There seems to be little doubt that 2008 will be a difficult year for the economy as a whole and for freight carriers in particular. The economic gurus are suggesting that it may take six months to two years before we come out of the current "freight recession". What can carriers do to ensure their survival during these challenging times? Here are a few thoughts.

1. Understand your Customers’ Needs
Make sure you are close to your customers and prospects and verify that your business is meeting and preferably exceeding those needs.

2. Start with a well thought out written Business Plan
Develop a Strategy Map and Balanced Scorecard to provide a focus on your key strategies and metrics. Make sure these are synchronized with your customers’ needs.

3. Focus on your Core Competencies
Identify what you do best and what your customers confirm as being superior to the competition.

4. Build your Niche
Focus on expanding your customer base in the areas where your core competencies exist. Through sales, marketing, acquisitions and learning, build on your strengths.

5. Surround yourself with Quality and Committed People
You are only as good as the weakest link in your chain. Therefore make sure you clearly understand the strengths and weaknesses of every member of the team. Make sure your team can carry you to the next level. If not, recruit and train the people you need.

6. Be the Low Cost Producer
Make sure you have a good handle on your cost structure and margins. Verify that you truly understand the levers of profitability in your company. If you cannot compete on price with your competitors, make sure you reduce your costs.

7. Differentiate yourself from the competition
Use your low cost structure and core competencies to differentiate yourself from the competition. If you cannot be the low cost producer, make sure you provide added value and your customers are prepared to pay a premium for this.

8. Break the Rules
Create your own rulebook. You don’t have to be an Apple or Google to break the rules. Fedex did this years ago with their hub and spoke model. Other companies in the transportation industry have done this as well.

9. Increase Productivity
Use technology and other tools to improve the efficiency of your business and differentiate yourself.

10. Maintain a set of KPI’s that tell you what you need to know
Establish a set of KPI’s in your Balanced Scorecard and monitor your performance on a consistent basis. Move quickly to address subpar performance on any of your KPI’s.

While 2008 is slated to be a difficult year, those companies that have well focused business plans and have excellent execution can expedite to perform successfully.

We live in a very dynamic world. Who would have thought we would see the cost of diesel fuel reach $100 a barrel, the Canadian dollar surpass the US dollar in value and the US housing market take a big hit, all within such a short time? The moral of the story is that you cannot create a freight program and then expect to be able to leave it in place for a couple of years. As you begin the New Year, it may be time to make some New Year’s resolutions.

1. Integrate Disparate Supply Chains into Supply Chains by Customer Group.
Take advantage of efficiencies that may be available by sharing trailer space with other divisions or even competitors that are shipping to the same customers. Look at all aspects of your logistics program, not just the freight component. It may be time to think about locating warehouses in certain key locations, shipping truckloads to these locations and then delivering LTL shipments direct to customers.

2. Integrate Inbound and Outbound Transportation under One Roof
The fact is that your inbound freight (your vendors’ outbound freight) may be a profit centre for them. Seizing control of your inbound freight may create opportunities to develop round trips,leverage larger volumes with your carrier base and save your company money.

3. Check on your Customers’ required Transit Times
Then compare them to what you are receiving from your current carriers. Look at all options to deliver your products under various scenarios (i.e. road, rail air, ship).

4. Audit your Freight Invoices
Carrier rate errors and overcharges often amount to one percent of your freight charges. Make sure you have in place strong ongoing monitoring tools (and not just spot checks) to ensure your company is not giving away some of its hard earned profits. A TMS system (see resolution 8 below) may be the answer.

5. Make sure your Rates and Service are in line with Customer Requirements.
Benchmark your rates against those paid by other companies carrying the same or similar commodities on the same type of equipment on the same lanes. A benchmarking study can be a wise and modest investment for many shippers.

6. It’s Not All About Price
Surround yourself with carriers that provide a quality service at competitive rates. Sooner rather than later you will get “burned” if you select your carriers based on rates only. Guaranteed.

7. If you have not conducted a Freight FRQ in the past two years, now is the time.
The freight market has changed considerably over the past couple of years. If you ship cross-border, you are likely in for a surprise. Southbound freight to the US is very desirable at this time and you are likely to receive some very attractive rates. Make sure your carriers can supply service, capacity and price. If they can only supply one or two of the three, you need more carriers. If you have conducted a freight bid within the past year, don’t be greedy. You may receive an RFP backfire as carriers increase their rates to more profitable levels.

8. Look at Transportation Management Systems
The technology has come a long way in recent years. Now small shippers can enjoy the benefits of a TMS system by paying per transaction with no up front cost and a very short “ramp up” time. Look at the trade-off of consolidating (and/or deconsolidating) shipments and the superior management you will receive as compared to the costs. You may be surprised at the value proposition of TMS.

9. Develop and Maintain a Carrier Scorecard or Transportation Dashboard
These tools come with most TMS systems. If you don’t go for a TMS system now, use your carriers’ reports to populate your monitoring tools. Don’t tolerate sub-par performance.

10. Manage your Freight Spend
This is one of my “pet peeves” with many shippers. Non-compliance (i.e. using carriers out of or towards the bottom of the routing guide) and poor or no management of accessorial charges can undermine the first nine New Year’s resolutions. Work on improving your company’s freight spend management in 2008, one segment at a time. You will soon see the fruits of your work.

Have a Happy New Year!

As U.S. and Canadian companies have come to rely on Asia to source raw materials and finished products, west coast ports have been struggling to keep up with the volume of freight moving through their facilities. In the United States, the ports of Los Angeles and Long Beach handle roughly 40 percent of all cargo shipped into the United States and nearly 80 percent of all products originating in Asia. In Canada the Port of Vancouver has experienced similar growth. This has resulted in a number of challenges including congestion at the ports, a lack of warehousing space, aging infrastructure and driver shortages.

Creating a 2500 Mile Multimodal Transportation Network

To help address these capacity constraints, a non-profit tri-national (Canada, USA and Mexico) organization was formed in 1994. This public-private consortium was established to create a 2,500-mile-long multimodal transportation network linking the three countries, 71 million people and supporting $1 trillion in total business between these countries. The ”Super Corridor” stretches from the ports of Mexico (i.e. Lazaro Cardenas, Mazatlan, Manzanillo) to the border crossing of Laredo, Texas, through 11 states, on to Eastern and Western Canada through the Ambassador Bridge and Winnipeg Manitoba.

NAIPN – North America’s Inland Port Network

To develop the inland network, NASCO formed NAIPN (North America’s Inland Port Network) that includes Alliance (Fort Worth), Texas, Dallas Logistics Hub, KC Logistics Hub, Port San Antonio, Des Moines, Iowa, Winnipeg, Manitoba, Puerto Interior Guanajuatco, Bajio Central Mexico, Interpuerto Monterrey, Proyecto Distrito Multimodal Villa XXI and Durango, Mexico. The main guiding principle of the NAIPN is to develop logistics systems that enhance global security while maintaining the cost effective and efficient flow of goods. Clearly the idea is to speed the flow of containerized goods from the ocean ports through the inland port network. As a result railroads such as Kansas City Southern and Burlington Northern are partnering with real estate companies to develop intermodal facilities in these locations.

Winnipeg – Canada’s Primary Link to NASCO

In Canada, Winnipeg is the primary focus of attention. It is the major facilitator of trade, via rail and truck between Western Canada and the United States and Mexico. Critical to its success is its proximity to the Canadian National, Canadian Pacific and BNSF rail networks. In addition, the Port of Churchill, on Canada’s Hudson’s Bay, is becoming a global gateway as the Northwest Passage opens to international trade. OmniTRAX, a privately held railway between Port of Churchill and Winnipeg figures to benefit from the traffic along its trade route. The opening of the Port of Prince Rupert will also enhance the cross-border freight flows along this corridor.

Needless to say, NASCO represents an exciting opportunity for the three original NAFTA participants and could serve as a model for other trade corridors that may be developed in the future. Stay tuned.

When I began writing this blog last April, I had no idea of the new world that I was entering. One of the interesting things to come out of this world has been the experience of seeing my blog referenced or quoted in other blogs. In fact, what makes blogging so much fun is to see a fellow blogger take your thoughts in a new direction with a different perspective. Similarly, I receive inspiration and insights from other bloggers and try to share these with the readers of this blog.
This is what happened this week as a fellow blogger, E. Phil Haley, who writes, Life on the Road, picked up on the potential in NASCO, North America’s Super Corridor that runs from Mexico to Canada, to highlight the opportunity that this trade corridor and other trade corridors may offer short haul truckers. Subsequently we have been exchanging e mails in order to discuss other potential trade corridors (e.g. Port of Prince Rupert, British Columbia through western Canada to Chicago all the way down to New Orleans, Port of Halifax, Nova Scotia through Montreal/Toronto to Chicago and on down through the heartland of the United States).
The point is that blogging becomes truly great when it results in the sharing of ideas and opportunities. Since there are a number of good transportation and logistics industry blogs, I would like to share those with those of you who read this one. Each blog is shaped by the background and experience of the blogger. Here are a few that are worth a look.

Life on the Road http://lifeontheroad.com
Global Supply Chain Management Solutions http://thirdpartylogistics.blogspot.com/
Freight Dawg http://www.freightdawg.com/
The Trucking Blog http://truckingblog.blogspot.com/
Air Cargo News Blog http://www.aircargonews.net/blog/
Mike Stolarcyzk’s BlogonLog http://blogonlog.blogspot.com/

For lists of other blogs, click on http://www.3plwire.com/blogroll/
and / or http://www.freightdawg.com . There are some that focus on marine shipping, transportation in Asia, supply chain issues and a variety of other topics. Please take a minute to let me know what topics you would like to see on this blog and to share with me the names of other blogs that you enjoy reading.

The Detroit, Michigan – Windsor, Ontario border crossing is one of the most important international trade lanes in the world with sixty-two percent of the trade, by land, between Canada and the United States, including 12,000 trucks, crossing the border each day. Transport Canada and the United States Department of Transportation stated that they will outline plans for a new bridge to serve this heavily traveled trade lane.

Ambassador Bridge has had Monopoly on Truck Traffic for 79 Years

Since 1929, the privately owned Ambassador Bridge has been the principal artery of truck traffic between the two countries. For anyone interested in the colourful history of how this bridge came into being, go to www.ambassadorbridge.com/history. The existing Ambassador Bridge, owned by the Detroit International Bridge Co., is one of four Detroit River crossings. Others are tunnels for passenger cars and rail.

Detroit River International Crossing Project

The bi-national Detroit River International Crossing project is a proposal from the federal, state and provincial governments in the United States and Canada for a publicly owned border transportation system, including a new river crossing, inspection plazas and access roads designed to enhance the movement of trade between the two nations. Canada’s Federal Transportation Minister Lawrence Cannon said he will aggressively look for a private sector partner to build a new bridge in Windsor as part of the federal government's $33-billion Building Canada federal infrastructure program. "We are experiencing the second-longest period of economic expansion in Canadian history," said Cannon in a keynote address to the annual conference of the Canadian Council for Public-Private Partnerships. "That's why our government is investing in modern, world-class infrastructure projects ..." He specifically pointed to the new Windsor-Detroit border crossing, saying it is clearly a priority. "A stronger border crossing will be good for Ontario and good for the country." Ottawa next intends to seek private sector participation to design, build, finance and operate the Canadian inspection plaza and a portion of the new bridge between Windsor and Detroit, Cannon said.

Cost: $1.5 Billion to $3.0 Billion

The federal government also announced it will ensure public oversight of the next Windsor-Detroit crossing - something it doesn't entirely have today given the private ownership of the Ambassador Bridge by Michigan businessman Matty Moroun. Transport Canada indicated Tuesday there has been plenty of early interest from private sector investors from around the world looking to get involved in building a new bridge in Windsor. The anticipated price is $1.5 billion to $3 billion.

Concerns Expressed by Owners of Ambassador Brodge

At the same time, the owners of the Ambassador Bridge submitted an environmental impact statement to Transport Canada as part of a plan to gain approval for their own six-lane replacement bridge span. The current Ambassador Bridge is expected to remain in place as a “redundant structure.” Dan Stamper, President of the Detroit International Bridge Co., has expressed a concern that the two federal governments are seeking to divert money away from his company. “They’re hoping to take half of our business, move a mile west and give it or lease it to another private operator,” stated Mr. Stampel. “We’re not sure that 1) that’s legal or moral and 2) we’re not sure that they can make the economics of that work….” Transport Canada has responded by saying that there is enough truck and passenger traffic traveling between Detroit and Windsor to go around.

Will this Project have the same Level of Commitment after the Elections of 2008?

The existing network is expected to hit its capacity by 2015. The Detroit River International Crossing is expected to be operational in 2014 and help relieve Ambassador Bridge traffic. U.S. Secretary of Transportation Mary Peters and Lawrence Cannon, Minister of Transport, Infrastructure and Communities signed a Memorandum of Cooperation (MOC) to demonstrate their continued commitment to the project. In a statement, Secretary Peters stated that “providing new capacity at this critical crossing will strengthen our economies, cut congestion, and improve the flow of goods and people that define the special relationship between our two countries.” The question is will the same level of commitment remain after the 2008 U.S. election and the federal election likely to take place in Canada this year.

The cross-border (Canada-U.S.) LTL market has long been one of the most profitable segments of the freight business. Only a select few carriers with deep pockets (Yellow, Roadway, ABF, Fedex), have been able to establish a network of terminals throughout the United States and Canada. In Canada, these companies have located their operations in the major cities (Toronto, Montreal, Calgary) and excluded less populated cities and provinces (Prince Edward Island, Newfoundland, Saskatchewan) from their terminal coverage locations. For most other companies seeking to serve this lucrative market, this creates a significant challenge.

Canada has a population roughly equal to the state of California. Much of this population is locatated within a one hundred mile radius of the U.S. border with a heavy concentration of the people living along the Windsor, Ontario to Quebec City, Quebec corridor. While Montreal and Toronto are located close to major U.S. markets (e.g. Chicago, Detroit, New York, New England), most of the other major centres in Canada are located hundreds or thousands of miles away in Winnipeg, Edmonton, Calgary and Vancouver. The key issue for American truckers seeking to provide service in Canada is whether to focus on Canada’s largest trade corridor or incur the costs of locating terminals, trucks and drivers in what would be the equivalent of small or mid-size U.S. markets.

For a Canadian carrier seeking to establish an American terminal network, the task is very daunting. The cost of purchasing a carrier with 20, 30 or 40 state coverage is enormous. The time and cost of opening company owned or even agent terminals in even a select few markets (e.g. Chicago, New York, Los Angeles) is a significant undertaking. Since the Canadian market is only one tenth of the size of the U.S. market, a Canadian company seeking to acquire a U.S. carrier, forces the purchaser to commit to entering and serving the domestic U.S. market. The process of acquiring a series of small LTL carriers and knitting the network together (e.g. Vitran), is a multi year project. While some carriers over the years have tried to do this, very few have been successful.

The formation of operating and/or marketing alliances has been a popular method of serving LTL shippers across North America for many years. The partnerships frequently come and go. If the partners’ objectives, capabilities or work ethic vary, this often leads to disappointment, failure and a termination of the arrangement.

Two recent partnerships caught my attention and highlight the different approaches that carriers may take. New England Motor Freight has formed what appears to be an operational partnership with Toronto based Concord Transportation. Under the terms of the agreement, Concord will receive NEMF freight in Chicago for delivery to Western Canada, in Toronto for Ontario deliveries, and in Montreal for shipments to Quebec and Atlantic Canada. To complete the exchange, Concord freight destined for the northeast United States will flow through NEMF. NEMF will continue to operate their existing facilities in Toronto and Montreal. The two companies will link their IT systems.

Lakeville Motor Express, a Minnesota based north central states carrier, has dissolved its alliance with Estes Express, a super regional carrier and has formed a new alliance with Land Air Express of New England, Pitt Ohio Express (mid-Atlantic states), Averitt Express (south and southeast USA), DATS Trucking (southwest USA) and Canadian Freightways/Epic Express. This will take effect on March 1.

Meanwhile Estes Express will retain its ExpressLINK with TST Overland Express while opening terminals in North and South Dakota, Nebraska, Iowa, Minnesota and Wisconsin, effectively fulfilling its goal of providing direct service coverage to shippers in all 50 states. Estes will now partner with one member of the Transforce Income Fund while a sister Transforce company, Canadian Freightways, will partner with a separate grouping of companies.

Carrier partnerships, particulaly those with a strong joint marketing component, have the potential to work, for a period of time, if the partners:

a) establish line haul arrangements and superior service to what is currently available.
b) link the computer systems of the two companies to provide seamless service,
c) train each others’ sales forces on an ongoing basis,
d) provide a knowledgeable and skilled sales resource or resources to make joint calls,
e) establish cross-border sales revenue targets that are measured on a consistent basis,
f) create an effective sales lead program with timely follow up and
g) compensate the reps on both teams on their pay for performance programs.

Like a marriage, the key to a successful LTL partnership is picking the right partner, establishing good communication and committing to make the relationship work. Time will tell how well these partnerships work out.

A short line is an independent railroad company that operates over a relatively short distance. Short lines generally exist to link two industries requiring rail freight together (for example, a gypsum mine and a wall board factory, or a coal mine and a power plant) or to interchange revenue traffic with other, usually larger, railroads. The short line sector of the rail industry has been going through somewhat of a renaissance since legal changes in the United States in1980 made it easier for class 1 railroads (those with revenue in excess of $319.3 million of revenue) to shed unprofitable track. The short line sector is made up of two separate categories of railroads – “Regional Railroads” and “Short Lines”. A regional railroad is defined as operating at least 350 miles of track and generating between $40 million and $319.3 million. A short line railroad is defined as having less than 350 miles of track and generating less than $40 million in revenue.

According to the American Short Line and Regional Railroad Association (ASLRRSA), these railroads operate about 29% of the track mileage, generate 9% of all rail freight revenue and employ 11% of all rail employees. In the United States, there are 418 members of the association. Click on to http://www.aslrra.org/home/index.cfm to see a complete listing of the companies. (Note that this listing does not include railroads that are not members of the association). In Canada there are about 50 short lines that move 352.9 billion revenue tonne-kilometres of freight annually over 48,900 km of track. Click on http://en.wikipedia.org/wiki/List_of_Canadian_railroads to see a list of short line railroads in Canada.

The short lines work in a service niche that the main lines do not find economical. They operate in all regions of the United States and in the Yukon, Northwest Territories and every province of Canada except Prince Edward Island. The majority of Canadian short line railroads were established after 1996 when changes to Canada’s Transportation Act made these companies easier to establish on track that CN and CP wanted to abandon. They have a different cost model and target smaller customers where class 1 railroad downsizing has left the larger customers as a more profitable business segment.

However, this is not always the case. For example, Rail America Inc. (http://www.railamerica.com/), which operates 41 short line and regional railroads, with approximately 7,800 miles of track in the United States and three Canadian provinces, is going after large enterprises such as a Honda assembly plant that is currently being built.

Short line railroads in Canada are big in coal, wood pulp, chemicals, newsprint, paper, salt, grain, fertilizers, consumer goods and petroleum. In Quebec alone, short line railroads carried over 220,000 carloads in 2005. The 12 shortlines with their 2,351 km of track, plus several more owned by major industries such as Alcan, the Iron Ore Company of Canada, Cartier Mining and Wabush Mines, combined have more track than the 2,649 km operated by CN and CP.

According to Roger Cameron, Director, Public Affairs with Rail Association of Canada, the short lines in Canada have doubled the amount of traffic they originate in Canada. This growth appears to be driven by several factors. A smaller customer base allows the short line to focus on the specific needs of their clients and provide services, for example, more switches per week, than might be available from a class 1 railroad. Their ability to link to one or more class 1 railroad is beneficial as is their fuel efficiency, providing them with cost advantages against trucks on shorter distances. Also, they can add and decrease capacity with the same crew and locomotives.

It will be interesting to watch the developments in this industry. As the short line industry continues to grow and as some large players (e.g. Rail America with 41 railroads, Omnitrax - www.omnitrax.com/ - with 17 railroads in the United States and Canada) take shape, will we see the re-emergence of another North American class 1 railroad? This would reverse the process established in the 1990’s when the six industry giants came into being through mergers and acquisitions.

A memorandum of understanding (MOU) on the development of Canada's Atlantic Gateway was signed last year by the four Atlantic Provinces and the federal government. The Atlantic Gateway Alliance’s mandate is:
• To promote the need for a pan-Atlantic Canada gateway strategy.
• To ensure that transportation stakeholders from all Atlantic Provinces are involved in the development of policies and regulatory and investment priorities related to the Atlantic Gateway.
• To enhance Atlantic Canada’s transportation system and the competitiveness and efficiency of our road, rail, air and marine transportation systems.
• To contribute to the economic expansion of all Atlantic Provinces through the development of an inclusive and fair Atlantic Gateway strategy.
Canada’s Atlantic Gateway strategy is focused on three ports, The Port of Halifax, the Saint John (New Brunswick) Port Authority and the terminal planned for the Port of Melford in the Strait of Canso.
According to report commissioned by the Atlantic Canada Opportunities Agency (ACOA), there appears to be a strong business case to support to develop Canada’s east coast ports which would help strengthen the region and Canada’s position in international commerce.

Peter MacKay, in addition to being Canada’s Minister of National Defence is also Minister of ACOA. In a recent speech, he commented that “the Atlantic Gateway has a strong value proposition rooted in three key factors: competitive transit times, reliability and cost competitiveness. In addition, the Atlantic Gateway has the potential to provide North American businesses with more efficient supply chain management practices, greater market reach through initiatives such as building the transload sector, access to specialized services, and the application of new transportation technologies.” While the Federal Government has committed $2.1 million to fund infrastructure projects that support key trade corridors, the ACOA study was left to determine if a business case can be made for Canada’s east coast ports as it has for its west coast ports where $1 billion has already been committed to support Asia-pacific trade through the west coast ports.

The private sector is stepping forward with money to invest in these ports. There is approximately $250 million committed to the Port of Halifax.

Macquarie Infrastructure Partners’ purchase of Halterm $172 million
Ceres purchase of two new post-Panamax cranes $20 million
Port Authority’s investment in port infrastructure $20 million
CN’s investment in Autoport $15 million
Consolidated Fastfrate (now part of Fenway Partners) $10 million
Investment in a new transload and distribution facility
Halterm’s purchase of new yard equipment $8 million

A consortium of Canadian and U. S. investors is funding Melford International Terminal, Inc., in the building of a 1.5 million-TEU terminal in the port of Melford, Nova Scotia. The first phase is due to be complete by the year 2010 on 14,000 acres in Guysborough County facing the Atlantic Ocean.
Involved in the project are SSA Marine who will operate the terminal, CenterPoint Properties will provide the capital and has partnered with Melford to develop a 1,500 acre logistics center adjacent to the terminal; and the short line railroad Rail America will construct the 20-mile long spur from Linwood Junction to the development at a cost of approximately $25 million dollars.

Unfortunately, growth in the Port of Halifax has been flat compared to two of its major competitors, Montreal and New York. In fact, Halifax is operating at about fifty percent capacity. Various reasons have been cited for these disappointing results. The most obvious is that Halifax is not well located to attract freight from Asia due to its location. Another criticism is that Halifax is a one railroad town compared to most other Canadian and American ports that are served by two major railways. Perhaps the major reason for this performance was identified by Karen Oldfield, the Halifax Port’s president and CEO in stating that “people don’t know about Atlantic Canada, so we have a big job to do to increase awareness of our region.” Some people have been openly critical of the “build it and they will come” mentality. Clearly all of Canada’s east coast ports have a marketing job to do.

A number of suggestions have been put forth as to how to drive traffic through these ports. They include the following:

Becoming the biggest short sea operator to the East Coast of the United States
Using CN as a land bridge for goods (e.g. fish products) coming from Asia via the Port of Prince Rupert to the East Coast of the United States
Focus on emerging markets such as India (via the Suez Canal), Pakistan, Bangladesh, Malaysia and Eastern Europe
Focus on Central and South America and the Caribbean
Focus on export reefer traffic
Focus on traffic moving to Chicago and the Ohio valley

This list will have to be assessed and rationalized into a set of clear focused marketing strategies rather than a “wish list” of opportunities. The other key determinant for success is inter-government and inter-port co-operation. Infighting and turf wars could serve to undermine the focus and clear marketing direction needed to achieve success for the region. In summary, a clear focus on where the Atlantic ports can make a difference, a well designed marketing program, good communication, teamwork and leadership will be the key ingredients for success.

Over the past couple of months, many folks in the business, financial and government sectors have come to the realization that the North American economy is in a slowdown, downturn or possibly even in a technical recession. This is not news to those of us in the freight industry that have been living with a “freight recession” for some time. In fact, “freight recession” was the topic of a blog that I wrote back in April 2007. That blog, based on the previous six months of published shipping data, outlined how we had witnessed two consecutive quarters of declining freight volumes. That was back in April.

The fact is that we have been in a freight recession for over a year. What brought this issue to the attention of the general public in the United States is the combined impact of the sub prime mortgage mess, the drop in the value of real estate in many areas and the spike in the cost of fuel. In Canada the dramatic rise in the value of the Canadian dollar as compared to the greenback and the impact this has had on exports to Canada’s largest trading partner has had a similar impact. The decline is freight volumes has finally caught up with companies’ balance sheets and income statements. It is a sure sign that consumers are not buying what they did before. December shopping data indicate that as well. There is greater anxiety about the economy among the general public at this time. The media has finally taken an interest in these issues over the past few months and this has served to raise the level of anxiety for everyone. This anxiety manifested itself in spectacular fluctuations in the stock market the past few days.

With the economy almost on its knees, the U.S. Federal Reserve finally took drastic action with an unusual but much needed three quarters of a percent cut in the prime lending rate and President Bush called for the approval of a large spending initiative to “jump start” consumer buying by proposing a set of tax breaks for individuals. The question is whether this is too little, too late.

So what impact will all of this have on the current freight recession? In my view this is the beginning of the end of the freight recession. January 2008 will probably mark the date when the economies of North America will begin a slow but ultimately steady turn. Since interest rate cuts take time to work through the system, it is unlikely that we will observe any immediate change in freight volumes. The financial experts are warning that there will likely be further “corrections” in the stock market and further declines of 5, 10 or more percent are not just possible but likely. Freight volumes will likely continue to be weak for another six months to a year.

However, the fact that the Fed has acted decisively and will probably continue to act decisively is likely to increase consumer confidence. It will likely reduce home foreclosures in the United States which is critical to a turnaround. It may encourage people to start buying real estate and cars again which have a cascading effect on so many industries. In other words, action is being taken to turn this situation around. So what can we expect in the future?

According to Noel Perry, Corporate Economist for Schneider National Inc. (as stated in a recent Traffic World article), there are three things about these economic cycles “that guide supply chain behavior:

• First, slowdowns are always followed by upturns. We just don’t know exactly when the swing will begin. The wise get ready even at the cost of being early.
• Second, spot markets are more affected than contractual markets. Those buyers who are price-shopping today will have the highest prices and shortest supply when the recovery occurs. The wise will lock up capacity now, even though they could find cheaper capacity in 2007.
• Third, during a recovery, no carrier wants low-productivity freight (i.e. no backhaul, uneven volumes, low-volume destinations, uncertain loading dock conditions). Moreover, carriers have been getting smarter about such freight and will be pickier about what they accept during the recovery than the last. What does this mean for shippers? The wise will budget extra funds to ensure their promotion and emergency resupplies get through during the critical recovery quarters when margins are the best.”

Industry consolidation is taking place and capacity is leaving the market. We will have more to say about this topic in a future blog. It may take time for the housing and auto parts industries and others to pick up before they impact significantly on truck capacity. It is likely that it will take four to six quarters to “turn the ship around.” Now is the time for the “wise” shippers to develop their transportation strategies to best position their companies for the turnaround that is about to take place.

For over a year, there has been much discussion about the downturn in freight volumes (which some have labeled a “freight recession”) and there have been many questions about when we will begin to witness a turnaround. While each individual company, whether it is a shipper or carrier, can see its own volumes, it is difficult to obtain true, objective and credible data on how the industry or industries as a whole are performing. With the U.S. sub prime mortgage crisis, the volatility in the stock markets and the media coverage being given to the state of the North American economies and the potential for an economic recession, this is raising increasing questions about whether the freight industry is going backwards or forwards.

As a result, I thought it would be helpful to identify a set of economic indicators that can be tracked on an ongoing basis to provide some visibility into what is happening. As I set about the task of assembling a group of indices, it quickly became apparent that no one or two indicators tell the whole story. Some are leading edge indicators, some are after the fact trend line data and some have predictive value as to what may happen in the future. All of these links can be entered into the Favorites section of your browser to track them with whatever frequency you wish.

Since this is just one set of indicators, there is no doubt that I have missed a number of good ones. Please take a minute to respond to this blog and share some of your indicators with our readers. That would help augment everyone’s data bank of knowledge.

Freight Data

Some of the widely used indicators are those that recognize shipping data. Here are four such indicators.

Association of American Railroads Weekly Car Loadings

Freight traffic on U.S. railroads during the week ended January 19 was up for the second consecutive week in comparison with the corresponding week last year, the Association of American Railroads (AAR) reported.

http://www.aar.org/Newsroom/carloadings_page.asp

American Trucking Association Truck Tonnage Index

The American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index jumped 4.1 percent in December 2007, after rising 0.9 percent in November. The latest increase was the largest month-to-month gain since a 6.2 percent jump in December 2006. The not seasonally adjusted index fell 8.2 percent from November to 102.7.

http://www.truckline.com/index

Intermodal Association of North America Monthly Intermodal Traffic
Intermodal volume, which is not included in the carload data, totaled 230,771, up 3.0 percent from a year ago. Container volume rose 4.1 percent while trailer volume was off 0.9 percent.
http://www.intermodal.org/statistics_files/index.shtml

Bureau of Transportation Statistics Air Freight Summary

http://transtats.bts.gov/freight.asp

Each of these indicators provides historic data that can show trend lines but cannot necessarily be a predictor of the future.

Inventory Levels

Inventory is a key to profitability. Inventory velocity turns assets into profits. The faster inventory turns, the greater the profitability. Sales wants to make sure that there is always inventory on hand to meet each order. Finance wants to carry fewer inventories to free up capital for other needs.
As published monthly by the Department of Commerce, the Inventory-Sales Ratio measures how many months it would take to deplete the backlog of goods held on shelves at that specific monthly sales rate. An inventory-sales ratio of 1.65 means that it would take 1.65 months, on average, to clear the shelves of inventory.
A declining inventory-sales ratio is usually good news for the economy since it means that sales are increasing faster than inventories. Businesses respond to meet the increase in sales by speeding up their orders and their production rates. Therefore a downturn in the inventory-sales ratio is a leading indicator that business conditions are improving, and that interest rates are close to reaching their cyclical troughs.
A rising inventory-sales ratio means that inventories are rising faster than sales. Businesses are becoming overstocked. They respond to this unintended buildup of inventories by postponing orders and cutting production rates. The result is a slowdown in economic activity, which reduces interest rates and inflation. Therefore an upturn in the inventory-sales ratio is a leading indicator that business conditions are deteriorating and that short-term interest rates are close to reaching their cyclical peak.

Canadian Inventory Ratio

http://www.statcan.ca/english/freepub/63-008-XIE/2007008/ct008_en.htm

Canadian and U.S. Inventory to Sales Ratios

http://www.statcan.ca/english/freepub/63-008-XIE/2007008/ct007_en.htm
http://www.census.gov/mtis/www/mtis_current.html

U.S. Inventory to Sales Ratio – Forecast

http://www.forecasts.org/inventory-to-sales-ratio.htm

U.S. manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month (November) level of $1,436.7 billion, up 0.4 percent (±0.1%) from October 2007 and up 3.5 percent (±0.3%) from November 2006.

General Economic Trend Data

Gross Domestics Product

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 4.9 percent in the third quarter of 2007,
according to final estimates released by the Bureau of Economic Analysis.

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

Retail Sales

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for December, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $382.9 billion, a decrease of 0.4 percent (±0.7%)* from the previous month, but 4.1 percent (±0.7%) above December 2006.

http://www.census.gov/svsd/www/marts_current.html

Industrial Production

Industrial production was unchanged in December 2007; the change in the index over the previous three months was little revised, with offsetting revisions to September and October. For the fourth quarter, output fell 1.0 percent (annual rate), the first quarterly decrease since the fourth quarter of 2006.

http://www.federalreserve.gov/releases/G17/Current/

Unemployment Insurance Weekly Claims Report

Economists watch unemployment claims closely because an increase could be a leading indicator of a slowdown. Unemployment claims are expected to surge over the next few weeks.

http://www.dol.gov/opa/media/press/eta/ui/current.htm

Consumer Confidence

Consumer confidence provides an insight into consumers’ attitudes about the economy and their willingness to spend money. A low level of confidence may result in less spending which may result in less freight activity. Consumers are quite downbeat about the short-term future and a greater proportion expect business conditions and employment to deteriorate further in the months ahead.

http://www.conference-board.org/economics/ConsumerConfidence.cfm

A Handy Summary

If you are looking to go to one site for a number of these indices, click on the Statistics section of the Canadian Transportation & Logistics website.

http://www.ctl.ca/issues/Search.asp?nrcs=t&id=2121

Some Additional Thoughts

Here are a few words of wisdom from Brian Wesbury, chief economist for First Trust Portfolios, L.P. as reported in yesterday’s Wall Street Journal. “A year ago, most economic data looked much worse than they do today…. The good news is that the U.S. financial system is not as fragile as many pundits suggest. Nor is the economy showing anything other than normal signs of stress.” With the drop in the prime lending rate by the Fed and the possibility of a stimulus package by the U.S. Federal government, there appears to be a will to bring the freight recession to an end.