Who wants my autograph?
I've hit the big time now! My comments are in bold red format so those who just want to skip the unimportant stuff and go straight to my incredibly well-thought-out comments can do so more easily.
The Road Ahead
By Misty Bell
The economic woes of 2008 have burdened the trucking industry into 2009. Some say relief is on its way, but how long will it take?
After 31 years working for General Motors, Victor Pizana of Lansing, Mich., accepted a buyout in 2006 to chase the dream of starting his own business. He bought a big rig and started E&A LLC with his son Alex.
Pizana maintained some ties to GM, hauling for the company. “I wasn’t getting rich, but I was making all my payments and the guys were making money and prospering,” Pizana said in a CNN interview. “We were thinking, ‘What could go wrong?’”
Less than two years later, Pizana handed his last truck over to the bank just to avoid bankruptcy. “I never thought I’d get in this world of a mess after I retired, because the business was working so well,” he told CNN. “But I lost all my retirement money and all this stuff, my truck and my equipment and everything like that, so now I just got to start over again.”
Pizana is one of many victims of a mightily struggling economy. More specifically, he’s one of many in the trucking industry who’ve seen hard times as a result of the freight slowdown.
To an umemployed driver, relief may seem far in the future, whereas many fleets remain optimistic that it’s just around the bend. Based on history, relief will come. The question is when.
How we got here
The roots of the downturn can be traced to problems in the housing sector. In 2005-06, adjustable mortgage rates began to skyrocket. Many consumers defaulted on loans, resulting in 1.3 million home foreclosures in 2007.
Banks began failing. In March 2008, investment giant Bear Stearns was bailed out by a $29 billion non-recourse treasury bill; in September, Lehman Brothers declared bankruptcy, and Bank of America agreed to purchase Merrill Lynch for $29 a share. The U.S. government bailed out mortgage powerhouses Freddie Mac and Fannie Mae, then tossed a total of $700 billion at the financial sector in hopes of staving off even worse economic times. Meanwhile, stocks plunged.
Fuel prices soared, as did unemployment. On Sept. 5, 2008, the U.S. Department of Labor issued a report that unemployment rose to 6.1 percent, the highest in five years. In total, the DOL says the U.S. economy lost 2.6 million jobs in 2008, and 1.9 million of those came within the last four months of the year.
The myriad problems fed cancers in the automotive *industry. With tightened credit requirements and falling demand, major manufacturers struggled, leading to a $25 billion bailout for the big three.
Beyond soft freight
The question freight analysts are asking themselves today is, “Which came first, the chicken or the egg?”
The trucking industry, which has always been a good leading indicator of the economy’s health, began to sense trouble brewing more than two years ago. Eric Starks, president of FTR Associates, a company that specializes in freight transportation forecasting, says that usually “the freight environment leads the general economy down.”
Most forward-thinking fleets and savvy owner-operators long ago took pre-emptive measures necessary to weather the latest downturn.
“Right now everyone is hunkered down,” says Russ Moore, vice president of driver recruiting at U.S. Xpress Enterprises in Chattanooga, Tenn.
U.S. Xpress and other fleets have been able to reduce capacity without laying off drivers through support personnel reductions and attrition. Industry wide, between July and October last year, volume fell 6.3 percent, according to the American Trucking Associations.
Generally these months see an increase in freight as retailers restock inventory heading into the holiday season. Several of the big trucking companies cut jobs, and some smaller companies disappeared altogether, not to mention cuts made by truck OEMs, car plants and companies in other industries. In November, manufacturers saw output that was off 7.3 percent from the previous November — a larger drop than any during the 2001 recession.
Machinist union member Don Hursey, affiliated with the Kenworth plant in Renton, Wash., where more than 400 employees will lose their jobs next year when the company suspends making heavy-duty highway trucks at that plant, told the Wall Street Journal in December that “this is the tip of the iceberg. It’s going to be a disaster next year for the entire industry. I’m scared to death.”
Driver Stephen “BigBird” Caudill of Mooresville, N.C., says he and his family have felt the pain of the tighter economy. “My family and I have had to really cut back on things such as going out to eat, visiting family, and we’ve had to extend our service on our vehicles.” Caudill’s best friend, after serving their fleet for 14 years, was laid off and hasn’t found new work.
“The company went by location and freight volume when they did the reductions,” Caudill says. “They did it the best and fairest way they knew how, but I sure miss my friend and hate that his family is struggling right now.”
Caudill, who drives for Wilson Trucking of Fishersville, Va., says he is worried about the status of owner-operators, whom he believes are “really in trouble” because they “can’t haul freight for what the larger companies can, and they sometimes are hauling freight for less than what they bring in just to keep some accounts.”
Car hauler Matt Warren, from Western Massachusetts, says the economy — particularly the struggles of automakers — has heavily impacted that sector of the industry. “Manufacturers became very demanding in adherence to delivery times,” he says. “When a car is unloaded or released for delivery a clock starts, and the carrier has a certain amount of time to get the car moved. Failure to move the car in time results in penalties for the carriers ranging from reduction in rates to fines.”
As car hauling volume dropped, so did carriers’ ability to build full loads, and “a result of this was carriers were forced to move product in a more unproductive manner, raising their costs,” Warren says. He says he used to be able to unload two loads each day — an average of 14 to 16 cars — but he eventually dropped to one-and-a-half and then one before finally being laid off.
“I watched my paycheck shrink and shrink until I had to do something,” Warren says. He switched companies and began hauling imported cars rather than domestics. He says this worked well until the credit crunch. “I made good money until the bottom dropped on everyone.”
Kevin Johnson, a driver for Dot Foods, which is headquartered in Mt. Sterling, Ill., says he has been moderately sheltered from economic problems. “Freight was down somewhat during November and December, but Dot has always made sure I get my miles,” he says.
While the economy is of concern, Johnson says he is not worried about where the trucking industry is headed. “No matter what happens with the economy or with anything else, people still need things, and trucking is still the most realistic and cost-effective method of delivering consumer goods.
“Freight may be slower for a while, and truckers may have to learn to live on less, but I don’t think there will ever be a shortage of trucking jobs.”
Finding hope in 2009
As the administration of the new president and Congress work out a multibillion-dollar stimulus package, some in the industry are hopeful freight will pick up soon — leading into better days economy-wide.
Any improvement will be immediately felt in the trucking industry, stakeholders suggest. Capacity is tight due to both a reduction in the number of motor carriers and strategic changes in business models, so many fleets are poised to take advantage of any upturn. U.S. Xpress officials, who took the company private in fall 2007, purchased minority ownership in truckload *carrier Smith Transport late last year in anticipation of projected freight growth in the coming years. “We want to be ready when things turn around, and we believe we are in position to do just that,” says Greg Thompson, public relations manager at U.S. Xpress.
Jerry Eddy, senior vice president of operations at Covenant Transport, said in mid-January he was cautiously optimistic the trucking industry could see an uptick starting early in the second quarter of 2009. Of course, he added, a lot depends upon the Obama administration’s stimulus package.
“The federal government is throwing so much money into the economy that something has got to start happening,” Eddy says. “Around tax time, I think we may see things pick up. We could see slow improvement from that point on.”
Others, such as ATA’s Chief Economist Bob Costello, expect the economy to take a little more recovery time but still predict improvements in 2009. “When the economy comes out of the recession it is likely to be slow, marginal growth. We expect that in the third and fourth quarters of this year with contractions in the first half,” Costello says. “Trucking often leads recoveries, but I don’t expect solid growth for trucking until late this year.”
Costello says he foresees coming out of the recession a “smaller (but still very large) industry that is leaner.” He says more company failures likely will occur during the first part of 2009. In ATA’s Trucking Economic Review, published in December 2008, Costello also predicts the unemployment rate rising to the 8- to 8.5-percent range. “We expect freight to be soft, if not extremely weak, at least through the first half of 2009,” he says, adding that any recovery for trucking seems at least a couple of quarters away.
Still, others are less optimistic. Starks, with FTR Associates, says freight will pick up in late 2009 “if we’re lucky.” But, more realistically, he says it will be a little longer.
“It’s going to be a pretty interesting time over the next few years,” Starks says. “From a freight perspective we really don’t expect anything to happen until the second half of 2010. Some telling signs will be as we move into the traditional shipping season, end of summer, beginning of fall. That should give us some indicators of where things are going.”
It’s likely 2009 will “see a lot of the smaller guys bumped out” in the *trucking industry, Starks says. Long-term, he expects the larger companies to come out OK, “as long as they manage their cash flow.” He predicts no shortage of drivers in 2009 — “There are a lot of people out there without jobs, so the attraction to the trucking industry is good right now,” he says — but once freight picks up again, the shortage will return, likely ensuring more competitive rates for drivers. Starks also says some of the smaller companies that were unable to carry on through the economic downturn may be revived as freight demands meet and possibly even outmatch available carriers.
Matt Warren says he sees improvements ahead for the car-hauling sector. “I think when the dust settles I will be running much more efficiently, running fewer miles and with higher load factors (more cars per load), and hopefully the work will be more steady with fewer of the boom-or-bust scenarios of the past,” he says. “I will hold out for my return call as long as I can. Car-haul gets into your blood.”
The relief to come
Of course, many of the forecasts are contingent on the success of any stimulus package. ATA’s predictions, in particular, hinge on the passage of a $550 billion infrastructure-centric plan. The question remains whether the new president will be able to make a difference in the state of the economy.
Kevin Johnson says he thinks that, regardless of what the government is doing, the American people can work toward better personal fiscal responsibility to help shore up the economy. “I really think our economy can recover with minimal government interference,” Johnson says. “The American people need to go back to the days of, ‘Ask not what your country can do for you,’ rather than the prevailing attitude of today. Too many people get themselves into trouble and then turn to the government and expect them to fix it.”
Regardless of how relief comes — whether through smarter consumer choices, government assistance or a combination of the two — it will be *welcome throughout the industry. And given the cyclical nature of the U.S. economy, experts believe it’s just a matter of time before we bounce back from this *recession.
Randy Grider contributed to this report.
Looks pretty good!
"Courage is resistance to fear, mastery of fear - not absence of fear."