Spring Brings Hope for a Sunnier Shipping Climate

March 4, 2008
Despite continued prognostication on whether there is or has been or will be a recession, there are timid signs that somewhere aheadprobably in the third

Despite continued prognostication on whether there is or has been or will be a recession, there are timid signs that somewhere ahead—probably in the third quarter of this year according to some pundits— there will be recovery. In fact, some of the country’s bigger stock analysts are beginning to advise clients to buy trucking stock now.

In looking for signs of renewed life in an otherwise dismal domestic cargo landscape, figures indicated a swelling in freight movement as 2007 ended. Seasonally adjusted truck tonnage (with the year 2000 representing 100) for December 2007 jumped to 116.7, the highest level to be reached since January 2006. These figures come from the American Trucking Associations (ATA) For-Hire Truck Tonnage Index. The increase was 4.1% in December, which followed on the heels of a 0.9% jump in November 2007.

In analyzing the figures, ATA chief economist, Bob Costello, noted that the final two months of 2007 were surprisingly good, particularly in the face of current economic conditions, the financial crises, credit squeeze and weakness within the US housing market.

Although good news is always welcome, before too much is made of these figures it should be noted that overall in 2007 tonnage was down 1.4%, which followed on the heels of a 1.7% decline in 2006.

“Both the month-to-month and year-over-year increases were very encouraging,” said Costello. “However, the supply chain has changed during the fall freight season, leading to better Novembers and Decembers than in the past, so we shouldn’t read too much into the recent data at this point.”

ATA claims trucking is a barometer of the overall US economy since it represents 70% of all cargo carried by all modes of domestic freight transportation, including manufactured and retail goods. The feeling is that despite this boost, truck freight volumes will remain rather “lackluster” during the first half of this year. Costello puts the odds of a recession at 40%.

While carriers of smaller package shipments have generally been enjoying good business with international shipments, the same can’t be said about domestic cargo, which has been suffering. This has meant increased vigor in offerings from the major players in the field. In fact even the United States Postal Service (USPS) is becoming more aggressive in the search to increase its customer base.

Of late, the USPS has seen its revenues climb although volumes have dipped. First Quarter Fiscal 2008, which ended on December 31, 2007, showed that total revenue was up 3.5% year over year with net income of $672 million on revenues of $20.4 billion. Total volumes were down 3% in the period with First Class showing a decline of 3.9%.

“The economic downturn was the main factor for the volume decline,” observed John Porter, Postmaster General, “as the hard-hit financial and housing sectors are heavy users of the mail. I’m proud our managers and employees adjusted quickly to these changing market conditions, making a positive quarterly net income possible. Not only did they help us tighten our belt, but they provided record levels of service.”

Potter’s reference to improved service was that national on-time performance scores for delivery of First-Class Mail hit all-time first-quarter highs in two of the three categories USPS tracks. “National overnight service was 96% on-time—a first for three quarters in a row,” says the USPS. “Two-day service was 93% on-time. Three-day performance was 88%, a two-point improvement over the same period last year.”

Ed Wolfe of Bear Stearns Equity Research notes that currently the USPS is not permitted to offer preferential/discounted rates based on volume. However beginning mid-year a key provision of the 2006 Postal Act will allow the USPS to price its market competitive products (Express, Priority, Parcel Post and International) using volume-type discounts much like its peers.

FedEx Corp. continues to enhance its domestic and international product offerings. Recently it began providing users of Microsoft Office Outlook the ability to quickly access FedEx shipping functions. Those functions include the ability to generate labels, track packages, check rates, schedule pick-ups and find package drop-off locations.

For international commerce within Asia and for shipments to the US and Europe, FedEx Express has introduced International Economy service. The product is designed to serve needs of small- to mediumsized enterprises (SMEs), among others, within ten Asia-Pacific markets. Noting that the region has the largest concentration of SMEs in the world, these entities will have door-to-door pickup and delivery that includes Customs clearance.

International Economy transit time is usually one to two days longer than FedEx International Priority service, a premium service aimed at moving more time-sensitive shipments. The carrier claims that International Economy typically delivers intra-Asia packages in two business days. Transit time for shipment to the US and Europe is three to four business days. The offering is designed for individual packages under 68 kg (150 lb) with no weight restrictions for multiple piece shipments.

Discussing the product, David L. Cunningham Jr., president, FedEx Express Asia Pacific, says, “We believe there is a clear demand for a service that lies between our premium International Priority express service and the regular postal service. Our International Economy service meets that need for customers, and at the same time broadens the portfolio of shipping options that FedEx offers.”

The 10 Asia Pacific markets in which International Economy is available are Australia, Mainland China, Hong Kong, Japan, South Korea, Malaysia, New Zealand, Singapore, Taiwan and Thailand. It is being expanded this month to Indonesia, the Philippines and Vietnam.

With North American ground shipments, FedEx Freight has improved its service standards in more than 1,000 lanes over the past year. Most recently it has cut transit times in half from the Las Vegas area to Oakland, San Jose, Sacramento, Bakersfield and other large cities in Central California and from Vancouver, British Columbia into the US Pacific Northwest.

Calling it a perfect complement to its worldwide package shipping, UPS announced a door-to-door guarantee on day-specific air shipments. UPS Express Freight more than triples the number of express lanes currently served and provides guaranteed time-definite, overnightto- three day door-to-door delivery including routine customs clearance to major global metropolitan areas, says UPS.

As part of a reconfigured air service offering, UPS is also offering two nonguaranteed alternatives. Air Freight Direct is a one- to three-day airport-to-airport service. UPS Air Freight Consolidated is a three- to five-day airport-to-airport service. Both are available worldwide with pick up, delivery, and customs clearance as optional features.

Freight shipments could move on UPS or third-party aircraft. UPS is also introducing automatic on-line day-specific scheduling for shippers who are using third-party carriers, something not previously available.

Alan Gershenhorn, UPS senior vice president for worldwide sales and marketing, claims, “The reinvention of our global air freight portfolio positions us well in the marketplace. We can provide the global reach, flexible scheduling and competitive pricing that businesses need and expect from us. Our customers gain more flexibility and control over their freight shipments without sacrificing single- source accountability.”

UPS has also reduced transit time for shippers in eight states, lessening it by a full day or more without changing customer pick-up or delivery times. UPS says the lane improvement changes will help a total of 70 markets and will speed up daily movement of 75,000 packages across the country.

The eight areas covered by the speedier service are Colorado, Connecticut, Minnesota, Pittsburgh, Montana, North Dakota, Western Nebraska and Wyoming.

While it has experienced the same tight shipping market conditions and costs that have touched all US industry and has cut 600 jobs in its domestic operations, DHL continues to provide a full range of services.

The carrier has been providing Next Day service from the UK, Netherlands, Belgium, France, Germany and Italy to the US, Canada and Mexico. Begun last year, the service has meant that European shipments may be picked up in the afternoon and delivered the next day to all major business addresses throughout the US. Most European dutiable shipments are cleared prior to arrival in the US.

The carrier has reached a strategic agreement with Walgreens that will now offer customers DHL Express services. For its part, Walgreens is looking to expand its coverage to more than 6,500 locations by the end of this year with 1,600 of them open around the clock. Called the DHL Shipping Spot within the stores, the facilities will be staffed by Walgreens employees who will weigh, label and ship customer packages for overnight, ground or international delivery. Through a similar agreement with OfficeMax, DHL expects to more than double the number of its retail outlets.

The carrier has gained new business and expanded service to its existing customer base, including such companies as Kraft Foods that has named DHL as its primary US express carrier. The carrier will provide express services for Kraft’s letters and small package shipments—including pick-up and delivery of food product samples as well as point-of-sales advertising, interoffice documents and payroll. Kraft has designated DHL as a provider for US ground delivery and international express services.

The Freight Slowdown is Hitting Canada, Too

In the department of misery and company, Canadian truckers are being hurt by the same economic problems as those in the US. In testimony before the Canadian Government’s Commons Standing Committee on Industry, Science and Technology, Graham Cooper pointed to current economic conditions on both sides of the border, exacerbated by rising fuel prices and meeting requirements of a number of security programs as seriously harming the country’s trucking industry. Cooper is senior vice president of the Canadian Trucking Alliance (CTA), a federation of seven provincial and regional trucking associations, representing more than 4,500 motor carriers.

Cooper drew attention to the cross-border market as a place where trucking is being particularly hard hit. While Canada’s total exports to the US declined for the 12-month period from to November 2007 by 3.8% and imports by 1.9%, those gross figures did not give a correct view of carrier plight, he said.

“Trucking specializes in the carriage of relatively lower weight and higher value products when compared with other freight modes,” he noted. “In fact, just five commodity groupings of manufactured or partially manufactured goods traditionally represent over three-quarters of total exports by truck to the US. A comparison of export statistics for November 2006 and November 2007 shows year-over-year decreases of 4.4% in industrial goods, 3.7% in machinery and equipment, 5.9% in automotive products and 9.9% in other consumer goods.

After the cost of labor, diesel fuel is the second largest component of Canadian trucker’s expenses. CTA notes that the average price per litre of fuel in Canada has risen by 49% over a 3-1/2 year period. “While motor carriers have been able to pass some of this increase on to their customers through fuel surcharges,” claimed Cooper, “current economic conditions in the industry make this increasingly difficult. Competition is fierce, largely as a result of excess capacity—what has been referred to as too many trucks chasing too little freight. As a consequence, rates are at best stagnant and in many cases are discounted just to keep trucks on the road.” The CTA continued to advocate what it has for a number of years, having the government reduce the federal excise tax on motor fuels.

While noting that the Canadian trucking industry has been supportive of border security matters, particularly since the events of September 11, 2001, Cooper did say that some of the programs are driving up the costs of transportation and harming Canadian competitiveness. “Canada and the US have created an array of programs that don’t always dovetail with one another, and the situation seems to be getting worse,” he claimed. “The trucking industry today faces a range of mode-specific, facility-specific, and even commodity-specific requirements coming at us from departments and agencies on both sides of the border. The situation is not sustainable. We can’t go on forever, layering one new program on top of another.”

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