fw : fyi - more on truck s / d vince :
i ' d like to send you some articles on the fleet card business .
if you have some time , i ' d like to discuss the meeting that we had with
comdata ( which has a 60 % market share of the fleet card business ) . they have
some live data that potentially could be very interesting ; however , i ' d like
to discuss it with you .
shawn
what a mess ! ( statistical data included )
john d . schulz
03 / 26 / 2001
traffic world
page 25
copyright 2001 gale group inc . all rights reserved . copyright 2001 journal of
commerce , inc .
truckers still waiting for signs of pent - up freight demand ; earnings
shortfalls , layoffs loom
if you are waiting for trucking to kick - start the nation ' s economic recovery ,
pull up a chair and wait awhile . trucking ceos say they haven ' t seen this
slow a first quarter in a decade .
" perhaps the weakest first quarter for freight demand since swift became a
public company in 1990 , " phoenix - based swift transportation chairman and ceo
jerry moyes said .
the first - quarter trucking mantra historically has been this : everybody loses
money in january , hopes for a break - even february and earns whatever profit
there is in the quarter in march . that formula may not hold this year .
gregory l . quesnel , president and ceo of con - way transportation services and
emery worldwide parent cnf inc . , said the current slowdown was first detected
late in the third quarter last year and has become " more pronounced in each
successive quarter . " march , he said , has been " as disappointing as the first
two months this year . "
layoffs already are occurring at the major ltl carriers . yellow freight
system has idled as many as 1 , 000 teamsters and hundreds of white - collar
back - office workers . most large carriers are warning of profit shortfalls
that will cause them to miss analysts ' first - quarter estimates . but there are
deeper fears , too . marginal players may be forced into bankruptcy . small ,
family - owned carriers may be unable to exit the industry on their own terms
because of the shocking decline in the value of used trucks that is causing
some companies to be valued at less than half their worth of just two years
ago .
swift ' s volume drop - off began with shipments originating on the west coast in
january and february and it is continuing in march , moyes said . coupled with
reduced demand from the southwest , moyes said swift will not meet analysts '
first - quarter earnings expectations . swift is not alone .
" we hauled less freight in february than february a year ago , " said bob
hammel , executive vice president of pittsburgh - based pitt ohio express , a
leading privately held eastern regional ltl carrier . " the slowdown in
manufacturing began in the middle of last year and it was precipitous . nobody
anticipated the speed in which manufacturing demand fell off . "
even con - way , the most profitable ltl operation in the past five years , said
it would have a decline in first - quarter operating income compared with the
year - ago period . con - way ' s tonnage declines were estimated in the
" mid - single - digit " percentage range .
roadway express estimated that its current tonnage levels are running 10 to
11 percent below those a year ago , which will result in an approximately
one - half of 1 percent ( 0 . 5 percent ) decline in its operating ratio . ( see
sidebar )
pat hanley , overnite transportation ' s senior vice president and chief
financial officer , said freight figures were flat in february year over year
but rose slightly in march . overnite is the exception to the ltl industry
with as many as 24 new terminals scheduled to be opened this year .
" january was pretty good to us , but february was flat . it ' s coming back in
march . we ' re probably up in low single digits , 3 to 4 percent . we ' re picking
back up . the economy has hurt us . if you had asked us at the start of the
year , we ' d have said we ' d be up double - digits , " hanley said .
the national economic picture is " a big concern , " hanley said . " we ' re not
seeing pressure on prices , at least not so far . we ' re seeing customers ship
10 pallets a day instead of 20 . the shipment size is coming down . certainly
we ' re concerned . we ' ll do o . k . , but not as great as we ' d like . "
forget consumer confidence surveys or the producer pricing index or whatever
stars align in federal reserve board chairman alan greenspan ' s world . the
genuine leading indicator of any national economic trend is trucking , which
is always a first - in , first - out industry in any economic slowdown .
to hear trucking industry leaders tell it , get comfortable with beans and
franks for dinner . it ' s going to be awhile before it ' s filet mignon time
again .
shippers see what ' s happening as well but say it ' s still too early in the
year for carriers to start cutting rates to fill empty trucks .
" all the carriers we talk with report flat or slightly declining business
levels - - definitely slower than early last year , " said bill huie , assistant
vice president of corporate transportation for nch corp . , irving , texas .
" with a couple of exceptions , carriers we talk with have no plans for
expansion in the next few months . we are getting feelers about some possible
lane adjustments to boost revenue . but generally it appears a little early in
the economic downturn for much price movement . "
the national ltl carriers are seeing the same things . " our business is down
pretty substantially for the first quarter , " said roger dick , spokesman for
yellow corp . , parent of yellow freight system and two large regional ltl
carriers , jevic transportation , delanco , n . j . , and saia motor freight ,
duluth , ga .
usfreightways corp . , citing what it called the nation ' s " serious economic
slowdown , " said it expects first - quarter earnings to fall " very substantially
below " current wall street consensus .
extreme weather conditions also contributed to the already weakened operating
environment , usf chairman , president and ceo samuel k . skinner added .
" traditionally , the first quarter builds momentum slowly , with march being
the strongest month of the period , " skinner said in a statement . " this year ,
the economic slowdown of the fourth quarter of 2000 accelerated in january
and february , softening even the normal modest expectations for those two
months . "
it ' s not just the ltl industry that ' s hurting . the morgan stanley dean witter
truckload freight index continues to show the worst demand - supply
relationship since analyst james j . valentine began tracking the data in
april 1994 . two events can cause weakness in the index , according to
valentine . they are either an abundance of excess trucks on the road or weak
freight demand .
" so far in 2001 , we have seen the confluence of both factors , but the
fall - off in demand has far outpaced the increase in supply , " valentine wrote
in his most recent " trucking snapshot " for early march .
year - to - date measurement for truckload demand is down 25 percent year over
year , according to valentine ' s index , while supply is up only 7 percent . that
would indicate the over capacity was a significant issue last year but was
" masked by the strong economy , " valentine says .
in a more ominous note , valentine believes overcapacity will continue to
plague the truckload industry for the next one to two years . only a
reaccelerating national economy can bring the demand - supply back in balance
for the truckload sector in the near term , valentine predicts .
the overproduction of new class 8 trucks from early 1998 through early last
year has put too many trucks on the roads and caused supply to back up at
manufacturers , wholesalers and other retailers . used trucks have lost on
average more than 30 percent of their value over the past 18 months .
anecdotally , one used truck dealer , music city truck & equipment , in
lavergne , tenn . , is holding a " two - for - one " sale on three - to five - year - old
class 8 freightliners . you can buy two for around $ 30 , 000 , less than a brand
new chevy suburban suv .
what that means is a trucker who bought a 1998 class 8 truck for $ 70 , 000 and
depreciated half the value over three years has a piece of equipment on the
books this year at $ 35 , 000 . but assuming it has lost 30 percent of that
value , it may only be worth $ 24 , 500 in actuality . for a carrier with a
100 - truck fleet , that equates to a loss of more than $ 1 million on assets .
the glut may last for a while , according to valentine ' s analysis . assuming a
three - year trade - in cycle , most of the class 8 tractors in the truckload
sector are just now rolling over to the used - truck market . that means that
overcapacity will plague the truckload industry for at least the next year .
that will result in some of the marginal carriers exiting the business , as
did nearly 1 , 900 carriers last year that either closed or declared
bankruptcy .
" we can see from indexes , surveys and other information available to us that
it is unlikely there will be any significant improvement in march and freight
demands will continue to be soft throughout the month . based on all of these
factors , we expect usfreightways ' profits for the first quarter to be very
substantially less than published analysts ' forecasts , " skinner said .
in addition , severe weather conditions including an earthquake in seattle ,
rainstorms in california and blizzards in the northeast have added cost and
decreased efficiencies , skinner added .
expectations at each of usf ' s operating companies have been affected , some
more than others . the ltl , logistics , reverse logistics and
freight - forwarding units are all showing decreased revenue and volume over a
similar period last year , skinner said .
further job cuts at usf worldwide , its freight forwarder , would be in the
offing as cost controls at the unit would be " accelerated " in the wake of the
softening economy , skinner said . late last year , skinner said the rebuilding
process at usf worldwide would be a two - year process . but the worsening
economy has made that rebuilding job harder , he said .
" we are seeing evidence that the slowing economy is , in fact , further
impeding progress in this area , " skinner said . " during the fourth quarter of
2000 and continuing into the first quarter of 2001 , the company has taken
steps to increase cost efficiencies . among these actions are a substantial
cutback in capital spending and significant reductions in the labor force .
these cost - control efforts will be accelerated to partially counterbalance
the damaging impact of the current economic and weather conditions . "
in the 2000 first quarter , usf posted $ 22 . 3 million net income , a 27 percent
rise from the $ 17 . 5 million earnings in the 1999 first quarter . at the time ,
that was usf ' s 15 th straight quarter - over - quarter earnings increase . it came
on $ 608 . 2 million revenue , an 18 . 5 percent rise in from the $ 513 . 2 million
revenue in the 1999 first quarter . analysts had been estimating usf to earn
about $ 3 . 50 a share earnings for 2001 , compared with actual $ 3 . 61 earnings
per share for all of last year . in the fourth quarter last year , usf earned
$ 23 . 7 million , or 91 cents a share .
trucking in a snapshot
market what ' s going on
msdw [ * ] truckload remains in record - low territory , indicating
freight index the worst demand - supply relationship since msdw
began tracking the date in april 1994 .
diesel prices diesel prices in the first quarter of 2001
have come down 6 % sequentially from 4 qo 0 . however ,
the average price for the quarter remains 6 %
above that of lqo 0 .
wti oil opec recently agreed to reduce supply by 5 % and
has stated a price objective of $ 25 per barrel .
capacity retail sales of class 8 tractors ( new trucks
entering the market ) came down in january , but
inventory ( trucks that will enter the market at some
point ) to sales ratio hit a new high of 3 . 4 months
gdp 4 qo 0 gdp increased 1 . 1 % and economists see u . s .
recession in 2001 with + 0 . 5 % and - 1 . 4 % gdp forecast
for lqol and 2 qol , respectively .
retail sales retail sales rose 0 . 7 % in january . while this
was better than forecast , the upside was likely
the result of excessive clearance sales after a
disappointing holiday season .
consumer the conference board ' s measure of consumer
confidence confidence fell again ( nine points ) in february
after registering the largest one - month decline
in 10 years in january ( 14 points ) .
napm the february napm rose slightly to 41 . 9 .
however , it still indicates a contracting
manufacturing sector .
leading the index of leading economic indicators
economic rose 0 . 8 % in january , while
indicator msdw had forecast a 0 . 6 % increase . this
represents the first rise in four months .
stock after a recent pullback , trucking stocks remain
perfonnance up year - to - date with tl stocks up 5 % , regional
ltl stocks up 9 % and national ltl stocks up 13 % .
investor for the week ended february 28 , mutual fund
outflows totaled $ 309 million , compared with
inflows of $ 2 billion in the prior week .
market implications
msdw [ * ] truckload negative for all tl carriers .
freight index
diesel prices the downward trend is positive for all
carriers , especially tl carriers , which have
greater exposure to fuel than ltl carriers .
wti oil negative for all carriers , as $ 25 per
barrel is still 25 % higher than the $ 20 per
barrel average since 1990 .
capacity negative for tl carriers , not a major
concern for ltl carriers , which measure
capacity by the number of terminals .
gdp negative for all carriers .
retail sales negative for both ti and ltl carriers .
consumer negative for all carriers
confidence
napm negative for all carriers .
leading positive for all carriers .
economic
indicator
stock positive , however , stocks could pull
perfonnance back further in the short term as
fundamentals catch up .
investor negative .
source : morgan stanley dean witter research