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They carry laptops and toys, cars and coal, but
they’re not Santa’s elves, and they weren’t very
jolly this holiday season.
It’s been a devastating year for the US
railroads, trucking companies and package
shippers – the companies on the “front lines” of
the economic recession.
Shipments have plunged as retailers pulled back
on orders and consumers tied their purse strings
tight in preparation for more hard times.
Swiftly accelerating oil prices through the
first seven months of the year crippled
companies even more.
The Dow Jones Transportation Average, which
incorporates railroads, shippers, airlines and
logistics companies, lost a quarter of its value
in 2008 and fell more drastically – by about a
third – in the last three months of the year.
That compares with a 39% decline for the Dow
Jones Total Market index and the Standard &
Poor’s 500 index in 2008.
“While it may not be a surprise to most anymore,
freight is atrocious, awful, dreadful, horrible,
nasty, ugly – or whatever synonym for ‘bad’ you
want to pull out of the thesaurus right now –
and we do not see it snapping back anytime
soon,” Stifel Nicolaus analyst David Ross said
recently.
Truckers have arguably been hit the worst among
freight carriers, as companies – desperate to
grab a limited amount of business – were forced
to greatly reduce prices in order to compete.
Truckers are also closely tied to consumer
spending, which has been in a downward spiral,
because they carry about 70% of all retail and
manufactured goods in the US.
Nearly 2,000 trucking companies went out of
business in just the first six months of the
year, according to Avondale Partners analyst
Donald Broughton.
The US’ largest publicly traded trucker, YRC
Worldwide Inc, warded off predictions of
impending bankruptcy as it moved forward on a
massive reorganisation and cut salaries to
preserve cash.
Package shippers FedEx Corp and UPS Inc were a
bit more insulated from the recession because of
their size and business diversification.
Still, sales and earnings suffered as consumers
and businesses chose less expensive shipping
options, shipped less frequently and freight
demand tumbled.
Both UPS and FedEx have steered expectations
down this year, saying that even rapidly falling
fuel prices and the planned exit of competitor
DHL from the US market won’t be enough to
counteract sliding demand.
But just as these companies were hit first when
the downturn began, truckers, railroads and
shippers probably will be the first to show
relief when the economy recovers, analysts say,
as retailers buy more to stock their shelves in
preparation for an upswing in consumer spending.
Still, analysts suggest that the light at the
end of the tunnel is likely far off.
FedEx chairman and chief executive Fred Smith
said in December that the carrier was battling
“some of the worst economic conditions in the
company’s 35-year operating history.”
Like YRC, FedEx also chose to cut salaries to
trim costs. CEO Smith will take home 20% less
this year, senior management salaries will be
trimmed 7.5% to 10%, and about 36,000 workers
will take a 5% pay cut. FedEx shares fell 28% in
2008, while UPS shares lost about 22%.
Not all transport companies had to take drastic
measures though.
Railroads have proven they can fetch higher
prices for transporting goods and offset lower
volumes.
But volume was hit particularly hard.
Auto and construction related shipments fell by
double digits, as vehicle demand plunged and the
housing market fell to its knees.
Most railroad stocks, despite repeatedly
surprising Wall Street with their quarterly
results, still took a big hit.
The nation’s largest railroad, Omaha,
Nebraska-based Union Pacific Corp, saw its stock
decline 24% in 2008.
Although some railroads laid off workers and
reined in other costs, most managed to keep
earnings intact because of strong pricing power
and booming shipments of coal, agricultural
products and chemicals for most of the year.
Longbow Research analyst Lee Klaskow said
railroads with ties to “steady” shipments
including agricultural products and coal will
continue to be safer bets going into next year.
But freight demand won’t likely get better for
some time.
Analysts predict it will remain weak for at
least another six months, if not for all of
2009.
“Looking into our crystal ball, we’re expecting
negative volumes through most of the year,”
Klaskow said. “We don’t expect growth until the
fourth quarter, and even then the growth will be
pretty shallow.”
Several of the biggest railroads and trucking
companies – including Union Pacific and YRC
Worldwide – also expect the economy to remain
muted.The potential for significant
infrastructure spending by the incoming Obama
administration might also buoy demand for
freight.
Monday January 5, 2009
The Star - MARITIME |
