2016, year of increase or stagnation in freight costs?

Years with a down economy tend to be good deals for contracting freight companies. Likewise, years when transport demand outstrips supply are good for transporters. The year 2016, however, will be marked as an atypical year. This is because, despite the economic crisis, many carriers need to readjust freight prices so as not to run the risk of going bankrupt or being acquired by another player.

Figure 1 – In times of crisis, freight rates are a challenge for carriers and industries

Source: Wikipedia

The risk of bankruptcy exists because, for most carriers, the readjustments achieved in recent years were not enough to recover their costs. After all, although demand was falling, the main items of transport costs, such as diesel, labor and tolls, continued to suffer readjustments, often annually, putting pressure on freight costs. As a consequence, the margins of the carriers became increasingly tight and, between 2011 and 2015, it was possible to observe a growth in the number of carriers with losses.

However, on the side of contracting companies, the reading is that it would be easier to curb requests for readjustments by carriers. After all, the demand for transport was falling (by around 5% in 2016) and many carriers are idle and with part of the fleet stopped in the yard.

Faced with these very different views of the same scenario, freight contracting companies and carriers will need to sit down at the table to discuss freight prices and the relationship they want to develop. In the latter case, both sides will need to understand whether they want a partnership relationship, in which both want to grow and need to be concerned with the financial health and competitiveness of the partner, or whether they seek a short-term relationship, in which the most important thing is the immediate result.

Interestingly, in conversations with large contracting freight companies in Brazil, it is clear that the scenario is bad for both sides. For 2016, the average readjustment of the freight price should be between 5% and 10%, a number far below what is desired by carriers and above what cargo shippers would like.