Over the last 12 months, the carriers have pushed to increase base freight rates higher, and we don’t see this trend changing soon. The massive oil price adjustment that commenced in July 2014 saw fuel levies reduce by 10-15%, and this allowed the carriers more room to target higher than CPI increases in their base rates without upsetting the market.
The benefits of the oil move have now washed through, and in fact, given the historically low price of oil; a large move is more likely to occur be on the upside. The carrier profitability and shareholder returns need to improve especially when you factor in the premiums paid during the recent acquisitions of some of our largest carriers. So where will this improvement come from.
It is doubtful that with all the noise around sub-contractors remuneration this large input cost and is going to reduce. Whilst there will be a greater focus on technological improvements, lower management costs and better backroom processes, we believe most of the heavy lifting will be delivered by increased sell prices.
When commencing the budget review cycle, and it may be more prudent to make a case for an increase of 5% for the future, or creating improvement plans to offset the impact of the cost rise.