Fuel prices bedevil all transport modes

Fuel price volatility continues to plague all transportation modes. Equity research firm Morgan Stanley examined the forward commodity market and has concluded fuel prices will continue to be a factor through 2004 and into 2005.

Railroads and truckload carriers have typically not passed the full increase in fuel costs through to shippers. Other non-asset logistics services have little or no exposure on fuel costs, while less-than-truckload(LTL) and other modes have become effective in passing along the charge.

Railroads have greatest exposure to fuel costs, but may see little effect in 2004 due to fairly effective hedging coupled with surcharges. Only two railroads have reported hedge positions for 2005, and based on those, Burlington Northern and Norfolk Southern should see little impact from fuel prices into 2005.

Container shipping company CP Ships gets a double hit from fuel costs and the U.S. dollar exchange rate. The company saw revenues climb from $2.7 billion in 2002, its first full year after spinning off from CP Ltd., to $3.1 billion in 2003. Income for the same periods rose from $83 million to $137 million.

Container shipping capacity will rise 9% in 2004 and a further 10% in 2005 and 9% in 2006, according to Drury Shipping Consultants. Other estimates range as high as 12%.

Demand for container capacity grew over 12% in 2003 (and about 10% per year for the last 10 years). Carriers should retain their slight advantage given the capacity balance, allowing them to hold onto rate increases.

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