Southbound. As a result, barge freight rates have soared as of late.
Aside from availability issues, the river barge sector is facing potential problems with deteriorating infrastructure, and the struggles to upgrade and modernize the historical barge system in the US. The Monongahela River project in Pennsylvania, for example, has been dragged out for years. The project, which involves replacing several 75- to 100-year-old locks and dredging certain parts of the river, should have been completed in 2004, but funding shortfalls have pushed the completion date as far as 2030. According to the US Army Corps of Engineers, coal comprises 85 percent of the cargo transported on the Monongahela River, with a large portion destined for the US Steel Clairton Works plant. Until the project is complete, the deteriorating locks could be shut down, which would defer shipments inland and increase transportation costs.
On the Great Lakes, activity has slowed down for the winter, but demand for iron ore was so great in January (before many locks closed), that the annual closing of the Sault Ste. Marie, Michigan locks was extended by three days. The extension allowed an additional 380,000 tons of iron ore and 90,000 tons of coal to move on the Lakes. Overall in January, US-flag Great Lakes freighters carried 3.4 million tons of dry bulk cargo, an increase of 46 percent from a year ago, and 18 percent better than the month's 5-year average.