Trucking news: execs comment on reasons for another weak Peak season

John D. Schulz, Contributing Editor -- Logistics Management, 9/17/2008

WASHINGTON—The peak is weak, according to many trucking executives accustomed to being able to generate higher rates during the usual September-to-December surge in freight demand, which has not occurred the past three years the way it historically has.

“We haven’t had a peak season last two or three years,” Pat Quinn, co-chairman of U.S. Xpress, Chattanooga, Tenn., a major truckload carrier, says. “The period between August 15 and December 15 is still our busiest time. But it’s flattened now. It’s spread a little wider, which is better. It’s very different.”

For survivors such as USX, the peak season is still profitable, just not the way it was from the period between 2002 and 2006 when truckers routinely were able to garner contractual rate increases of anywhere from 4 to 10 percent. “Business is OK, but it’s not OK-plus,” Quinn said.

The reasons are multifold:

• First, the usual flood of containers off ocean ships at West Coast ports has been smoothed. Shippers are  spreading out those shipments over a longer cycle in order to avoid paying exorbitant ocean rates.
•  Port diversion. Some shippers are eschewing the more crowded ports of Los Angeles and Long Beach in favor of ports in Canada’s Vancouver and Prince Rupert areas, as well as along the Gulf Coast in some instances.
• The domestic slump in housing and autos has hurt trucking in two important sectors. Many experts say trucking won’t fully rebound until the construction industry is once again healthy.
• Retailers, facing a sharp cutback in consumer spending, are managing (and often reducing) inventories as tightly as possible.

 But because there have been more than 2,000 closings or bankruptcies of truck fleets with at least five trucks since the first of the year, the survivors are able to pick up profitable loads in areas, where in the past they may not have been

“Supply and demand are pretty much equal in most areas of the country,” Quinn says. “Demand is quite good. The economic problems are financial, which never goes on a truck. We’ve adjusted to the home-building situation 24 months ago. Automotive is another one. But the weakness is not in every segment of the economy. Discount retailers such as Wal-Mart and Dollar Stores are doing extremely well. I’m not saying it’s overblown, but the areas that are hurting do not move a lot of freight.”

Tom Connery, executive vice president and COO of New England Motor Freight, says in terms of revenue, NEMF is up marginally year over year with shipment counts in August up in single percentage digits. Pricing is still “very aggressive,’ Connery says.

“We did see upticks in our national accounts this summer,” Connery says. “The Mom and Pop shippers are feeling pain of economy, however.”

NEMF, the largest purely Eastern regional LTL carrier with more than $300 million in revenue, has been able to take advantage of some of the trucking closings that have occurred in its region.

“We’re taking advantage of both Jevic (a $320 million New Jersey based carrier that closed in May) and Alvan (a $77 million Michigan carrier that closed in July) closing, so we picked up new pieces of business and some 500 new trailers at their auctions,” Connery says.

Despite the weak peak, some motor carriers are viewing this period as an excellent time to invest in greater capacity in anticipation of the inevitable rebound in freight demand.

“We think it’s a good time to invest because the prices we’re able to get are very favorable,” Connery says, adding NEMF was able to obtain 50 tractors from Jevic for between 30 to 40 cents on a dollar.

“There’s always an upside to the downside,” Connery says.

NEMF is still expanding. It recently opened a new terminal in Roanoke, Va., and is moving into a larger facility in Richmond, Va., as it expands its footprint beyond its traditional Northeast base.

“Spreading out the peak does make manpower and planning a little easier,” Connery says. “You don’t have extreme spikes. From a labor perspective is a positive. But it’s our most profitable time. We like to see the spikes. We like to stretch our system. That’s where we get our productivity gains.”

Looking into his crystal ball, Connery sees the next four to six quarters as continuing to be “soft.” He’s hoping for a significant rebound by the end of 2009.

“I don’t see any great uptick in the near term,” he says.

The peak season in the LTL industry generally runs from the second half of August through the first two weeks in November. With Thanksgiving coming late this year, shippers may extend peak to the third week in November.
"With the economy continuing to falter this year has been a real struggle," said an official with a prominent industry carrier, who refused to be further identified. “Will things get better? Unless the economy improves and shoppers return to the malls and retailers can rebound during the holiday season there is no reason to believe they will re-stock inventories reduced earlier. The struggle could continue well into 2009."

Thom Albrecht, analyst with Stephens Inc., Little Rock, Ark., says TL loads remain higher than during April and early May with some carriers' volumes actually up year over year in July and August.  But Albrecht noted that is not generally true in LTL, especially with shipment counts. Since mid-August, flatbed volumes have slowed significantly. That’s significant, Albrecht says, because historically flatbed and LTL have moved together given the sizeable industrial exposure of each sector.

October and November promise to be interesting, analysts say. While they do not  expect a strong peak, the next several weeks have the promise of being a bit better as shuttered auto plants reopen and as Chinese plants ramp back up after the Olympics.

But the squeeze on the financial sector already is being felt in trucking. Consolidation is occurring as banks increasingly are scrutinizing the value of collateral (equipment and terminals) and weighing that against their loans’ exposure.

In August, C.W. Johnson, a Louisville, Ky.-based carrier shut down in large part because a bank foreclosed on an $8.3 million loan. There could be hundreds of similar shutdowns over the next few quarters.

Analysts say this closer scrutiny of marginal truckers will continue until the nation exits its financial crisis and until the values of truckers’ equipment and trailers have stabilized.