Summary
Freight demand is notoriously cyclical and the trucking, rail and ocean industries are coming off their worst year in more than two decades. The Dow Jones Transportation Index was off by 25 percent of the year. That only looks good when one considers the entire Dow and S&P 500 indexes were off a whopping 39 percent for the year. When does the recovery in transports begin? Or has it already?
Analysis
The title of this commentary -- "Atrocious, Awful, Dreadful, Horrible, Nasty, Ugly"-- is part of a quote included in this Associated Press story attributed to David Ross, transportation analyst for Stiefel Nicolaus in Baltimore.
For that, David Ross wins my Person of the Year Award in Transportation for 2008.
No sugar-coating there. No talk of a late-year rally to bail everybody out. Now, all eyes turn to 2009 with one question: "Is it going to get better?"
Considering more than 2,500 trucking companies (with five trucks or more) went out of business in 2008, the recovery will not come soon enough for those carriers. YRC Worldwide, the nation's largest trucking company with more than $9 billion in sales, is teetering on the edge of violation of its loan covenants and is saddled with more than $2 billion in debt. It already has gone to the Teamsters union asking for a 10 percent wage cut and pay freezes through 2013. It likely will get those concessions.
Those truckers still in business are shaving the number of trucks from their over-the-road fleets. J.B. Hunt's tractor count is down more than 20 percent from two years ago. Werner Enterprises, Knight Transportation and others have trimmed as much as 10 percent of their fleets.
Now that fuel is back to more-or-less reasonable levels (although on-highway diesel is still, inexplicably, more than 60 cents higher per gallon than gasoline), some independent truckers may be lured back into their cabs.
But the true trucking recovery will not occur, in my mind, until at least three things happen.
1. Recovery in the credit markets. If nobody is borrowing, nobody is buying.
2. Recovery in the housing market. This could take at least another year to work through the inventory of unsold houses out there.
3. Recovery in the auto industry. Even with the recent $14.7 billion bailout, that will not take the beleaguered sector much past April 1. Will the Obama administration offer another lifeline after that? Who knows?
Shippers have cut their orders to the bone and will be working off inventory through at least the first quarter of the year. The retail sector is coming off its worst Christmas season in 25 years, with retail sales off 3.3 percent for the season. There's inventory in that pipeline that must be sold before any major new orders are made.
At the risk of sounding exactly like everyone else, I am predicting a steady recovering for the trucking industry starting in the second quarter. But there are a number of wild cards in that prediction. What will happen with unemployment? Is the financial sector fixed? Will the credit markets reopen? How much jawboning and pull will the Obama administration have?
With another financial stimulus coming -- this time in the major league category of perhaps approaching $1 trillion -- eventually some of that is going to trickle down into transportation.
It can't come soon enough for the survivors of this slump.
