Truck News

Feature

Forecasting Ground Freight Costs For 2010

Nulogx, a leading transportation management solutions company, launched the Canadian General Freight Index (CGFI) in September. The index gives us a clear picture of how average Canadian over-the-road...


Nulogx, a leading transportation management solutions company, launched the Canadian General Freight Index (CGFI) in September. The index gives us a clear picture of how average Canadian over-the-road freight costs change from month to month.

With such a good picture of what has actually happened in the marketplace, it is possible to make a reasoned forecast of where costs are likely to go in the months ahead. We expect that average ground freight costs will be 6.2% higher in 2010 than they were in 2009, and that average fuel surcharges will finish 2010 at 20.6% of base freight costs.

Looking Backward

Ground freight costs rode along with the economy in 2008 and 2009. Figure 1 shows the Canadian General Freight Index from July ’08 through to August of this year. In the last six months of 2008, freight costs peaked and began to decline. In the first eight months of 2009, that decline continued -the index has fallen 15.8% from its peak in July ’08, and 10.0% from its value in December ’08.

Two main factors have brought freight costs down. First, crude oil prices have fallen sharply from their peak in mid- 2008, which produced a corresponding sharp decline in fuel surcharges. Figure 2 shows fuel surcharges as a percent of base freight costs. Note the smooth decline through March, the level stretch through May, and the start of an uptrend in June.

Secondly, freight rates have also come down. Figure 3 shows that overall average rates in Canadian dollars grew in the last half of 2008, and have fallen in the first eight months of this year. You can see that domestic rates and cross border rates have behaved differently. Domestic rates came down sooner than cross border rates which didn’t start their decline until the spring of 2009. Note that cross border rates in Canadian dollars are impacted by the Canadian/US exchange rate. Looking Forward

Forecasting is always difficult -and forecasting 2010 freight costs at this time is particularly treacherous for several reasons.

• The global economy is still coming out of recession. Although good progress is being reported, no one really knows precisely when the world economy will be firing on all cylinders again.

• Significant uncertainty exists about both the future price of crude oil and also the Canadian/US exchange rate -two critical variables that have a large impact on Canadian freight costs.

• The Canadian General Freight Index has only been in place for several months, so we are still learning how to make the best use of this new microscope on over-the-road freight costs.

Nonetheless, we have developed a forecast for 2010 which we present below. We have based our projections on three scenarios: slower growth, expected growth, and faster growth. Each scenario makes somewhat different assumptions about what lies ahead. See Figure 4 for the detailed assumptions in each scenario.

Looking forward, we expect Canadian ground freight costs to hit bottom in the fall of 2009 and then grow through to the end of 2010. The Canadian General Freight Index which stood at 834.2 at the end of August is expected to close the year at about 883 and then to grow to the 950 range by the end of next year.

Figure 5 provides a more detailed look at the results in each of the three scenarios. We expect the actual results to fall somewhere within the bounds of these three scenarios.

The numbers tell an interesting story. We project Canadian ground freight costs in 2009 will average from 7.1% to 7.4% less than they did in 2008. An economy in recession and lower crude oil costs will have brought freight costs down in 2009 to well below 2008 levels.

However, these costs will increase in 2010. Just how much depends on many external factors. We expect that average ground freight costs will be about 6.2% higher in 2010 than they were in 2009. Our projections show that this year-over-year increase may be as low as 3.6% and may be as high as 9.0%, depend-ing upon how quickly the world, US and Canadian economies grow. We have also projected that average fuel surcharges as a percent of base freight costs will finish 2009 between 17.2% and 17.8%, and will increase to between 18.9% and 22.3% by the end of 2010.

———

THE CANADIAN GENERAL FREIGHT INDEX –What’s it all about?

The Canadian General Freight Index is pub- lished by Nulogx and tracks actual changes in over-the-road freight costs month by month. The index is derived from a database of more than $750 million in annual freight transactions.

What is in the index? Domestic and cross bor- der truckload and LTL transactions. The index includes base freight charges, fuel surcharges and other accessorial charges. The index is sensitive to the Canadian/US exchange rate because some of the charges are in US dollars.

What is not in the index? The index is restricted to general over-the-road freight. It does not include liquid bulk, dry bulk, forest products or other spe- cialized freight.

Note that the index cannot separate contract vs. spot transactions.

Trends in the index are more important than any single month’s results.

The index is representative of Nulogx custom- ers which may not be the same as the market at large. How closely your over-the-road general freight costs will track the CGFI will depend upon a number of factors -especially how closely your mix of freight matches Nulogx mix.

More information is available on the Index’s Web site, www.cgfi.ca, or from Nulogx, www.nulogx.com.

———

Limitations and Cautions

You need to be cautious in the use of these forecasts. Be aware that-these forecasts are based on a number of assumptions and may not be accurate.

Also, there are limitations in our forecasting methodology. For ex-ample, the forecast is intended to predict the changes in the Canadian General Freight Index. The forecasts may do a poor job of predicting the CGFI, and in any event your freight costs may not track closely to the CGFI. In the coming months, we intend to report on how well these forecasts work out.


Print this page


Have your say:

Your email address will not be published. Required fields are marked *

*