Dollars & Sense
A Look Back and Into The Future
For some in the expedited trucking industry, the close of 2007 is accompanied by a sigh of relief and a fervent hope for better times in the coming year.
This feeling is shared by many in general trucking as well and as another very eventful year in transportation draws to a close, it's time to look back at some of the major stories of the year. Here are some of the events that transpired this past year in freight transportation.
*Freight recession
The credit crunch and the downturn in the US housing market took their toll as all sectors of the freight market, - LTL, truckload, intermodal - experienced the ravages of the downturn in freight volumes.
The US dollar dipped against many currencies of the world. The very definition of what is headhaul and backhaul freight has been transformed. Trucking companies across North America employed a number of strategies including parking trucks, cutting costs and aggressive pricing in an effort to weather the storm. At the same time, shippers took advantage of the swing in the balance of leverage to secure rate rollbacks and fuel surcharge reductions.
*Fuel prices
While the freight recession has overshadowed many other news stories, the rapid rise in the cost of oil to the $90-$100 range has also been a major event. Perhaps one of the most surprising things about this change is how much consumers, carriers and shippers have come to accept the impact on freight costs. However, with fuel surcharges now are becoming 30% of the cost of freight, this long simmering topic has yet again come to the surface.
*The diminishment of the fall shipping season
The back-to-school and Christmas shipping seasons still represent the backbone of the surge in freight transportation in the third and fourth quarters of the year. However, for the past two years, a sea change has occurred.
The explanations vary from the miniaturization of technology (e.g. the shift from stereos to iPods), the housing and credit crunch in the United States, the congestion at southwest US ports to better planning by logistics managers across North America.
Whatever the reason, the fall shipping season "is not what it used to be" and may never be the same again.
*Mexican trucks allowed entry into the United States
A NAFTA trade tribunal ordered the United States to end its long-time ban on cross-border cargo haulers. The ruling was the first major US defeat under the little-known arbitration process of the North American Free Trade Agreement.
The issue is central to NAFTA because 82% of the $240 billion annual volume of US trade with Mexico moves by land. Previously, the four million Mexican trucks that cross into the United States were allowed only within a zone ranging three to 20 miles north of the heavily congested border, where they transfer their loads to American trucks.
*Globalization
While this movement has been under way for years, 2007 was a landmark year for many carriers and shippers. Major transportation companies ranging from YRC to Werner to Schneider made strategic acquisitions and formed strategic alliances in China. Daily announcements were the norm. Delegations to China and customer/supplier meetings became a major part of the rapidly developing global world.
Other related trucking topics as the capacity glut (yes glut, not shortage in 2007), the increasing interest in risk and security management and the interest of private equity in transportation (at least at the beginning of 2007), all played key roles in the 2007 picture.
What's on the horizon for 2008?
Time for a reality check. Following three years of strong demand growth that led to higher volumes and pricing power for the trucking industry, demand began to wane in the latter half of 2006 and weakened further over the course of 2007.
The hoped-for increase in demand that many expected in the second half of this year never materialized, and demand in the peak season has been about as weak as the lackluster period last year.
The trucking industry's problems have not only been the result of waning demand, however. The industry also suffered in 2007 from a rapid increase in capacity that was partly the result of the U.S. Environmental Protection Agency's (EPA's) change in emission regulations for heavy-duty truck engines that took effect in January.
Many truckers, concerned about the potential costs associated with new technology, opted to 'pre-buy' trucks in 2006, purchasing far more trucks last year than they would have in a 'normal' year. This growth in trucks led to an increase in trucking capacity just as demand was cooling.
Looking toward 2008, continued weakness in housing, potential tightness in the credit markets and high energy prices are expected to restrain economic growth in the United States.
Although the GDP growth rate is expected to continue slowing in 2007, the rate of deceleration is expected to moderate, which could help to slow the rate of decline in demand for economically-sensitive goods.
As truck volumes are more closely tied to these goods than rail volumes, this could be more important for truckers, who could see the rate of decline in demand moderate in 2008. Challenges will remain, however, as even moderating demand will still be relatively weak.
Pricing in the truck sector will remain competitive, although the steep decline in truck deliveries in 2007 combined with normal equipment retirements should help to improve the capacity situation somewhat.
The expedited trucking outlook
Stu Sutton is President and founder of GPSNet Technologies, a software development company whose products allow individual expedited carriers to share their fleets and freight opportunities.
This position provides Sutton a unique overview of the expedited industry and his comments are applicable to the multi-truck carrier as well as the individual owner-operator. He says, "As 2007 winds down, we look back at a year that left carriers mildly disappointed. Many expedite companies did well in 2007 compared to 2006, but we did not see the traditional expedite business cycle."
"May and June were very strong business months and gave carriers hope for a good 2nd half. August business was uncharacteristically strong, but then September and October (the traditional busy months) were uncharacteristically disappointing."
"From the expediting companies that subscribe to the GPSNet software, over 75% of them had a better 2007 vs. 2006, some growing by more than 50% year over year."
Sutton continues, "As we move into the New Year, 2008 will hold early challenges - especially if carriers did not save some cash to get them through the traditionally slow months of January and February."
"During slow economic times, the wise carriers will take advantage of the opportunity to upgrade their equipment, technology and staff training to get ready for the next "push" starting in March."
"The wise carriers will also ensure they participate in a program that will give maximum visibility to their available equipment and find ways to always "say YES" to their customer’s freight requests by having access to additional fleet."
"Personally, I know of several progressive companies who have already begun their business upgrading process. These progressive companies collectively grew by more than 30% in 2007 and their business plans intend to match that growth rate in 2008."
"People (companies) can be divided into three groups. Those that make things happen, those that watch things happen, and those that wondered what happened. Anybody can be successful during good economic times. However, it is the creative companies that do well during challenging economic times."
The carriers' outlook
John Mueller, Safety and Recruiting Director
Premium Transportation Logistics
"2007 was surely a flat year for the trucking inustry. Because of ties to the automotive industry, expediting has felt the trickle down effect of that sluggish industry."
"As always, nothing is guaranteed in expediting. Companies that will survive and endure 2008, should this prove to be another flat year, will be organizations that have already strengthened their financial foundation through cut backs and realistic forecasting.
The same holds true forOwner-Operators/Independent Contractors."
Mike Welch, CEO
Express-1 Expedited Solutions, Inc.
"I believe that 2008 will be a challenging and competitive year much like 2007. During 2007 we have aligned ourselves with strategic customers that have helped us become more efficient and nimble."
"We have also reduced our company gross margin per shipment, to offer more loaded miles to our owner-operators in a difficult economic environment. This strategy will be similar in 2008."
"We would also like to see our ratio of trucks to office employees continue to rise as we develop more efficiencies in our operations, support, and sales departments. Growing approximately 25% in 2007 has been a challenge, but it has given us a chance to fine tune our operation."
"We feel we are poised for strong growth and will continue to work towards becoming a better and stronger company in 2008. Lastly, and most importantly, we are blessed with another safe year in 2007, we hope and will work for the same in 2008."
Virginia Albanese, President and CEO
FedEx Custom Critical
"2007 certainly had its ups and downs, but we ended the year on a strong note. We were able to keep up with customer demand with some strong availability numbers from our owner-operator fleet, and we hope to continue that momentum into the New Year."
"We're looking forward to a good year in 2008. We will continue to grow our core services and leverage the FedEx brand name in the marketplace."
Ben Bauman, CEO
Bolt Express
"Bolt Express had an outstanding 2007 year. We experienced about a 54% organic growth rate that came from a variety of sales fronts."
"We opened a Mexico inbound/outbound and intra-Mexico service that has been a real value-added service to our customer base. We increased our fleet by 79% this year alone and we maintained a 77% turn-over rate year-to-date in 2007."
"As for the economies of this year, we saw a slide in the overall rates that had an effect on margins. However, the last quarter we have seen an increase in the rates. To sum up 2007, it was a very good year for our company."
"In 2008, we have some very aggressive plans in regards to expansion. We have doubled the size of our sales staff and have prepared the company, in terms of truck count and operations, for some very aggressive growth."
"We are facing an uphill battle from an economics standpoint and an election year, but we are not letting these negative forces affect our growth and determination to meet our goals in 2008."
"I believe we will see a continued pressure on driving down the rates, a continued increase of fuel prices and hopefully an increase in demand by mid-year. It will require the carriers that want to end the year strong to make some very strong efforts at trimming cost and focusing on margins."
"Overall, Bolt Express predicts a very good year in 2008!"
Spencer A. Squier, President
All-State Express, Inc.
"Going into 08, the transportation trucking industry especially in the premium expedite market will remain at a snails pace. With the housing market steadily declining in sales and analysts are expecting 12 to 18 more months of that and the constant moving of our industries to overseas countries will continue."
"This is scary times forcing more mergers and acquisitions. This country is at a hair's length of a full recession. My belief is we are curretly in a mini-recession now. The constant decline in margins from the retail sector to the transportation sector will continue for another 13 months."
"On a positive note All-State Express recognizes this and our plan is to diversify and create partnerships which will create more opportnities for our fleet and future drivers. Is a possible merge in order for all-state?"
"This is a time where the strong and well managed company's will prevail. Creative and innovative management teams will shine and succeed."