We use cookies to provide you with a better experience. By continuing to browse the site you are agreeing to our use of cookies in accordance with our Cookie Policy.
  • ::COVID-19 COVERAGE::
  • INDUSTRY PRESS ROOM
  • ABOUT
  • CONTACT
  • MEDIA FILE
  • Create Account
  • Sign In
  • Sign Out
  • My Account
Free Newsletters
  • MAGAZINE
    • Current Issue
    • Archives
    • Digital Edition
    • Subscribe
    • Newsletters
    • Mobile Apps
  • TRANSPORTATION
  • MATERIAL HANDLING
  • TECHNOLOGY
  • LIFT TRUCKS
  • PODCAST ETC.
    • Podcast
    • Blogs
      • Analytics & Big Data
      • Best Practices
      • Change Me
      • Empowering Your Performance Edge
      • Logistics Problem Solving
      • One-Off Sound Off
      • Public Sector Logistics
      • Two Sides of the Logistics Coin
      • Submit your blog post
    • Events
    • White Papers
    • Industry Press Room
      • Upload Your News
    • New Products
      • Upload Your Product News
    • Conference Guides
    • Conference Reports
    • Newsletters
    • Mobile Apps
  • DCV-TV
    • DCV-TV 1: News
    • DCV-TV 2: Case Studies
    • DCV-TV 3: Webcasts
    • DCV-TV 4: Viewer Contributed
    • DCV-TV 5: Solution Profiles
    • MODEX 2020
    • Upload Your Video
  • MAGAZINE
    • Current Issue
    • Archives
    • Digital Edition
    • Subscribe
    • Newsletters
    • Mobile Apps
  • TRANSPORTATION
  • MATERIAL HANDLING
  • TECHNOLOGY
  • LIFT TRUCKS
  • PODCAST ETC.
    • Podcast
    • Blogs
      • Analytics & Big Data
      • Best Practices
      • Change Me
      • Empowering Your Performance Edge
      • Logistics Problem Solving
      • One-Off Sound Off
      • Public Sector Logistics
      • Two Sides of the Logistics Coin
      • Submit your blog post
    • Events
    • White Papers
    • Industry Press Room
      • Upload Your News
    • New Products
      • Upload Your Product News
    • Conference Guides
    • Conference Reports
    • Newsletters
    • Mobile Apps
  • DCV-TV
    • DCV-TV 1: News
    • DCV-TV 2: Case Studies
    • DCV-TV 3: Webcasts
    • DCV-TV 4: Viewer Contributed
    • DCV-TV 5: Solution Profiles
    • MODEX 2020
    • Upload Your Video
Home » Will surging freight rates herald the return of the inflation boogieman?
newsworthy

Will surging freight rates herald the return of the inflation boogieman?

March 21, 2018
Mark B. Solomon
No Comments

Is the dramatic surge in freight prices beginning to hit corporate America where it hurts?

Taking at face value General Mills Inc.'s commentary that accompanied the release of its fiscal 2018 third-quarter results today, the answer would be an unqualified yes. The Minneapolis-based food giant reported operating profits that Chairman and CEO Jeffrey Harmening said "fell well short" of the company's expectations. The reason: sharp increases in input costs, including North American freight services, which inflated in February to levels that General Mills hasn't seen for many years.

Company executives said they are urgently looking at implementing steps such as "increasing the number of qualified carriers" the company partners with, as well as utilizing different modes of transportation, which means intermodal. The impact of such actions would not fully kick in until the next fiscal year, they admitted. General Mills' equity, which normally doesn't see big daily price gyrations in either direction, fell nearly 9 percent as of the close of trading, taking the equity prices of other big food companies, which are also large shippers, down with it.

General Mills would hardly be alone in being caught in the freight-cost vise. For the past 10 months, virtually every data point has pointed to escalating prices, bringing to reality the long-made prediction that supply conditions had become so tight that all it would take to send freight costs up would be a solid and sustained economic recovery similar to what is happening today. Anecdotes have followed suit, with veteran observers warning of the tightest trucking market in at least 15 years, and perhaps longer.

The latest data points surfaced today in audit and payment provider Cass Information Systems Inc.'s monthly indexes for February covering all domestic transportation modes. Cass' truckload line-haul index, which excludes fuel and accessorial charges, rose 6.5 percent in February, the 11th consecutive monthly increase. Cass' intermodal price index, which includes fuel costs, rose 5.4 percent last month, its 17th straight monthly gain. Intermodal prices are continuing to strengthen, said Donald Broughton, the veteran transport analyst who pens the Cass reports.

As for truckload, over the last seven months Broughton has raised his pricing forecast to a range of 6 to 8 percent higher, from a minus-1-percent to positive 2-percent range. In what has become a familiar refrain, one that those who consume freight for a living would likely concur with, Broughton said he believes the "risk to our estimate may be to the upside."

Cass' flagship monthly freight index, which includes all modes, delivered even more striking year-over-year results. Freight "expenditures"—or prices—exploded in February by 14.3 percent. Shipments rose 11.4 percent year over year. Just from January, expenditures and shipments increased 5.9 and 5.2 percent, respectively. These gains come during what is often considered the slowest seasonal period of the year. Ironically, one of the paradoxes facing General Mills is that as its volumes grew in the quarter, so did its operating costs.

In his comments, Broughton said he doesn't see overall demand slacking off any time soon. Resurgent oil prices have sparked a renewed boom in the industrial economy, just as the collapse in the energy complex in 2014 led to the industrial recovery's end. More tellingly, and somewhat counter to expectations, since they had been written off as parent material, millennials are pushing into the "household formation" cycle and are accumulating the goods that come with that stage of life, Broughton said. Given that there are more millennials than baby boomers, consumer spending is "poised to be strong" for the foreseeable future, Broughton said.

The analyst acknowledged that "pricing power has erupted" with such velocity that it is bound to spark concern over inflationary pressures feeding through into the broader economy. However, the price surges of today are likely to have no meaningful impact on the long-term inflation outlook, he said. To support his view, Broughton trotted out two of transportation's immutable laws: That pricing is cyclical because the service is based on derived demand, and that better pricing spurs decisions to create capacity, either by adding assets or by leveraging technology to boost asset utilization.

Add to that the improvements in IT that allow for improved price discovery and asset visibility, and that the vast majority of carriers have under-invested in their physical assets, Broughton said he's confident in the "industry's ability to use increased profitability to fund enough capacity to kill outsized pricing gains in the long term."

That may be so. But that's cold comfort today to the Wheaties guys in the Twin Cities.

Transportation Trucking Rail Intermodal Truckload Less-than-Truckload
KEYWORDS Cass Information Systems General Mills
  • Related Articles

    when the going gets tough, will your freight keep going?

    Amazon pushes dedicated truck operation; will it suck oxygen out of the driver room?

    Look out above: 2018 could be one for the books for truckload rates, analyst says

Marksolomon
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

Recent Articles by Mark Solomon

Coming together for road safety: interview with Joshua Girard

Off the rails

Freight rate spikes shaking up the C-suite

You must login or register in order to post a comment.

Report Abusive Comment

Most Popular Articles

  • IBM survey says digitalization trends will sweep trucking industry by 2030

  • Gartner survey signals increased investment in resilience over the next two years

  • What Level of Automation is Right for Your Warehouse?

  • Growing up … and up and up: interview with Sam Bertram

  • Old Dominion adds nine freight service centers to handle business growth

Now Playing on DCV-TV

D92f0dd1 a98c 434a 9e17 30b63ee72c90

Automated Pack-out and Print-Apply System for thredUP

DCV-TV 4: Viewer Contributed
SilMan Industries designed and implemented a mixed polybag-carton system, including automated print and apply, in a new regional Fulfillment Center for thredUP, one of the world’s largest online resale platforms for women’s and kids’ apparel, shoes, and accessories.The Situation Secondhand clothing and online...

FEATURED WHITE PAPERS

  • Using innovation to manage peak seasonal demand

  • Time to rethink your lift truck power

  • Warehouse Management System Project Toolkit

  • Solving Talent Management Challenges Now and In the Future

View More

Subscribe to DC Velocity Magazine

GET YOUR FREE SUBSCRIPTION
  • SUBSCRIBE
  • NEWSLETTERS
  • ADVERTISING
  • CUSTOMER CARE
  • CONTACT
  • ABOUT
  • STAFF
  • PRIVACY POLICY

Copyright ©2021. All Rights ReservedDesign, CMS, Hosting & Web Development :: ePublishing