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Transportation News Bulletins - LTL and TL

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Truck Availability Shrinking as Freight Demand Increases
Monday, 15 March 2010 00:00

Truck availability has tightened sharply in recent weeks as steadily growing freight demand draws even with total truck capacity, which shriveled during the recession, industry experts said.

The shift in freight markets that have been plagued by excess capacity for some 18 months embraces a range of shipments from durable goods to groceries and is occurring in California, the Midwest and other states, carrier officials and other sources said. “We’ve had 3½ years of the truckload recession,” John Steele, chief financial officer of Werner Enterprises, said on March 9. “So, it is difficult for shippers to understand and comprehend that the market is turning, but it is clearly, clearly turning.”

Five other freight executives, along with other industry experts, also said last week that truckload capacity is tightening.

A weekly index published March 4 by Internet Truckstop hit its highest level since September 2008, signaling that demand outpaced supply for the first time since then.

Douglas Stotlar, CEO of Con-way Inc., said March 9 that the capacity squeeze is showing up in lower freight margins for brokers and stronger demand at the end of the week as shippers scramble to cover their loads.

“We are seeing much stronger demand on the steel side,” Steve Williams, Maverick USA chief executive officer, told Transport Topics. “A lot of capacity has left the marketplace. Customers are concerned even in this market that there are not enough trucks.” Maverick is a flatbed carrier with a large base of steelhauling business. The flatbed sector has been amongst the hardest hit by the dearth of freight, as the construction and auto-building businesses all shrank during the recession.

A.C.T. Research last month estimated that the total Class 8 fleet has shrunk by 210,000, or 13%, in three years.

The durable goods market, including autos and appliances made from steel, is now strengthening along with consumer confidence, Williams said.

“There is pent-up demand,” he said. “As people get their confidence back, they may not buy a new house, but they will remodel. The demand is coming from replacement equipment, not new home construction.”

“Customers are starting to stick their head out of the ground,” Vincent Gulisano, chief customer officer at Greatwide Logistics, told TT last week. “Activity levels are up dramatically; capacity is tightening.”

Greatwide said utilization rates for dedicated business jumped to 80% now from 65% at this time last year.

A trucking sales executive who requested anonymity said, “My gut tells me it’s both reduced capacity and higher demand that is tightening the market. A lot of our retailers have cleaned up inventory and are buying again.”

Demand is strongest in Texas, California, parts of the Midwest, Pennsylvania and Alabama, as well as Georgia, the Internet Truck Stop report said.

“We’ve seen more typical seasonal improvement from January to February to March, if not a little better than normal,” Steele said, in contrast to last year when volume fell from January to March.

Freight is approaching 2006 levels, with particularly strong retail and grocery shipments, said Steele, who estimated that 75% of the market improvement resulted from reduced capacity and 25% from stronger demand.

“We have already passed that place” where supply and demand are in equilibrium, said Andy Cole, chief executive officer of Total Transportation Services Inc., with demand in spot markets slightly ahead of supply.

“There has just been so much capacity taken out of the business, not just with carriers going out of business but with trucks being parked against the fence and carriers not replacing equipment,” Cole said.

But others questioned how far the overall supply/demand balance has shifted.

“Equilibrium is not here yet, but carrier vital signs are clearly headed in the right direction,” analyst Thom Albrecht of BB&T Capital Markets stated in a March 9 investor note.

Exports and federal stimulus programs are helping flatbed carriers, with demand for their services strongest in the Midwest, Albrecht said.

“There are more loads than trucks most days in southern California, Utah, Arizona and Nevada, and the strength is spreading into Denver and the Midwest,” he said.

Albrecht estimated van excess capacity at 3% to 4%, far below the peak of at least 15% at this time last year, and forecast the excess could dissipate in three months.

“Capacity has tightened significantly,” said Lana Batts, managing director of Transport Capital Partners. “What in the world is going to happen in May or June when there is more business?”

Batts predicted that carriers are going to “get back a pound of flesh or more” in rates from shippers that took advantage of excess capacity to squeeze fleets for every penny.

Carriers will slowly gain pricing power as reduced tractor capacity, lower availability of both capital and drivers, and growing demand will create a capacity shortage over time, analyst John Larkin of Stifel, Nicolaus & Co. said in a March 9 report.

“Recent improvements in truckload demand will continue steadily over the next several years,” Larkin wrote. “Clearly, we are not entirely out of the economic woods yet.”

Transport Topics, 3/15/2010

 
Companies Caught in U.S.-Mexico Trucking Dispute
Monday, 15 March 2010 00:00

As the dispute between the United States and Mexico over access for Mexican trucks on U.S. roads continues, Transportation Secretary Ray LaHood has assured U.S. exporters he is hopeful a deal can be reached soon, the Dallas Morning News reported.

“We have not yet floated any proposals with Mexico and look forward to consulting with members of Congress,” DOT said in a statement Thursday through the Federal Motor Carrier Safety Administration, the paper reported Sunday.

The Teamsters union continues to oppose Mexican trucks getting free access to U.S. roads, citing safety and other concerns, the Morning News said.

Companies continue to be concerned about tariffs, including those set by Mexico in retaliation for the restricted access by a limited number of Mexican carriers, which was enacted by Congress last year.

Mexican officials hinted last week that they may set more tariffs if the U.S. does not rescind the restricted access, claiming it is a violation of the North American Free Trade Agreement.

Transport Topics, 3/15/2010

 
Mexico Eyes New Tariffs
Monday, 15 March 2010 00:00
Ongoing Dispute Threatens Fresh Retaliation

The Mexican government is preparing to change the list of U.S. products that will be subjected to higher tariffs in retaliation for the continued lockout of that nation’s truck fleets, sources told Transport Topics last week.

A source with knowledge of the situation told TT March 9 that Mexico is “considering a second list” of products to hit with tariffs if the United States continues to keep its border closed to Mexican trucks.

The Mexican Embassy in Washington said in a statement March 9 that the government “will continue to exercise all legal means available to achieve full compliance by the United States with its commitments” under the North American Free Trade Agreement.

The current punitive tariffs, enacted last March, already are having an effect on U.S. businesses and trucking. For example, the 20% tax on frozen processed potatoes cut U.S. exports of french fries to Mexico by 50%.

A new list “has already been put together,” the source said, without revealing what was on it. He added that the Mexican government “wants to see how the administration and Congress move forward, or not, in the coming weeks,” before making a decision on a new round of tariffs. The source asked not to be identified because he was not authorized to speak on the record.

The Obama administration has recently indicated that it is prepared to move forward on a solution, but Mexico has “seen this movie many times before” and “wants to see movement” before dropping the tariffs, the source said.

“They’ve been waiting and were patient with the transition [from the Bush administration] and the [Obama] administration’s willingness to move forward,” the source said. He added that anything shy of a mutually acceptable conclusion that opens the border “will not make it.”

“This doesn’t get resolved by simply reinstituting or expanding the pilot program,” said an official representing a trade group affected by the tariffs. “That is highly unlikely to meet with the Mexican government’s acceptance. The Obama administration has really walked itself into a corner.” This source also asked not to be identified.

The Bush administration had attempted to open the border with a multiyear pilot program, but opposition in Congress and the election of President Obama combined to end the program in early 2009, pushing Mexico to impose the tariffs.

The move to a new group of products to levy tariffs upon was not a surprise to shippers or trucking industry officials.

“The rumors are pretty rampant that [Mexican officials] are going to do what is known as a ‘carousel,’ or to switch up the products,” said Doug Goudie, director of international trade policy at the National Association of Manufacturers, told TT.

“I think everyone is worried that ‘Oh, we dodged a bullet this time, but next time it may be us,’ ” he said. “And the thing is that after a year, the folks that have been hit by these tariffs, a lot of them, have lost their market share, they’ve lost sales and it may be impossible for them to get back into that market after these tariffs. And then you just go on and essentially set fire to a new part of the forest” by switching the goods affected.

The trade group official said he has been hearing that “some relief may be coming soon. . . . That doesn’t fix the problem, and who’s to say that some of the other products that we represent may find their way onto the list.”

Martin Rojas, vice president of security and operations for American Trucking Associations, said, “The list is sort of a moving target, so they can move it to other products, to other goods, as they see fit.”

With the carousel plan, the total tariffs would still add up to roughly $2.4 billion—the total annual judgment the country won under a 2001 decision by a NAFTA arbitration panel that found the United States violated the treaty by not allowing trucks from Mexico to deliver in the United States.

“They have every right to do this; they won a dispute settlement and this is what happens when you are not compliant with your international obligations,” Goudie said.

U.S. officials said they were committed to resolving the dispute.

U.S. Trade Representative Ron Kirk said last week at the National Press Club that the United States “would like to” restart cross-border trucking with Mexico.

“We were most pleased that the language . . . that wiped out the funding [of the original pilot project by Congress] was not included” in the 2010 appropriations law, he said. He added that the Obama administration hoped to “work with Congress as well as with partners in Mexico” to reach a deal.

In a statement, the U.S. Department of Transportation said it was “committed to upholding our international obligations.”

Rod Nofziger, director of governmental affairs for the Owner-Operator Independent Drivers Association, said the United States should be challenging the current tariffs, rather than looking for a way to open the border.

Nofziger said OOIDA opposes the border opening because “NAFTA was supposed to be a reciprocal agreement . . . and Mexico is not exactly a place where American truckers are keen on operating,” citing increased drug-related violence and other issues.

In addition, he questioned whether Mexican fleets could live up to U.S. safety standards.

“It’s awfully hard for our folks to swallow competing with entities that effectively have no regulatory regime south of the border,” Nofziger said.

Goudie said he “didn’t buy the safety angle,” noting that the now-defunct U.S. DOT pilot program showed that Mexican carriers were capable of meeting U.S. standards.

Transport Topics, 3/15/2010

 
LTL Carriers Rebuild
Monday, 15 March 2010 00:00
As recovery gains strength, less-than-truckload operators are emphasizing improving networks, services

At the end of 2009, the less-than-truckload industry had been razed by a price war that burned away carrier profits. Many believe 2010 will be a year of rebuilding for LTL carriers as they seek firmer footing in a market awash with overcapacity. It’s time, trucking analysts and executives say, to stop the price-cutting and strengthen LTL networks and core services.

It’s likely to be a year of “conservative” LTL growth, as one carrier executive put it, as shippers and carriers lay the groundwork for greater expansion in 2011.

“I think the industry will grow back this year, there will be more transactions available and the pricing will be a little better,” said Rick Keeler, senior vice president of pricing and strategic development at Old Dominion Freight Line. “But we’re not going to have cheerleading squads jumping up and down.”

The price war of late 2009, which had some carriers firing off 80 to 90 percent discounts, ended with the primary target, financially wounded YRC Worldwide, still standing. With the support of its banks, its union and, the carrier hopes, an increasing number of shippers, the $5.3 billion company seems certain to survive into 2011.

YRC’s most aggressive competitors haven’t stopped looking for the company’s shippers, but they appear to have called a truce on pricing battles as they try to rebuild their own rate bases.

“The biggest issue we face is definitely price,” John Labrie, Con-way Freight’s president, told analysts last month. “We’re trying to maintain our volume and increase overall price. That’s going to be hard to achieve with the excess capacity out there, but we’re working through it account by account.” “As an industry we’ve got to get back to selling the value we have.”

That account-by-account, lane-by-lane, pallet-by-pallet approach is evident across the industry, and it will mean hard and painful work at some carriers.

A year after its merger of Yellow Transportation and Roadway Express, YRC again is asking the Teamsters union to approve a change in operations that would reconfigure its network, while reportedly trimming its union and nonunion payroll.

The company, which shed hundreds of terminals over the past two years, is trying to eliminate duplicate facilities and scale back others to match low freight demand.

Re-engineering may be the LTL industry’s theme for 2010. Companies of all sizes are shortening transit times, rethinking terminal networks and finding ways to load more freight into trailers and increase density in their shortest lanes. Those that avoided the most aggressive discounting last year while maintaining at least some profitability—and there weren’t many—will be in the best position not just to rebuild their business but also to expand it.

“This is a slow, steady recovery, and we’re seeing consecutive month-over-month growth over the bottoms we had a year ago,” Old Dominion’s Keeler said. “We’ve come back in December, January and February, and we’re seeing improvements over last year’s numbers, finally, in shipments, revenue and tonnage.”

ODFL has the distinction of being the only one of the six big publicly held LTL carriers to post a profit for 2009, even if it was half the profit the company had in 2008.

The Thomasville, N.C.-based carrier earned $34.9 million on $1.25 billion in revenue in 2009. That compares with hundreds of millions of dollars in overall losses at the other publicly traded LTL carriers, led by YRC Worldwide, which lost $899 million before taxes for the full year.

Analysts attributed ODFL’s profitability to its hard-line stance on pricing, even if that meant surrendering some freight to competitors willing to offer lower rates. “ODFL has remained remarkably price-disciplined, reflected in its superior operating profit performance,” said Jon A. Langenfeld, trucking analyst with R.W. Baird & Co.

“We didn’t play the price game, except where we had to,” Keeler said. That means, unlike some competitors, ODFL doesn’t have to rebuild a book of business devalued by excessive discounts. And some shippers who were wooed away during the price war are bringing their business back, Keeler said, putting service ahead of price.

“We’ve had customers who left us for a 5 percent better price come back within a month,” he said. “They can’t afford to lose their customers due to shoddy service.”

LTL pricing is still soft, but it’s improved from “absolutely horrible” to “just bad,” Keeler said. The market “is not quite as aggressive,” he said. “Some of our customers are being hit with rate increases by our competitors, and that’s a good sign.”

ODFL is focused on improving productivity, managing cost, maintaining a high level of service and expanding ancillary services that add value for shippers, he said.

“We’re running 98 percent on time, and even when freight is down, we don’t hold it. Our transit times are about as tight as they’re going to get. We’ve been running freight from Los Angeles to Atlanta in three days for more than five years,” Keeler said.

Productivity is up on the dock and in pickup and delivery operations from a year ago, and claims are down. “We had about a 0.6 percent claims ratio for all of last year, and we’re actually beating that this year. We’ve got the fewest claims relative to revenue that we’ve ever had,” Keeler said. ODFL also is expanding beyond its core LTL service into warehousing and distribution services, opening a new warehouse and headquarters for its warehousing division in Thomasville.

“As an industry, we’ve got to get back to selling the value we have that differentiates us to our customers,” Keeler said. When carriers put price first, “they commoditize their product,” he said. “If enough of them do it, they commoditize the industry”

Journal of Commerce, 3/15/2010

 
Trucking Opposes Plan to Raise Hazmat Fees
Monday, 15 March 2010 00:00

A proposed federal rule that triples to $3,000 the annual registration fee for large hazardous materials motor carriers but maintains a fee of $300 for small carriers places an unfair burden on large carriers, American Trucking Associations and National Tank Truck Carriers said in written comments opposing the new rule.

About 7,000 of the 41,000 hazmat businesses in the United States would be affected. The federal government defines a small motor carrier as one with revenue of $25.5 million or less. Size standards would be different for non trucking companies such as manufacturers.

The ATA and NTTC comments were sent earlier this month to the Pipeline and Hazardous Materials Safety Administration in response to the agency’s rule, proposed in February.

PHMSA proposed raising the fee to increase funding for federal grants to states to train emergency response teams and to create emergency response plans for hazmat incidents.

The fee increase would be put into effect either later this year or early in 2011, PHMSA said.

The doubling of funding for the Hazardous Materials Emergency Preparedness grants program—to $28 million from $14 million—was authorized by Congress, PHMSA said.

PHMSA said that increasing the registration fees only for large carriers “will affect entities that can more easily absorb the increase.”

But ATA’s Richard Moskowitz, vice president and regulatory affairs counsel, disputed the characterization by PHMSA that the $3,000 fee won’t be hard for large carriers to pay.

“This is not true, especially during the current economic climate where some of the largest motor carriers are suffering staggering losses and are struggling to survive,” Moskowitz stated.

The agency said there are approximately 41,000 hazmat shippers and carriers currently registered. Of that total, small businesses and not-for-profit organizations make up 83%, or 34,025 companies.

Currently only 6,975, or 17%, of the companies registered are classified as large businesses, PHMSA said.

Instead of making large carriers exclusively pay for the increase in emergency planning funding, Moskowitz and John Conley, president of NTTC, suggested that PHMSA come up with a more equitable way of assessing the fees and step up efforts to locate violators who fail to register with the agency. That would increase the size of the potential funding pool, they said.

“While we understand the need to increase grant funding, we believe that PHMSA needs to do a better job of promoting and enforcing the registration requirements,” Moskowitz told Transport Topics.

“The more people that PHMSA can bring into its registration program, the lower the fee per registrant,” Moskowitz said. “They’ve got limited staff, they’ve got a lot of issues to work on and this one just hasn’t risen to the top of their priorities list.”

But Moskowitz said that if Congress wants the grant program to be at a higher authorized level, the funding burden should be equally distributed among all the shippers and carriers in the hazmat industry “rather than singling out a subset.”

“Rather than penalizing the people who are paying the fees and doing what they’re supposed to do, let’s go after some of those who have not,” Moskowitz said. “We know they’re out there.”

Conley agreed with ATA.

“We’re not at all saying, ‘Let’s let the small business carriers carry the load’,” Conley said. “We’re saying, ‘Let’s broaden the pool of people who are going to be paying’.”

Although neither Moskowitz nor Conley said they knew how many shippers and carriers are not registered for hazmat transportation, Conley said he believes the number is large.

Conley suggested that to catch violators, PHMSA should improve enforcement of the registration requirement by checking registration stickers at roadside inspections and increasing the fine for failing to register.

“If fines were increased the word will get out very quickly,” Conley said.

Conley also said he is convinced that PHMSA has the ability to pull out the names of companies dodging the registration fee from its databases, or by checking against other Department of Transportation databases.

“With enhanced computer programs, the myriad of registration requirements at the federal and local levels, and new programs like CSA 2010, we recommend a renewed effort to grow the pool of companies that pay the hazmat fee, rather than continuing to raise the fees on the compliant companies that already have registered,” Conley wrote to the agency in a March 9 letter.

Conley said PHMSA’s registration fee assessment system is plagued with inherent inequities.

“A tank-truck carrier with a revenue of $26 million is treated the same as a billion-dollar chemical or petroleum company or a multimillion revenue trucking company,” Conley stated.

Transport Topics, 3/15/2010

 
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