Transportation Update: 3rd Quarter, 2008

As part of a continuing effort to keep each of you up to date with the trends in the transportation industry, we would like to examine some recent occurrences and statistics that continue to shape the present and future of transportation as we know it.

While we all are tuned in to the trials and tribulations of the credit and housing markets,, and the unfortunate direction the economy has taken, we would like to focus on some of the immediate and long-lasting effects that the overall economy is having on the transportation infrastructure that we all rely on.

The immediate effect has been to create a surplus in truck capacity. While earlier this year we spoke of an alarming rate of trucking companies that were leaving the marketplace, the demand for trucking services has kept pace by declining on an even more rapid pace. As it stands today, the supply of available trucks exceeds shippers’ demand, which equals excess capacity and increased purchasing power for the shippers.

While none of us can speculate with any certainty as to how soon the economy will rebound and freight volumes will increase, there is much speculation that trucking capacity will soon fall short of even the current reduced demand.

Fresh from the headlines today, there is renewed concern over the financial stability and sustainability of YRC Worldwide, the parent company of Yellow Transportation and Roadway. Despite cost cutting efforts that include the recently announced plan to consolidate Yellow and Roadway into a single operating unit (Yellow Roadway Transportation), the company appears to be in dangerous waters, financially. Numerous competitors have witnessed an increased flow of inquiries from shippers that used to rely on the two companies, looking for contingency plans should the trend continue.

While Yellow and Roadway do not handle a significant amount of business within the M33 Collaborative Network, the larger picture is that Yellow and Roadway handle an estimated $9 billion in annual revenue. That is the combined approximate volume of annual revenue handled by FedEx, Conway, Estes, Southeastern Freight lines, and Old Dominion freight lines combined. If Yellow/Roadway were to go under, the demand would have a potentially crippling short term effect on service, felt across customers of virtually every less-than-truckload (LTL) company in the US, and would extend into the truckload (TL) market as well. The excess capacity we are currently experiencing would be nowhere near enough to absorb the demand shift.

TL capacity is still in excess of volumes, but the number of companies leaving the market this year continues to rise rapidly. As stated earlier in the year, the industry lost 1155 companies, or 2% of available class 8 trucks, in the first quarter. By the end of the 2nd quarter, that number had increased to more than 1900 companies. Despite our personal concern with the volatility of LTL capacity, many industry analysts are far more concerned with the future balance of supply and demand in the TL market. For more information on what other companies are saying and what actions are being taken to prepare for what many see as a transportation crisis, you may want to review this article.

M33 continues to work with providers of all shapes and sizes in the LTL and TL market to secure the best options available for our customers, based on lanes, service parameters and financial impact. By dealing fairly and openly with your carrier base, we feel that we provide a unique advantage in the marketplace through continually building loyalty and trust into the relationship with your carriers.