Freight rates have been a thorn in most
shippers' sides amid soaring fuel costs. Although fuel costs
likely will remain far above prior-year levels, there are some
signs of softening and freight rates appear to be primed for
Metals shippers who are interested in
trimming their freight costs are in an improved position as a
slowdown in freight movement is being seen across most
transportation systems, analysts watching the sector say.
"Whenever you get a lot of rail shippers
together you normally hear a lot of frustration," said Jay
Roman, president of Escalation Consultants Inc., a
Gaithersburg, Md.,-based company that advises both railroads
and rail shippers on rate-negotiating strategies.
Most shippers head into negotiations with a
purchasing background that has worked in buying commodities and
other services where the marketplace is putting considerable
downward pressure on costs, Roman said. "But when you come over
into rail transportation, frequently you're dealing with
monopolies or oligopolies where the marketplace doesn't put as
much downward pressure. If you want to know how good or bad
your rail rates are or if you want to improve your
negotiations, you should know as much about your railroad as
you possibly can."
Lackluster demand for domestic autos,
consumer durables and equipment has cut railcar traffic, said
Peter M. Toja, president of Economic Planning Associates Inc.,
a Smithtown, N.Y.,-based analysis firm specializing in
railcars, commercial trucks and truck trailers.
Auto and metal hauling were down 13.7 percent
and 8.8 percent, respectively, in the first quarter, Toja said.
With fuel costs up and traffic slumping, railroads are
encountering a difficult financial environment. But some
rollback of fuel surcharges imposed earlier this year has
started to come through, he said.
The collapse of the housing market has all
but shut down demand for centerbeam shipping, while sluggish
manufacturing activities are dampening demand for mill gondolas
and bulk head flat cars, along with domestic container-hauling
equipment, Toja said.
The trend toward shifting railcar fleets from
railroads to leasing companies and users will continue, Toja
and other analysts said. "The equipment leasing companies do
purchase an awful lot of equipment, but they don't purchase
unless they have a customer lined up," Toja said, adding that
metals companies can increasingly drive new railcar demand.
"The railroads themselves don't want to bother with equipment
management anymore. Those days are long gone. They prefer to
have the shippers own their own equipment."
Large numbers of aging railcars will need to
be replaced soon, according to Richard M. Grossman, vice
president of equipment for First Union Rail, Rosemont, Ill., a
railcar finance and leasing unit of Wachovia Corp. However,
rail volumes will shift to other transportation systems like
"The demand for most general-purpose cars has
been generally softer since late last year," he said. "We have
no stampede for the car builders and so shippers who need
equipment, if they want to lease it or buy it, have good
Most car types are currently in adequate
supply, with reduced railcar volumes expected this year vs.
last year, Grossman said, adding that reasonably stable volumes
of railcars are expected during the next few years.