If you haven’t done so already, check out the “Inside the Numbers” column in the May edition of Canadian Transportation & Logistics magazine, featuring a snapshot of shipper perceptions regarding modal rate increases.
As we all know, forecasting works best when you are dealing with “certainties”; for example, reasonable expectations of demand volume, cost of materials or changes in economic conditions. And when one or more of those components is missing, the forecast model starts looking more and more like a roulette wheel. The summary charts in this month’s Inside the Numbers column help to illustrate that point, particularly in the marine mode.
When asked if they thought marine rates were going to increase, decrease or stay the same in 2010, shippers were split almost evenly with approximately half of those surveyed predicting an increase, and half predicting no change. Only a small percentage, 7%, forecast a decrease in rates for 2010.
On one hand, predicting an increase was a safe bet. Look at it this way (the benefit of hindsight not withstanding) if someone asks you “are rates going up or down next year?” you’ve pretty much got a 50/50 chance of winning the door prize. Rates bottomed out in 2009 so an increase should have been expected, especially since rate levels dropped by as much as 50% over the previous three to four years. The group that forecast ‘no change’ probably felt rates were at their lowest feasible levels and, with no firm economic recovery in sight, estimated that steamship lines would hold rate levels pending signs of increased demand. The 7% who forecast continuing decreases might have been gambling demand would continue to fall and rate levels would follow suit.
The group that forecast increases this year were correct of course, but the really tough question still remains – by how much? On this score, it looks like just about everyone who forecast an increase missed the boat (no pun intended). The largest group, 35%, forecast increases in the range of 2.1% to 4%, with the next group, 22%, expecting increases of 4.1% to 6%. Although this group was astute enough to see increases coming, we all underestimated the aggressive approach liner companies would take to “return rates to sustainable levels”. So far this year the industry has seen increases of close to 30% in some areas due to successive general rate increases. And there are rumours that the peak season surcharge expected in June/July may be repeated in August, so the net result of marine rate level increases may not be known for some months yet.
At least those transportation managers who forecast increases were able to prepare their organizations for the fact that costs would be going up, even more so for the small group of 11% who forecast increases in excess of 10%. Not so unfortunately for the 47% of transportation managers who forecast “no change” in marine rates this year, or the 7% who forecast rate decreases.
Forecasting transportation costs doesn’t get easier in the face of economic uncertainty, it just gets more important.