Copyright 2006, Traffic World, Inc.
The prices shippers are paying to move freight by rail continue to be outstripping improvements in service heading into what''s expected to be another record peak season.
Although the railroads'' operating strategies suggest high confidence that the rails can handle whatever is thrown at them this fall, shippers say price increases aren''t justified by what they''re getting for their transportation dollar.
"The disparity appears to vary widely among the railroads," said Wall Street investment firm UBS, based on 55 responses to their fourth annual shipper survey.
Judged on three criteria -- dependability, ease of doing business and value for money -- Canadian National Railway ranked first, followed by Norfolk Southern, CSX, BNSF Railway, Canadian Pacific Railway and Union Pacific Railroad.
On a 1-to-5 scale with 5 being best, none of the railroads were able to score above 3.65.
The survey found shippers expect to pay 9.7 percent more in 2006 for rail transportation, up from 8 percent in a similar survey conducted six months ago.
Service improvements were judged slightly better in a survey conducted by Bear Stearns based on 65 responses.
That survey found five of seven carriers registered year-over-year improvements in service ratings compared with second the quarter 2005. CSX, CN and CP showed "solid upward moves," with NS and KCS registering slight improvements.
Service ratings for BNSF and UP slightly decreased.
At the same time, Bear Stearns, as with UBS, found shippers are facing strong rail rate increases.
Rail shippers survey by Bear Stearns anticipated average rate increases of 4.4 percent, compared to 3.7 percent in the first quarter of 2006 and 3.5 percent in the second quarter of 2005.
They saw BNSF and UP as the most aggressive in pushing for rate hikes.
Shippers are seeing prices rise for intermodal service as well, as the price for the average intermodal load grew 15.5 percent in the second quarter -- up roughly $300 a load -- even as volume growth slowed.
"Part of the revenue increase is likely due to fuel surcharges, but somewhere in there a portion of that is an increase in price," said Tom Malloy, vice president of business development for the Intermodal Association of North America.
The railroads maintain that any improvement in the wake of high demand speaks volumes.
"These improvements are especially impressive considering the fact that railroads are moving more freight than ever before in their history," said Association of American Railroads President and CEO Ed Hamberger.
Total volume is up 2.7 percent this year while service-sensitive intermodal volume is up 6.4 percent from last year''s record volume.
BNSF said it was working hard to speed up trains.
"In the second quarter car velocity was up 4 percent from first quarter -- the best we''ve had in the last four quarters," said BNSF spokesman Pat Hiatte.
"But we also recognize the need to improve service. We have a number of initiatives in place to improve velocity, which includes improving mainline and terminal throughput, locomotive distribution and maintenance reliability."
Many shipper mays pay more for better service but others say simply having enough capacity is just as important. Railroads are still 5 to 10 percent less expensive than trucks.
"We believe the economic advantage of the railroads is even wider after incorporating the effect of fuel surcharges," UBS said.
The National Industrial Transportation League, which represents some of the country''s largest shippers, says the changing metrics of rates and service suggest shipping decisions can no longer be based on simple direct transport costs.
"It used to be when there was excess capacity that shippers could deal with just the cost of moving freight," said NITL President John Ficker.
"But now you can''t look at freight rates in a vacuum, you have to look at whole process of delivery. Now it''s more about figuring out ways to take the cost out of the system to help mitigate a tight supply market," Ficker said.