Shippers have enjoyed years of soft rates. But improved cost-accounting by carriers, and a sharper focus on driver preferences, could change this.

Can general-freight truckload carriers reverse the trend of the last several years, and establish rate hikes that at least keep up with overall inflation?

We're not talking about making up for past years of flat or declining rates; it will be impressive enough to get rate increases of 4-5% this year, and maybe next year, too.

There are a number of factors at work here that could make the difference. One is that more carriers are realizing that the "cost based" arguments they bring to shippers to justify rate hikes are largely obsolete. They were appropriate during regulation, when by law cost increases were passed along to the shipper. Those days are long gone, and yet carriers are still developing arguments about fuel surcharges and driver compensation during rate negotiations. More and more, carriers are realizing that negotiations really involve one major lever -- walking away from the table when the deal gets unprofitable.

Another factor is that truckload carriers are getting more sophisticated about their cost-accounting, and are better able to evaluate the true profitability of each load and of each shipper. This is a very complex issue, involving literally dozens of elements. However, it's crucial for carriers to accurately measure the business from a shipper. Carriers can't rely just on their average cost per mile, or per hundredweight, to evaluate a move. There are fixed costs involved, and hourly costs, and per-mile costs. There are opportunity costs, too: What would the carrier be hauling if not for the proposed business?

As carriers become more sophisticated in terms of cost analysis, it will be clearer to them what the actual costs are for a particular move or a particular shipper. There will be a lot less "groping and hoping" about the contract terms.

Another factor is driver retention, which has become an important motivating factor in selecting which business to pursue. Carriers are trying to improve retention by shifting their operations towards routes that are more popular with their drivers. Some carriers will focus on booking longer hauls that keep the driver on the road more. Others will focus on individual shippers, cultivating those that are driver-friendly and avoiding those that are troublesome.

Carriers will need to keep a close eye on their rate negotiations this year since shippers are likely to be more aggressive than ever about costs. For most manufacturers, cost control is being pushed hard in all phases of their production function. If you are a supplier to Ford or GM, you have probably been told for the last three years to cut your prices 10% or so. So you have to go back to your own suppliers, including your carriers, in order to manage your costs.

Over the next year or two, manufacturers and shippers will find it harder to contain health care costs and wages, two issues that have been relatively quiet of late. Consequently, they will have to redouble their efforts to cut somewhere else.

And when shippers look at their cost trends over the past five years, or even the past ten, here's what they'll see: years of flat or declining transportation costs. They see rates from their truckload carriers that have increased less than the overall rate of inflation. Since June of 1992, the price index for truckload general-freight services, as reported by the Bureau of Labor Statistics, has risen about 3.5%. That's all -- for a five-year period.

There are many factors at work here that determine rates: fuel prices, equipment prices, efficiency gains by carriers, etc. But whatever the reasons, the main point is that shippers have been able to count on flat rates for some time now. Each year carriers come to shippers and say, "We really need a rate hike this year. Our costs are headed way up." And each year shippers reply, "You know, that's very interesting -- but can we get back to you later? We've got bids from a couple of other carriers that we need to look at."

As carriers get a better idea of their true costs, they are likely to go through that conversation a lot less.