NEW YORK Transportation rates charged by logistics specialists are likely to increase significantly in coming years on the back of new trucking regulations and strained transport capacity, according to two logistics executives.
Annual rate increases by Canadian National Railway Co., one of North Americas largest logistics and rail providers, have hovered between 3 and 4 percent over the past five years, mostly tracking inflation, CN Railway vice president of supply chain solutions Vee Kachroo said June 16 at AMMs Steel Success Strategies XXIX conference in New York.
But upward pressure on CN Railroads rates looks to accelerate in coming years. "I do see that (3- to 4-percent rate increase) potentially accelerating going forward, just because the demand is so significant," Kachroo said. "For the balance of this year and 2015, what youre probably going to see across the marketplace in transportation is that prices are going to go up because capacity isnt there."
Tighter regulations on truck drivers hours have led to a shortage of truckers, according to Michael Smolenski, president and chief executive officer of West Chester, Pa.-based steel coil carrier Coil-Tainer Ltd., which means truckers can charge higher rates for their in-demand services. For some destinations, trucking rates have doubled in recent months, he said, and it doesnt look like prices will come down to historical norms anytime soon.
The 10-hour driving limit for truck drivers includes waiting time, making it a problem if a trucker must wait for hours at a steel facility to get his truck loaded, Smolenski said. Steep fines for violating the trucking regulations also have become a worry for truckers.
"All of these changes are driving potential truckers out of the business. ... Thats why were seeing that movement of rates," Smolenski said. "Typically theyve gone up anywhere from 10 to 25 percent, and theyre saying that this is the new normthat theyre not going to come back down."
The prominence of shipping crude oil by rail also has strained rail capacity, Kachroo said.
However, ocean freight rates have remained mostly steady, according to Smolenski.
Thanks partly to these trends, intermodal transportusing a combination of sea, land and railhas seen strong annual growth, which Kachroo estimated in the double-digit percentage range.
CN Railroad claims it can reach more than 75 percent of the North American population through its large transportation and distribution network, and earned about $13 billion in revenue in 2013. Of that, 12 percent of revenue came from metals and minerals, with 21 percent from intermodal transport.