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Transportation News Bulletins - LTL and TL

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December Truck Tonnage Rises
Monday, 01 February 2010 00:00
6.6% Jump Is 1st Year-Over-Year Gain in 15 Mos.

Truck tonnage rose in December for the first time in 15 months, year-over-year, as the U.S. economy picked up steam, American Trucking Associations reported.

The 6.6% increase pushed ATA’s seasonally adjusted for-hire index to 108.4, the highest reading since November 2008.

“Tonnage will likely continue to grow on the year-over-year basis, in large part because it was so weak a year ago,” Bob Costello, ATA’s chief economist, told Transport Topics on Jan. 25.

The index last rose year-over-year in September 2008, before the U.S. recession deepened. It dropped as low as 99.2 last April.

Fleet executives, at least in the truckload sector, confirmed the improving picture.

“As we moved through the 2009 fourth quarter, both the number of loads and rate per load continued to show signs of strengthening,” Landstar System CEO Henry Gerkens said Jan. 27, with daily volume growth between 5% and 10% in January.

Kevin Knight, chairman and CEO of Knight Transportation, said he believes “we are in the early stages of a turnaround in the truckload freight market.”

“We saw significant gains throughout the quarter, but overall demand was frankly surprising,” Celadon Group Inc.’s CEO Stephen Russell said during a conference call on Jan. 26.

For the U.S. economy as a whole, the latest forecasts continue to point toward growth, despite continuing troubles in sectors such as housing, where new starts and sales of existing homes fell.

The Conference Board’s index of leading economic indicators, intended to signal economic vitality at least three months into the future, increased for the ninth consecutive month in December. In addition, the board’s consumer confidence index hit a 15-month high in January.

While the outlook is brightening, Costello cautioned that tonnage and economic growth won’t continue to rise at the December pace.

“Economic growth will come back to Earth, so to speak,” from the estimated 5% improvement in the fourth quarter to a range between 2% and 2.5% growth this year, he said.

At the same time, Costello underlined the importance of a strengthening economy.

“It is fantastic news that we are growing,” he said. “It is going to be modest growth, but it is growth nonetheless.”

Sequential trucking trends also were positive as ATA’s index rose 2.1% in December after a 2.6% increase the month before.

“The robust tonnage numbers in November and December were aided by better economic growth, as well as a positive inventory effect,” Costello said.

“Inventory levels no longer will be a drag on trucking,” he said, because inventories have shrunk to the point that restocking has to continue to keep up with strengthening demand.

The ratio of all goods in stock relative to sales is 12% lower than it was a year ago, according to the Commerce Department.

In fact, retail inventories have shrunk to their lowest level ever, Costello said.

During a Jan. 26 webinar, he said he expects growth in manufacturing, housing, light vehicle sales and durable goods sectors. Growth should be gradual over two years, which should help to further boost freight demand, he said.

Two recent analyst reports also predicted growth.

“Truck tonnage is up 9% since its recent trough in April, and we expect tonnage to gradually improve as the economy strengthens and inventories are built,” Deutsche Bank analyst Justin Yagerman said in a Jan. 25 report that predicted improving results for truckload carriers.

The less-than-truckload outlook is less favorable because of significant excess capacity, he added.

“Truckload demand trends remain strong on both an absolute and year-over-year basis,” William Greene, a Morgan Stanley analyst, said Jan. 22. “As the economy continues to recover, we expect a restocking of inventories to produce the next leg of truckload volume growth.”

A spot trucking index compiled by TransCore of Hummelstown, Pa., that compares loads available and truck availability, also improved in December. It more than doubled from that month in 2008 and rose 11% in December from November levels.

However, not all news was positive.

The Cass Freight Index, a monthly report by St. Louis-based Cass Information Systems Inc. that measures freight spending and shipments, fell about 3% in December from November levels.

Taking a longer view, ATA’s index for the full year fell 8.3%, making 2009 the worst year since 1982. In that recession year, the index fell 12.3%.

The freight decline was hardly confined to trucking. Railroads based in the United States hauled 15% less freight last year, and ocean cargo moving through the largest U.S. ports also declined by at least 10%.

The index, representing the change in tonnage that fleets actually hauled before any seasonal adjustment, stood at 103 in December, up 2.3% from the previous month, ATA said.

Transport Topics, 2/1/2010

$79 billion budget for the DOT promotes safety, infrastructure investment
Monday, 01 February 2010 00:00

U.S. Transportation Secretary Ray LaHood today said President Obama’s $79 billion budget for the U.S. Department of Transportation continues strong levels of investment for safety, the department’s top priority, along with critical investments for infrastructure to generate economic growth and support livable communities.

“President Obama’s budget builds on an historic first year for this Department of Transportation,” said Secretary LaHood. “In addition to making critical investments in our nation’s infrastructure, we jumpstarted high-speed rail across America, launched a campaign against distracted driving and proposed landmark transit safety legislation. This budget reflects our priorities and values by continuing to invest in safety, livable communities and an improved national transportation system.”

Secretary LaHood said the budget promotes safety in a number of areas, starting with a new $50 million incentive grant program to the states to combat distracted driving. Since Secretary LaHood convened a national Distracted Driving Summit last fall, he has undertaken a nationwide campaign to put an end to the deadly epidemic.

The budget further advances traffic safety with $12 million to improve the New Car Assessment Program (NCAP) Five-Star Safety Rating System, which is used to rank the safety of new automobiles, and 66 additional personnel in the National Highway Traffic Safety Administration assigned to highway and vehicle safety issues.

Safety personnel will be added across agencies, with $7 million and 118 people for additional motor carrier safety inspectors; $14 million for the FAA to hire 82 new safety and certification inspectors and safety technical specialists; and $1.4 million to the Pipeline and Hazardous Materials Safety Administration to continue carrying out their action plan to address pipeline and hazardous material safety.

Aviation safety is a top priority, receiving $1.1 billion for NextGen air traffic control technology, an increase of $275 million, 32 percent, over the FY 2010 enacted levels.

The budget also places a strong emphasis on transit safety by including $30 million and up to 260 positions to support the Obama Administration’s Public Transportation Safety Program Act of 2009, which the administration proposed to congress last year to ensure a high and standard level of safety across all transit systems.

Recognizing that a strong transportation infrastructure is an engine for future economic growth, Secretary LaHood announced that the budget establishes and provides $4 billion for a National Infrastructure Innovation and Finance Fund (NIIFF) to issue grants and loans in support of projects that provide a significant economic benefit to the nation or a region.

The budget includes an additional $1 billion for high-speed rail, coming on the heels of President Obama and Vice President Biden’s January 28 announcement of $8 billion in Recovery Act funds for states across the country to develop America’s first nationwide program of high-speed intercity passenger rail service.

Secretary LaHood also highlighted the importance of livable communities, and providing greater choices for transportation users through the integration of transportation, housing and commercial development decisions. This budget provides $527 million for livable communities by establishing an Office of Livable Communities, creating a program to improve local and state project planning and development capabilities, and funding programs that expand transit access for low-income persons.

A budget summary document is available at, 2/1/2010

BTS says surface trade with Canada and Mexico down 2.9 percent in November
Monday, 01 February 2010 00:00

WASHINGTON—Trade using surface transportation between the United States and its North American Free Trade Agreement (NAFTA) partners Canada and Mexico was down 2.9 percent in November 2009 compared to November 2008, falling to $51.8 billion, according to data released by the United States Department of Transportation's Bureau of Transportation Statistics (BTS).

This output represents the fourth time in the last ten months there was not a year-to-year decline of more than 27 percent. The BTS said the value of U.S. surface transportation trade with Canada and Mexico fell 4.0 percent from October 2009 to November 2009. BTS officials said that month-to-month changes can be affected by seasonal variations and other factors.

The BTS said that the value of U.S. surface transportation trade with Canada and Mexico in October was up 5.0 percent compared to November 2004 and up 28.5 percent compared to November 1999, with imports and exports up 25.1 percent and 32.7 percent, respectively, compared to November 1999.

Surface transportation, according to the BTS, is comprised mainly of freight movements by truck, trail, and pipeline, and nearly 90 percent of U.S. trade by value with Canada and Mexico moves by land.

The BTS said the value of U.S. surface transportation trade with Canada was down 7.2 percent yearover- year in November at $35.0 billion. Imports carried by truck were valued 6.1 percent lower in November 2009 compared to November 2008, said the BTS, and the value of exports carried by truck was down 1.8 percent. Michigan paced all states in surface trade with Canada in November at $4.3 billion.

And the value of U.S. surface transportation trade with Mexico rose 4.4 percent year over year in November at $23.9 billion. Imports carried by truck were valued 11.5 percent lower in November 2009 compared to November 2008, said the BTS, and the value of exports carried by truck was up 1.7 percent. Texas led all states in surface trade with Mexico in November at $4.3 billion.

Logistics Management, 2/1/2010

Carrier Failures Sped Up in 4Q
Monday, 01 February 2010 00:00

Trucking company failures accelerated in the fourth quarter of 2009 and will continue to rise this year as fleets in the worst financial shape run out of cash and creditors run out of patience with them, a new Avondale Partners report said.

A total of 445 fleets failed in the fourth quarter, compared with 375 in the year-earlier period and 405 in the third quarter of 2009, the report said.

The failures meant a total of 21,010 trucks were removed from service.

The latest total was nearly double the 10,625 trucks removed in the 2008 quarter, when the average was 28, the report noted.

The failure rate will jump in the first quarter as lenders tighten credit standards, Avondale Analyst Donald Broughton said in the report.

“Lenders have to take down some of the worst of the portfolio to prove they are taking care of the rest of it,” he said.

Light & Medium Truck, 2/1/2010

Financing Market Seen Returning to Normal, But Loans to Fleets Are Becoming More Costly
Monday, 01 February 2010 00:00

Although the overall credit market appears to be returning to some semblance of normalcy, trucking executives said they still face higher borrowing costs as many commercial banks remain cautious about lending and uncertainty persists about the U.S. economic recovery.

Many fleets have cut back on capital spending, reducing the demand for loans, but industry observers have said tighter credit could limit trucking companies’ ability to expand freight-hauling capacity when demand picks up.

“It’s tough to get new equipment financed at a reasonable rate,” said Steve Williams, chairman of Maverick USA, a leading flatbed carrier in North Little Rock, Ark.

Maverick has idled about 300 of the nearly 1,400 trucks in its fleet since the beginning of 2009 but has remained current on all payables, including equipment loans.

“I can only imagine what it’s like to go out and try to get financing when the company is nine or 10 or 12 months behind on payments,” Williams commented in a recent issue of Arkansas Trucking Report, which is published by the Arkansas Trucking Association.

Dave Capps, owner of Capps Van and Truck Rental in Dallas, said he was left scrambling to find a new lender after GMAC Financial Services pulled the plug on a $100 million line of credit last March.

On a billboard outside his office in Dallas, Capps posted an eye-catching message, “Lender Wanted. We need to buy 1,000 new GM vans now.”

The ploy drew national media attention, and Capps soon had offers from GE Capital Corp. and a number of other banks and equipment vendors.

“I’ve never seen in my entire career anything like what happened,” Capps said in an interview with Transport Topics. “It was extremely scary.”

Steven Dutro, a partner with Transport Capital Partners, a Nashville, Tenn., consulting firm that specializes in helping firms find sources of capital and provides advice on mergers and acquisitions, said the current credit environment “is more like lending was 10 to 15 years ago.”

“Standards are higher. Banks are looking for better credit quality, and they are requiring bigger down payments,” Dutro said. “Easy credit is definitely not coming back.”

Scott Davis, a partner with Grant Thornton LLP in Charlotte, N.C., said that although “the freeze in financial markets seems to be thawing,” lenders are being far more selective. Also, interest rate spreads—the difference between the cost of funds and the rate lenders charge—remain high.

The increased cost associated with borrowing is reflected in the terms of two recent trucking company refinancings, Davis said. 

In the first case, a large truckload carrier refinanced its debt at the benchmark London Interbank Offered Rate, known as LIBOR, plus 4.5%. The new credit arrangement included a LIBOR floor of 2%.

The new deal effectively raised the interest rate to 6.5% from around 5%, Davis said.

In the second case, he said, another prominent truckload carrier offered to restructure its borrowings at LIBOR plus 6%, with a LIBOR floor of 2.25%.

“Their existing terms were LIBOR plus 3.25% with no floor. If the banks accept [the fleet’s offer], their interest rate would increase from under 4% to 8.25%,” he said.

Officials from each of the two carriers declined to comment on financing terms and therefore are not being identified by TT.

Despite the tighter credit conditions, many banks and bondholders have been willing to restructure loans or reset terms of equipment leases to help trucking companies survive the downturn.

YRC Worldwide Inc., Gainey Corp. and Greatwide Logistics Services all averted financial crises by exchanging debt for equity. The move saved the companies millions of dollars in interest payments and gave them time to adjust to the dramatic drop in shipping volume.

In addition, ADS Logistics LLC filed for Chapter 11 bankruptcy protection on Sept. 2 but emerged less than two months later after striking a deal to turn over the business to its senior secured lenders.

President William Ritter said ADS, which specializes in distributing steel and other metals used in making automobiles, was hard hit by a drop in auto sales in 2009 and had to downsize its operations to be profitable.

“We had management in place for a larger organization,” Ritter said. “The recession has had a much greater effect on steel and autos than other industries. It’s been really tough.”

Through bankruptcy, ADS was able to restructure its debt and eliminate “bad assets,” Ritter said. The company shut down several underused distribution centers and relocated its corporate staff from an office in Homewood, Ill., to a truck terminal in Chesterton, Ind.

ADS was able to retain a fleet of about 300 company-owned and independent contractor-owned trucks, but Ritter said that he is concerned about the ability of his company and others to provide additional capacity in the future because tighter credit will make it more difficult for people to purchase trucks.

“A truck shortage is coming,” Ritter said. “Owner-operators are not coming back as fast as they left.”

Part of the reason creditors are willing to extend credit and alter payment terms is that the value of used truck equipment is not high enough to make it worthwhile to repossess the assets and sell them on the open market.

“Banks don’t want assets back,” said Thomas Connolly, an executive with the financial consulting firm Eve Partners LLC in Atlanta. “It’s a timing issue.”

If used-truck prices go up, there could be a rash of repossessions and forced sales as lenders seek to recover funds from companies in arrears, said Mike Iannelli, managing director of Lincoln International, an investment banking firm in Chicago.

Iannelli said many companies have violated loan covenants or have fallen behind in payments and that lenders “are looking at options.”

Liquidation is an option, but not one that makes sense, especially if the company is a freight broker that has few hard assets, such as trucks and trailers, that could be sold, Iannelli said.

In many cases, lenders allow freight carriers to amend credit agreements or forgo payments on equipment, and in doing so, lenders can avoid having to mark down the value of collateral, which would increase losses for the bank.

“They are kicking the can down the street,” Iannelli said. 

A positive sign for lenders is that stock prices for many publicly owned trucking companies are at or near 52-week highs, reflecting optimism among investors that the bottom of the recession has been reached and freight demand will pick up.

Two companies—Vitran Corp. Inc., Toronto, and Saia Inc., Johns Creek, Ga.—recently sold stock to pay down debt. Another firm, Roadrunner Transportation Services, Cudahy, Wis., has taken steps to launch an initial public offering, the first in nearly a decade by a trucking company.

By bolstering equity and restructuring debt, trucking companies are taking steps to shore up capital resources “so they will have the firepower to take advantage of a stronger freight market,” said Kenneth Evans Jr., transportation and logistics sector leader for accounting firm PricewaterhouseCoopers in Miami.

“The best companies have also reduced their cost structure to be prepared for the time freight moves again,” he said.

Evans said he figures that about one-third of trucking companies are financially strong, one-third are in reasonably good shape and the remaining companies are just “hanging on.”

At least one financial industry official thinks that many trucking companies have actually weathered the current downturn better than previous recessions.

Dan Clark, head of transportation finance at GE Capital Corp., Fairfield, Conn., said that when demand for freight hauling began to slacken in 2006, many firms cut back on equipment purchases and took other steps to reduce expenses.

“Because they started so early, when the financial crisis hit in late 2008, it didn’t hit nearly as bad,” he said.

Delinquencies in GE’s truck loan portfolio are in the “low- to mid-single digits,” which, Clark said, is similar to other downturns.

Officials at GE Capital said they expect overall demand for credit across all of their lending and leasing businesses to increase, starting in 2011.

Transport Topics, 2/1/2010

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