Logistics Management: Management Update
An Executive Summary of Industry News
-- Logistics Management, 8/1/2009
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Expedited’s long, slow recovery. In releasing a mid-year update to its annual projections for growth in the $101.2 billion U.S. expedited cargo market, The Colography Group Inc. said that the market won’t see a rebound for a while. “While we were disappointed with the findings, I can’t say we were really surprised,” said Ted Scherck, Colography’s president. In an interview with LM, he said that the economy is continuing its meltdown. “The nation’s economy has been victimized by a series of 'bubbles.’ Reality has set in now, and the outlook is still pretty grim for our sector.” Using its most likely case scenario, Colography estimates that just under 120 million new shipments will be added to U.S. expedited commerce in the coming year, with ground parcel and air export services accounting for virtually all new expedited shipping volume.
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Another tough month for truck tonnage. The American Trucking Associations (ATA) reported that June 2008 tonnage was down 13.6 percent year-over-year, representing the biggest annual dip in 2009 and in the current downward cycle as well. On a positive note, the ATA said that its not seasonally adjusted (NSA) index was up 5.2 percent in June from May. This index, which has shown sequential gains in three of the last four months, represents the change in tonnage actually hauled by trucking fleets before any seasonal adjustment. And if it continues it could mean that tonnage is slowly rebounding. But before we declare the freight recession over, we should point out that the ATA said the NSA index in June was down 10.3 percent compared to 2008.
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Retail news is bad news. According to the National Retail Federation (NRF), the news about retail is not good. Even with a flurry of discounts on seasonal merchandise and apparel, consumers are holding onto their money rather than acting as catalysts for a rebound in economic activity and freight volumes. NRF data released last month indicates that retail industry sales in June—excluding automobiles, gas stations, and restaurants—dipped 3.8 percent year-over-year and 0.2 percent on a sequential basis. Meanwhile, the U.S. Commerce Department reported that total retail sales for June were off by 7.8 percent compared to June 2008.
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Freer skies… The U.S. Department of Transportation granted final approval for antitrust immunity to Continental Airlines for its participation in the Star Alliance. At the same time, the agency approved a new joint venture among four of the alliance’s members. Brandon Fried, executive director of the Airforwarders Association, told LM that the move was welcomed by shippers. “U.S. carriers need all the help they can get at this point,” he said. “The antitrust immunity will permit some of the marginal players to build up their balance sheets and give shippers more sustainable levels of service.”
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…but air volumes remain week. Meanwhile, cargo revenue ton miles data released in July confirms that domestic air volumes remain weak. According to the Air Transport Association of America, domestic volumes remain feeble, but the rate of year-to-date contraction wasn’t as bad in May as it was in April. In June, the industry trade organization for the leading U.S. airlines reported that passenger revenue fell 26 percent in May 2009 versus the same month in 2008—the seventh consecutive month in which passenger revenue has fallen from the prior year. Richard Macomber, chairman of the air cargo committee for the National Industrial Transportation League (NITL), told LM that the data seems accurate. “Based on our feedback, the cargo picture is improving somewhat, while passenger demand remains flat. It’s a soft recovery at best.”
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Smaller is the new bigger. DHL has announced the launch of its guaranteed weekly Less than Container Load (LCL) services connecting Bangkok to Los Angeles, Hamburg, and Tokyo, further validating that shippers and intermediaries are relying more on LCL this season. Through Danmar Lines, DHL’s in-house carrier, the new weekly direct LCL services enables shipments to arrive up to a week earlier. According to spokesmen, the launch of the new service taps into the key trade lanes for businesses in Thailand. Jon Monroe, president of Monroe Consulting in Shanghai, noted that Thailand is also becoming a larger trading partner with China now, and may not need to ship as many full containers in the transpacific as a consequence. “Loads are being consolidated in a down economy,” he said. “And DHL is among the players taking advantage of that trend.”
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Times may change carriers. Carriers will have to change their business models or risk further casualties, say industry analysts. According to a new report issued by London-based Drewry Shipping Consultants, the ocean carrier “mind-set” reliant on capturing market share is outdated and subject to collapse unless it is changed dramatically in future months. “The bad news for the container shippers is that there is no good news,” said the authors of Container Forecaster, the quarterly review published by the analysts. “The green shoots some industry leaders have talked about are wishful thinking,” states the report. Drewry’s analysts said there will be a 10.3 percent contraction for containers by the end of 2009 and this should be followed by a mere 1 percent growth next year.
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It’s getting hot in here. According to a new report released by BMO Capital Markets, the investment and corporate banking arm of BMO Financial Group, the logistics sector is poised for a rebound. “Overall, M&A activity for transportation industry service providers remained relatively strong last year with a total of 142 announced transactions, a decrease of only 2 percent from the number of deals recorded in 2007,” said Edward McGuire, managing director in the BMO Capital Markets Transportation Group. “While the turmoil in the credit markets has affected deal volume particularly in transactions where private equity firms were involved, consolidation in the transportation sector continued as strategic buyers looked to broaden service offerings and expand geographic presence,” said McGuire.
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Tough Q2 for Big Brown. Despite recent glimmers of an improving economy, Q2 earnings at UPS tell us that we still have some work ahead of us. Quarterly net income at $445 million was down nearly 50 percent year-over-year, with quarterly revenue and operating profits also seeing declines. The overall daily package volume of 14.3 million sank nearly 5 percent in the second quarter, with a 10.5 decline in revenue per piece. UPS officials said these less than encouraging package figures are largely due to fuel surcharge reductions, lighter-weight packages, and the negative impact of currency.
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Traffic still causing headaches. That is the overall vibe from the Texas Transportation Institute’s (TTI) 2009 Urban Mobility Report. Focusing on data through 2007, the TTI found that congestion has gotten worse in the country’s 439 urban areas and caused urban Americans to travel 4.2 billion hours more and purchase an extra 2.8 billion gallons of fuel compared to the previous decade, totaling $87.2 billion in congestion costs. But on a positive note, U.S. travelers spent an hour less in peak traffic delays from 2006 to 2007—dropping from 37 hours to 36 hours—and they wasted one less gallon of gasoline during peak traffic delays—dropping from 25 gallons to 24 gallons.
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Dumping assets. Pacer International, Inc. a major North American freight transportation and logistics services provider, announced that it has entered into an agreement with Universal Truckload Services, Inc. and UTS Leasing Inc. (collectively, UTSI) to sell certain assets. According to spokesmen, these assets include customer, contractor, and agent lists as well as owned trailers of Pacer Transport, its specialized heavy-haul trucking operation. Industry analysts said that the proposed sale suggests that more modal consolidation is being driven by a lagging economy and weaker profit margins. “From a shipper’s perspective, this move will only mean that business will remain the same or even improve slightly,” said Ron Hounsell, vice president & COO of The Labor Development Group. “Outsourcing has been an ongoing trend for some time.”
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Canal congestion cascades. The Panama Canal Authority (ACP) released its Q3 operational metrics for fiscal year 2009, noting that diminished traffic through the major gateway is a reflection of the struggling global economy. “This past quarter we had a decrease in booking system utilization,” said ACP executive vice president of operations Manuel Benítez. “Overall, our operational figures fluctuated downward only slightly and we expect this trend to continue.” In Q3, Canal Waters Time, the average time it takes a vessel to transit the Canal, including waiting time for passage, decreased significantly. Additionally, total transits and net tonnage decreased slightly.
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Bar pilot sentenced. Citing his behavior as “careless,” U.S. District Judge Susan Illston in San Francisco imposed the maximum term on Capt. John Cota for his role in 2007 Cosco Busan oil spill. Cota was sentenced to 10 months in prison. This represents the first time in U.S. history a marine pilot has been sent to prison for an accident. Cota had accepted the sentence last March in a plea agreement, pleading guilty to two misdemeanor charges of polluting the waters and killing migratory seabirds by nicking a piece of the Bay Bridge with a container vessel under his charge. Cota is scheduled to report to prison on Sept. 18.
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Good-bye Ohio, it’s been great. Once DHL Express officially exited the domestic U.S. market in January, it increased the odds that it would not remain at the Wilmington Air Park. Late last month, that became official when DHL moved its U.S. hub operations to Kentucky-based Cincinnati/Northern Kentucky International Airport (CVG). Since exiting the domestic U.S. market, DHL’s U.S. business focuses on international import and export services in major metropolitan U.S. areas. DHL previously worked out of CVG from 1983 until it moved to Wilmington in 2005. The company is also expected to reactivate its automated sorting facility at CVG.
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Taking iTunes to the high seas. The next time you look to buy a song on iTunes, check out the Maritime Glossary from Coracle, an e-learning technology provider. The glossary, geared towards international trade and maritime terms, provides access to more than 9,000 nautical terms and abbreviations. And it acts as a reference tool that can provide easy-to-find information right from an iPhone.
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Elliott gets STB nod. President Barack Obama nominated Daniel R. Elliott III, United Transportation Union (UTU) Associate General Counsel, as a member of the three person U.S. Surface Transportation Board (STB) and chairman of the STB upon Senate confirmation. If confirmed, Elliott would join acting chairman Frank Mulvey and former chairman Charles Nottingham on the board. Elliott has served in his current position at the UTU since 1993.
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