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Why the good may depart with the bad in this grim year

There’s no way to hide the troubles facing trucking companies these days. The six executives who candidly share their thoughts about how road transport will be reshaped during the economic downturn in this month’s cover story in Motortruck Fleet Executive certainly harbor no illusions about the tough road ahead.
US GDP contracted 3.8% in the fourth quarter of 08, which was the worst since the first quarter of 1982. In 2008 as a whole, the US GDP grew 1.3%, however if you remove the strong build-up of business inventory from the equation, GDP actually shrunk 5.1%. The Canadian economy is not experiencing the deep issues wreaking havoc on businesses south of the border but we all know the Canadian economy can’t long escape US reality.
Truck tonnage in the US plunged 11.1% in December, which is the largest month-to-month decline since April, 1994 when unionized LTL truckers were on strike. In a recent Webinar, Noel Perry, managing director and senior consultant with FTR Consulting Group, said the US trucking industry has actually been experiencing a freight recession for nearly three years. Our own data has shown that freight volumes and freight rates in Canada have been on the decline (from an admittedly sharp increase starting in 2003 and peaking by 2005). Forty three percent of Canadian motor carriers expect their freight volumes to drop below their already less than spectacular volumes in 2008.
FTR Associates maintains a Trucking Conditions Index which measures many variables that impact the health of the trucking industry. It has fallen to “unprecedented negative numbers,” according to Perry. He compares today’s freight conditions in the US to the last big recession in 1982. And downward pressure on rates is certain to continue. As Perry explained, a huge reduction in fuel surcharges during the fourth quarter gave shippers something to declare victory over but traffic managers are under intense pressure to cut costs and he anticipates the “worst price pressure that fleets have felt in our lifetime.” While our own Canadian data doesn’t paint such a gloomy picture, it does also indicate downward pressure on truck rates. While 47% expect no improvement in their rates and 24% expect rate drops, according to our research.
As a result, Perry anticipates the number of US fleet bankruptcies to “continue and accelerate” over the remainder of 2009 and even into 2010.
And all that is ominous for the share pricing of the continent’s prominent trucking providers. In November, during a session on economic realities I chaired for CITT in Winnipeg, David Newman a senior vice president and equity research analyst with National Bank Financial revealed a sobering comparison. By mid October the value of trucking companies had declined by 32.5%, which is pretty well spot on with what happened back during the 1982 recession.
But as bad as this may be, it can get worse. Many economists believe this will be the worst recession the North American has faced since the Great Depression. That could place the economic pain to be felt on par with what happened back in 1973-75, perhaps worse. And during 1973-75, trucking shares fell an average of 45.4%.
Over the past few months many commenting on the troubles in the motor carrier industry, myself included, have spoken of the cleansing to come; that the current difficulties would rid the industry of those operators who never did adopt successful business strategies and relied on low prices rather than superior service to attract clients. But in his comments on the short term future of the trucking industry Ray Haight, executive director of MacKinnon Transport and the executive director of the Truckload Carriers Association, believes differently. He believes that during this recession we will lose some of the worst operators but also some of the best.
I have a lot of respect for Ray, and I’m beginning to think he’s right.
“There is a connection between the punch line and the bottom line.”
Adrian Gostick and Scott Christopher,
The Levity Effect

Lou Smyrlis

Lou Smyrlis

With more than 25 years of experience reporting on transportation issues, Lou is one of the more recognizable personalities in the industry. An award-winning writer well known for his insightful writing and meticulous market analysis, he is a leading authority on industry trends and statistics.
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1 Comment » for Why the good may depart with the bad in this grim year
  1. As a service that helps trucking companies develop new shipping accounts, I can tell you that those companies who still do the hard work, always pushing for new business by making sales calls, lunches, and picking up the phone are faring much better than those who just want to post on the internet and expect their phones to ring. Those who have pushed for new shipping accounts all along, even during busy times will fare better and last longer than those who had no plan and are scrambling for business now.

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