Who Stole Christmas?

by Passenger Service: State troopers ride-along with truckers in crash study

Ask a fleet owner what they want for Christmas this year, and they’ll probably tell you they yearn for a return to the good ‘ol days of, well, 2005.

Way back then, the pre-holiday, fall peak shipping season, was still just that — a peak. Depending on whom you talk to these days, the traditional surge before the holiday season officially starts ain’t what it used to be.

That’s not to say everyone is finding a lump of coal on their bottom line. The absence of an autumn boom period is almost exclusively an American phenomenon, affecting mostly stateside carriers and Canadian cross-border truckers that rely heavily on the U.S. retail, household goods market.

However, there are signs that generational shifts in consumer behavior and shipping patterns are changing, to varying degrees, how some carriers consider and plan for the time-honored freight peak season.

South of the 49th, holiday retail sales are increasing at their slowest rate since 2002. American Trucking Associations Chief Economist Bob Costello recently said that the economic forecast is more pessimistic than it was during early summer. “The outlook has worsened in recent weeks,” he told a gathering at a recent McLeod Software User’s Conference. “At this time recession is not expected, but the probability of a recession has increased to 40 percent.”

In an interview with Today’s Trucking, Ken Hoexter, managing director of Airfreight, Surface & Marine Transportation for Wall Street economic analyst firm Merrill Lynch, explained that the housing market collapse and the credit crisis in the U.S. could trigger what is shaping up as the first consumer-led recession in 20 years. “We’re already in a freight recession. Now it’s about ‘how deep does this thing go?'”

However, there are also structural changes at work here. Costello notes that shippers have made a concerted effort to spread their holiday shipping out over a greater length of time. That can be said also of many large Canadian shippers and manufacturers, who, in an effort to mitigate the unpredictable post-Sept.11 border congestion, are stockpiling loaded trailers and warehousing inventory in advance of the usual peak periods.

Generally, supply chains have gotten more refined, so there isn’t as much of a need for a single, strong peak season, says Hoexter. In some cases, that’s a good thing because it makes it easier for shippers to manage the supply chain, but he adds, “(carriers) still traditionally want the peak season because it’s usually when you depend on capacity getting real tight and makes the business hum. Seeing it not arriving anymore is, I think, a bit deflating.”

It’s not just shippers, though, that have spread out the peak season. With more people buying gift cards to put under the tree, retailers don’t need as many boxes on the shelves after Halloween. “As a result,” says Costello, “we now are seeing a larger January increase in freight. Structurally that tells us we have a muted fall freight season.”

Confirming the gift card effect on Canadian shipping patterns is Uwe Petrosche, president of retail household goods and electronics hauler Totalline Transport of Vaughn, Ont.

“Historically, January was the worst month of the year. I would say that now it’s as good as March and April, primarily because of the advent of gift cards and after-Christmas sales, which are more pronounced than what they used to be,” notes Petrosche, who says that he’s thankful the bulk of his pre-holiday Canadian freight is holding up, while his minority U.S. lanes are drying up because of the soaring Canuck buck and depressed U.S. economy.

The strength of Internet shopping and Asian imports
continues to disperse general freight across several sectors.

Gift cards have become a part of the annual cycle of business versus an impact on the peak season length, according to UPS Canada’s Director of Transportation Joe Hynes. Still, the peak season for the parcel delivery giant is well defined, he says.

While UPS admits that it expects its busiest shipping day of Dec.19 to be — in the words of its Atlanta-based Chief Financial Officer, Scott Davis –“flat” with last year’s peak day, it and other package delivery carriers are less affected by downturns this time of year. Perhaps, that’s because of the explosion of online purchases, which are carried almost exclusively by UPS and other package delivery competitors.

According to the results of a 2005 survey commissioned by opinion research firm Synovate, online consumers are more satisfied with the web retail industry than they’ve ever been. New web technology that makes it easier for customers to track their own shipments — plus the fact companies like UPS and FedEx are licensed customs brokers which expedite customs clearance — will only continue to encourage Internet buying habits.

Petrosche admits that, going forward, seasonal freight volumes could continue to be dispersed among other sectors. “Potentially, what we may have been receiving as truckload or LTL freight at this time of the year, could now be going through the FedEx’s and UPS’s on the strength of Internet purchases. That could be another big factor.”

And sometimes online consumers are avoiding over-the-road trucks altogether. According to a recent article in the Detroit Free Press, there’s been a noticeable increase of Canadian Internet buyers who, rather than cough up extra shipping fees and Canadian tariffs, are forwarding purchases to the addresses of American friends and family, and then picking up the goods on their next weekend cross-border shopping spree.

There are no hard numbers available, but if U.S.-bound queues at border crossings on Saturday mornings are any indication, there must be millions in Canadian sales being lost to the U.S. since the loonie approached (and surpassed) parity with the greenback, guesses Jason Stroud of Parabrush Carrier Service — a six-truck auto parts hauler near Windsor, Ont. “I hear and see it everyday,” he says.

It remains to be seen whether the trend takes a serious bite out of Canadian retailers’ fourth quarter revenues, as well as shipment volumes. So far, most retailers aren’t acting like they’re worried since they seem incapable (or unwilling) of bringing Canadian prices in line with the U.S. for the same products.

In the meantime, consumers will continue to vote with their feet.

“If the pricing mechanism doesn’t soon equal to the dollar being at par, we could have a big surprise these holidays,” adds Petrosche.

What’s in store?

Most analysts predict improved American and central Canadian freight volumes in ’08, but you’d be hard pressed to find one that’ll go on a limb and forecast a full-blown rebound. “At some point this will bottom out,” says Hoexter. “But if we look at the past two freight recessions, these down cycles lasted about eight months. We’re already in this for a year and a half. The trucking industry usually leads the way out, so that would indicate we’re closer to the bottom, but it’s still a bit early.”

Noel Perry, corporate economist for Green Bay truckload giant Schneider National foresees modest pricing gains in the next six months. Stagnant truck sales for this year and most of 2008 — combined with small carriers folding their tents in reaction to the downturn — means capacity utilizations will begin to slowly recover. Furthermore, Perry predicts that unless the industry’s pessimistic mood changes dramatically, there likely won’t be a significant pre-buy in 2009 in advance of another tough round of EPA emission rules. The pressure to reduce capacity right now, he says, is much greater than the pressure to avoid 2010 engines.

That could very well be true, says Hoexter. However, he cautions, “when ’09 gets closer and there’s more (attention paid) to 2010 engines hitting the market…”

He doesn’t finish the sentence, but it’s clear what he means. All bets are off.

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