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Will surging freight rates herald the return of the inflation boogieman? | DC Velocity

In his comments, Broughton said he doesn’t see overall demand slacking off any time soon. Resurgent oil prices have sparked a renewed boom in the industrial economy, just as the collapse in the energy complex in 2014 led to the industrial recovery’s end. More tellingly, and somewhat counter to expectations, since they had been written off as parent material, millennials are pushing into the “household formation” cycle and are accumulating the goods that come with that stage of life, Broughton said. Given that there are more millennials than baby boomers, consumer spending is “poised to be strong” for the foreseeable future, Broughton said.

The analyst acknowledged that “pricing power has erupted” with such velocity that it is bound to spark concern over inflationary pressures feeding through into the broader economy. However, the price surges of today are likely to have no meaningful impact on the long-term inflation outlook, he said. To support his view, Broughton trotted out two of transportation’s immutable laws: That pricing is cyclical because the service is based on derived demand, and that better pricing spurs decisions to create capacity, either by adding assets or by leveraging technology to boost asset utilization.

Add to that the improvements in IT that allow for improved price discovery and asset visibility, and that the vast majority of carriers have under-invested in their physical assets, Broughton said he’s confident in the “industry’s ability to use increased profitability to fund enough capacity to kill outsized pricing gains in the long term.”

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Will surging freight rates herald the return of the inflation boogieman? – DC Velocity.