The past two blogs have focused on the difficult economic conditions facing the freight industry and then identified a set of indices that can be monitored to see if we are pulling out of the so-called “freight recession.” With the U.S. Federal Reserve having cut interest rates twice in the past week and with U.S. Federal Government talking about a stimulus package, aggressive action is being taken to turn the economy around and improve freight volumes. However these measures take time to work their way through the economy. All indications are that for at least the first six months of 2008 and probably longer, freight volumes will remain depressed.

Economic Projections

The following are some projections made by a distinguished panel of experts that Logistics Management magazine assembled for a recent webinar. These projections are correlated by industry segment (e.g. truckload, LTL, rail etc.) to the research findings derived from a representative sample of Canadian shippers in a recent Canadian Transportation & Logistics magazine survey.

The growth in U.S. GDP is expected to slow considerably. The LM panel projected a very modest 1.1% growth in GDP in the United States in 2008, well below last year’s level of 4.7%. Diesel fuel is still expected to remain high although this is always somewhat of a “wild card”. The freight industry will continue to be adversely affected by the slowdown in home construction and the home resale market (brought on by the sub-prime mortgage and credit crunch), the related decline in sales of appliances and home furnishings and the drop in auto sales. This will have a significant impact on the pulp and paper industry, retail traffic and auto parts manufacturing. What does this all mean for freight rates?

Truckload

U.S. truckload rates are expected to increase by 3.5% in 2008. If you exclude fuel, truckload rates are expected to decline by 2 to 4%. In the Canadian survey, 73% of the shippers expect rate increases in the range of 1 to 4%, very comparable to their U.S. counterparts. In the truckload sector, it will again be a shippers’ market. While capacity may tighten as a result of carriers parking equipment, mergers, acquisitions and bankruptcies, there will still be ample equipment to move the freight in 2008.

LTL

In the United States, LTL rates are projected to increase by 2.1% in 2008, well below the 4.8% figure of last year. Again, if fuel is excluded, LTL rates are predicted to decline by 1 to 3%. In Canada, 73% of the sample is expecting a rate hike of 1 to 4%. LTL capacity is expected to be satisfactory as U.S. based non-union regional LTL carriers expand their coverage areas. LTL carriers are marketing consolidation and storage programs in their terminals to utilize excess capacity.

Rail

Carload rate increases are expected to be 5.5% in the United States as compared to 2.5% in the intermodal sector. In Canada the picture is similar. Seventy-one percent of shippers expect rail rate increases of 1 to 4% while 70% expect increases in this magnitude on intermodal rates. The rationale for these higher rate increases is based on the smaller number of class 1 railways (2 U.S. east coast, 2 U.S. west coast and 2 Canadian rails), thereby giving them more pricing leverage, the need to cover the cost of their service improvements and their need to earn in excess of their cost of capital to justify continued investment. With some truck capacity coming out of the market, this makes intermodal a viable option, in some instances, on freight moving distances of 400 to 500 miles and up.

Ocean

Marine rates on U.S. traffic are expected to increase by $100 per container during the course of 2008. Sixty-two percent of Canadian shippers are looking for increases of 1 to 4% while the other 38 percent are expecting higher increases. There appears to be ample capacity in 2008. Since the land portion of the freight movement is quite costly in comparison with the ocean piece, there are expectations that short-sea shipping (e.g. Houston to Savannah) will become more prevalent to reduce long haul trucking costs.

Courier

This market is really composed of a number of market segments (e.g. deferred parcel, express parcel, mail services) that in some cases have different players and market leaders in each segment. In the United States, there is much discussion at this time as to the future of DHL. While they are a big player on a global basis, they have not performed well financially in the United States. With the U.S. post office becoming unregulated in this space, this will increase competition with the big three (UPS, Fedex, DHL). The “tug of war” between shippers and carriers should keep rates relatively flat in the United States. In Canada, 75% of the shippers surveyed expect rate increases of from 1 to 4%.

Air

This is a very cyclical business with well defined peak and off-peak seasons. During peak season, air carriers and forwarders have more leverage. Also, fuel is a very large percent of their expenses. Canadian air cargo rates are projected to increase by 1 to 4% by 63% of the respondents while the balance expects increases of more than 4%.

Summary

The year 2008 is going to be a challenge economically in both the United States and Canada. The rates pendulum will be more favourable to shippers. Here are some things to consider. As reported in a previous blog, the tough times will come to an end. As business picks up, capacity is expected to tighten considerably. This will drive up freight rates significantly since it will take time to bring back capacity to the market. Shippers should focus on their high quality core carriers. They should negotiate rates that are fair to be both sides and sign multi year relationships to lock in capacity for their company when the economy starts to pick up.

In the past few blogs, we have focused on the current “freight recession” and economic downturn in North America and then looked at the projected 2008 rate increases in each of the major sectors of the freight industry (e.g. LTL, intermodal, ocean etc.). Rate increases represent an important indicator of the relative health of the industry since these additional revenues allow transport companies to invest in new plant and equipment, acquire new technology and hire additional employees. Rate decreases often result in employee layoffs, a lack of capital investment and in some cases, a decline in service (e.g. fewer schedules with more freight on each trailer). The experts on both sides of the border are predicting a gloomy economic picture for much of 2008, a shippers market for freight rate negotiations, a modest level of rate increases and even rate decreases in some sectors.

In this blog we will look back over the past year to assess the financial performance of specific companies in the transportation industry, specifically publicly traded transportation companies. For public companies, this process is facilitated by the requirement to publish financial results and by the market’s assessment of their performance as reflected in a number of key indicators. In the next blog, we will look at how to select the best performing transportation stocks in 2008.

One would expect to see a decline in the price of many transportation stocks during a “freight recession”. Some experts suggest that the current decline in freight volumes began during 2006 and continued throughout 2007 into 2008. Let’s have a look at how various companies’ stock prices performed during this period.

Transport Topics provides one grouping of companies and their financial results on a weekly basis. In their analysis, they include:

Less Than Truckload
Truckload
Package
Truck Leasing
Multimodal
Logistics
Canadian Companies

To complete the picture, I will add one more group, class 1 railroads. I have included the 52 week change as of February 1, 2008.

Comparing year end 2007 to year end 2006, the Dow Jones Industrial Average gained 9.2% while the Toronto Stock Exchange, Canada’s largest stock exchange increased in value by 19.9% in 2007. The trucking industry on both sides of the border did not perform this well. During this period the Dow Jones Transportation Average declined by 1.5%. As far as Canadian transportation stocks, all six of the stocks and Income Funds listed in the TT list were in the red for 2007.

Looked at on a sector by sector basis, here are the results sorted by percent increase or decrease in share price from year end 2006 to year end 2007. Those of you who follow the market know that January of 2008 has been an amazing “roller coaster ride”.

LTL

Con-way - 1.8%
Old Dominion Freight Line - 16.1%
Vitran Corp - 19.5%
Arkansas Best Corp - 39.4%
YRC Worldwide - 54.7%

Truckload

J.B. Hunt + 24.3%
Landstar System + 1.8%
Werner Enterprises - 5.1%
Heartland Express - 6.5%
Knight Transportation - 13.6%
USA Truck - 23.7%
P.A.M. Transportation Services - 40.5%
Covenant Transport - 40.6%
Celadon Group - 58.4%

Small Package

Dynamex Inc. + 20.1%
UPS Inc. - 6.6%
Fedex Corp. - 16.4%

Canadian

Mullen Group Income Fund - 7.8%
Trimac Income Fund - 10.0%
Contrans Income Fund - 24.3%
Livingston International Income
Fund - 30.6%
Transforce Income Fund - 32.7%
Clarke Inc. - 42.0%

Truck Leasing

Ryder System - 15.7%

Multimodal (Air/Rail/Truck)

Trailer Bridge + 46.7%
Forward Air Corp. + 4.8%
Pacer International - 52.3%

Logistics

C.H. Robinson Worldwide + 24.7%
Expediters International + 6.7%
Hub Group - 7.3%
Sirva Inc. - 95.7%

Rail

CSX Railway + 31.67%
Canadian Pacific Railways + 26.32%
Union Pacific Corporation + 24.97%
Canadian National Railway + 12.89%
Norfolk Southern Corp. + 10.63%
Burlington Northern Santa Fe + 8.45%

Please note that these lists are not inclusive of all publicly traded transportation stocks nor do they include all of the stocks in the TT list. For a more complete list of U.S. stocks, go to Yahoo Finance. Here is the link.

http://biz.yahoo.com/p/sum_conameu.html

Under the “Industry” tab, click on the industry segment of most interest to you. The transportation industry stocks are captured under various headings.

Air Delivery & Freight Services
Railroads
Trucking

To look at ocean freight services, click on “Trucking” and then click on “Shipping” under the “Related Industries” tab. The Yahoo site also provides you with a number of useful tools. The “Company Index” link provides you with a more complete list of trucking companies in alphabetical order. The “Leaders and Laggards” link shows which companies’ stock prices are performing better or worse that day than the others.

Canadian Transportation stocks and Income Trusts do not appear as a separate category in Yahoo Finance Canada. To track these stocks, go to this site and enter the transport company’s stock code.

http://ca.news.finance.yahoo.com/industry

Several things stand out from the above financial results. All of the rail stocks did very well last year in a down year. Looking at the projected rate increases in rail, as outlined in the last blog, it is likely that this trend will continue. This certainly explains why a highly respected investor such as Warren Buffet has invested in the most financially successful segment of the freight industry. With the exception of J.B. Hunt and Landstar, the LTL and truckload sectors had a difficult year. J.B. Hunt’s large investment in intermodal equipment appears to have paid off handsomely. The major Canadian players also had a challenging year.

Perhaps the positive news for investors is that as the “freight recession” comes to an end, there could be some good buying opportunities among some of the beaten down stocks and among the better performers that have good upside potential. In the next blog we will focus on how to find the gems.

In the previous blog, we took a look back at how the major Canadian and American transportation stocks performed in 2007. In this blog, we will look ahead to 2008. Quoting from this week’s RBC Dominion Securities report, “Market psychology had been shifting from concern in June/July, to fear in November/December before moving to panic as reflected by the climactic sell-off early last week. Some historically reliable indicators suggest that it is not unreasonable to now expect a better tone to market prices for the next while….The S&P 500’s 17% drop from top to bottom suggests that a garden variety recession has been priced in. Typically, this has been followed by a 20-25% rally over the ensuing 12 months.”

The report then goes on to say that “those looking for a catalyst should note that extreme pessimism has been met with forceful policy action over the past two weeks. We’re witness to an unprecedented pace of Fed easing in such short order …., a fiscal package worth just north of 1% of GDP, and the announcement of various financial/mortgage sector bailouts and rescue attempts. Consistently catching the ultimate turn in the market is near impossible, but a set of market conditions have fallen into place that have in the past increased the odds of a rally”.

These optimistic words beg the question, which stocks should you pick. In the previous blog, I suggested that one very useful source of financial information on transportation stocks is the Yahoo Finance website. Let’s take a look at the data that is available.

First go to the Industry segment of the Yahoo Finance website and click on Trucking. As you can see, you can access Railroads, Air Delivery and Shipping services from this web page. By clicking on the “Industry” page, you can see many of the major trucking stocks listed. Here you can see various key indicators such as their price/earnings ratios, their debt to equity ratios and other variables. They are presented in such a way that it is easy to compare all of the trucking companies listed. You can then click on any company of interest to you. When you do so, you can then see a summary of the company’s operations and you are able to compare various companies in each sector.

For example, if you are interested in the LTL sector, you can click on Arkansas Best Corp. This will show you their financials and allow you to click on YRC, for example, one of their direct competitors. Here is where you can have some fun. If you go the Analyst coverage section, you can see how the analysts who follow transportation stocks are forecasting the results (Analyst Opinion) for ABF and its competitors, over the next few quarters. You can also obtain the analysts’ ratings of each stock (Star Analyst) and match them against how successful they have been in their financial projections. The site also contains financial information and provides you with insider transactions so you can see if the executives of the company are buying or selling their own company’s stock.

There are certain analysts who have been following the U.S. transportation stocks for some time. Some of the most frequently quoted sources are:

Edward Wolfe of Bear Stearns
Thomas Albrecht of Stephens Inc.
John Larkin of Stifel Nicolaus & Company, Inc.
Justin Yagerman of Wachovia Capital Markets
Jason Seidl of Credit Suisse
Jon Lagerfeld of Robert Baird
John Barnes of BB & T Capital Markets
Thomas Wadewitz of J.P. Morgan

The projections from many of these analysts, for a large number of transportation stocks, can be found in this very useful website. This leads to the next question, what are the experts picking to outperform the market in 2008. If you look below the “Analyst Opinion”, you will see a summary of how the analysts rate each publicly traded stock on a scale of:

Strong Buy
Buy
Hold
Underperform
Sell

Here are some of their top picks by transportation sector:

LTL

10 of 12 analysts have rated Old Dominion a Buy or Strong Buy

Truckload

9 of 13 analysts have rated Landstar System a Buy or Strong Buy
11 of 18 analysts have rated J.B. Hunt System a Buy or Strong Buy

Railroads

9 of 17 analysts have rated Union Pacific a Buy or Strong Buy
8 of 16 analysts have rated Norfolk Southern Corp a Buy or Strong Buy
4 of 6 analysts have rated Kansas City Southern Railroad a Buy of Strong Buy

Air Delivery & Freight Services

5 of 9 analysts have rated Hub Group a Buy or String Buy
8 of 15 analysts have rated CH Robinson a Buy or Strong Buy

Small Parcel

9 of 17 analysts have rated United Parcel Service a Buy or Strong Buy

So there you have it. For those of you looking to make some “mad money” on the turnaround on the “beaten down” transportation stocks, these are some of the top picks from the experts.

Terminal Closures at YRCW Subsidiaries

Regional subsidiaries of less-than-truckload transportation and global logistics services provider YRC Worldwide Inc. (YRCW) will cease operations at 27 service centers that will result in charges of $30 million, according to a Reuters news report published on February 7. This news comes on the heels of YRCW’s investor meeting, which was held in New York last month, when it said it was planning to go forward with a “regional recovery plan.”

The service centers for the two YRCW subsidiairies—USF Holland (six service centers) and USF Reddaway (21 service centers)—are said to be closing their doors on February 22, according to a YRCW filing with the U.S. Securities and Exchange Commission, noted the Reuters report. It added that decision is a component of a $100 million improvement plan for the company. Both USF Holland and USF Reddaway became part of YRCW, when YRCW purchased USF Corp. in 2005.

YRC acquired USF Corp. in an effort to provide regional shipping services along with its national, long-haul networks operated by Yellow Transportation and Roadway, said an article in The Kansas City Star. The Star also noted that since then YRC has consolidated some of USF’s carriers, including USF Dugan and USF Bestway, into Holland and Reddaway. The Kansas City Star report added that the USF Holland terminal closures will eliminate 300 employees in Georgia, Mississippi, North Carolina, Arkansas, and Alabama. It also said that the USF Reddaway terminal closures will eliminate 800 employees in Louisiana, Oklahoma, New Mexico, and Texas.

Terminal Closures at Vitran

Trucking company Vitran Corp. (TSX:VTN) plans to close thirteen "redundant" freight terminals throughout the U.S. upper Midwest this year as it works to improve its bottom line in a "soft economic environment." Through a new information technology operating system, which should be in place sometime in the second quarter of fiscal 2008, "we will begin to focus on the elimination of 13 terminals," president and CEO Rick Gaetz said Friday.

The North American trucking industry, including Vitran, has been hit hard by the rising cost of fuel and the economic slowdown in the U.S. brought on by a worldwide credit crunch and troubles in the battered U.S. housing sector. That slowdown in U.S. housing and in the restructuring North American automotive sector has led to fewer shipments of everything from auto parts and lumber to copper pipe and roofing supplies.

Truckers are Extending their Trade-in Cycle or Deferring Capital Spending

For some truckers, slower volume means slower spending. For example, FirstExpress, a private truckload carrier based in Nashville, Tennessee is stretching their vehicle trade in cycles from 36 to 48 months. Some truckers built up capacity over the past few years in advance of the new pollution standards. With lower truck utilization, these truckers feel they can extend the life of their current fleet. Other companies are deferring capital spending until they see signs of an uptick in the economy. Clearly these challenging times demand effective management of capital expenditures and a tight control on expenses. It is likely that these types of initiatives are being repeated across North America.

About 76 million Americans that were born between 1946 and 1964, the so-called baby boomers, are reaching retirement age in increasing numbers. The resultant demographic shift will have a significant impact on the economy in general and on the Transportation industry in particular.

One segment of the aging population, truck drivers and the looming driver shortage, has been a topic of discussion for the past several years. The current economic downturn has reduced the focus on this issue. As the economy picks up, the driver shortage is almost certainly going to be a major issue in the years ahead.

The fact is that truck drivers represent only one component of the 76 million baby boomers who are set to retire. Looking at the big picture, what are some of the implications for the transportation industry?

According to Joe Coughlin, head of MIT AgeLab, a unit of the MIT Center for Transportation & Logistics, “today’s seniors are healthier than previous generations, youthful even though they are no longer young, and have a longer life expectancy.” The result is that many baby boomers will retire and will need to be replaced. “A declining birth rate is shrinking the pool of available talent,” commented Kevin Smith, senior vice president, supply chain and logistics, CVS Pharmacy. The challenge will be to:
a) find qualified replacements
b) mentor and train these replacements so they have the skills and knowledge to do the job
c) encourage baby boomers to stay longer in their current posts or to expand the length of the training period.

For some workers, 50 seems to be the “magic” age at which people are making the leap. As stated in a recent MacLean’s magazine article, “your new life begins at 50”. Many boomers plan to “re-career” in the for-profit or not for profit sectors.

One important statistic is that the world's population will grow substantially, largely as a result of the fast-growing less-developed countries. It will age significantly, too, especially in slow-growing more-developed nations. This means that the older and richer more-developed countries, such as in North America and Europe, will have the lion's share of the buying power for goods, while the less-developed will have the major share of the younger labor needed to supply them. Thus, an older, more affluent population than ever before will significantly drive the demand-side of future supply chains.

This begs several questions. What would this future demand look like? And how should supply chains change to satisfy this future demand? Who will do the work in these aged, affluent countries? One traditional answer for the developed countries has been immigration. Other parts of the solution might involve employing more older and semi-retired workers as well as the so-called “unemployables” with physical and mental disabilities.

The solutions to an aging workforce in developed countries signal the need to redesign supply chains to accommodate an older, language-challenged, and physically and mentally handicapped workforce. More automation will likely be needed in blue-collar manufacturing and distribution facilities. Trucks, especially their interiors, will need to be redesigned for older drivers. (Dr. Coughlin is already conducting research on dashboard ergonomics.)
A potential shortage of white-collar supply chain managers could be alleviated by hiring part-time semi-retired knowledge workers. Many healthy, active baby boomers will likely be interested in interim assignments and contract work.

This may not work in all cases. According to Bill Fello, managing director, Korn/Ferry International, the executive recruitment firm, the demands of the job also make it more difficult to recruit top managers who are looking to return to work. These are complex jobs and in many organizations, they “want somebody who has been in the saddle and is current with the contemporary issues.” It is not easy to stay up to date in these fast changing industries, even for someone out of the workforce for a short time.

As big an issue as this is, and will become over the coming years, many organizations have yet to address the problem of how to fill a growing number of vacant positions up and down their managerial ladder. For example, 60% of CEO’s indicate that their companies do not account for an aging workforce in their long term business plans, stated Ed Redfern, national program consultant, AARP, the Washington, DC-based nonprofit group for people who are 50 and over. In a typical company, 18% of the workforce is eligible for retirement.

These gentlemen suggest:
1. Make sure that junior managers, or the so-called “junior seniors” get the breadth of experience they will need when they get to the top.
2. Rotate these folks through multiple assignments.
3. Provide these managers with overseas experience.
4. Establish phased retirement plans that give the company time find replacements and train them properly.
5. Provide “high flyers” with attractive compensation programs so they remain with the company.

Clearly there will lots of opportunities in the transportation and logistics industry sectors for people who wish to work hard and broader their skills and experience. This will be one of the bright sides to the demographic tsunami that is unfolding.

There was a time when expedited shipping meant rush shipments of auto parts from an automotive parts vendor to one of the big three car manufacturers in the United States or Canada. Expedited carriers were called in when a machine or truck broke down and when there was an urgency in moving that part, non-stop, to a specific destination. A quarter century ago, companies such as Roberts Express (now known as FedEx Custom Critical), TNT Olex and TNT Taxi Truck got their start by catering to this market.

As we come to the end of the first decade of the twenty first century, the expedited freight market has evolved in several directions. In the next two blogs, we will look at the forces shaping this growing and important market.

The "Re-Gifting" of Major Freight Markets

As mentioned in some of the recent blogs, the current “freight recession” that has been with us for the past eighteen months or more has had a significant impact on carriers. With volumes deteriorating, shippers and carriers have been going through a process of transformation or cannibalization (or “re-gifting” as one humorous scribe commented recently). As part of this process, intermodal is taking market share from truckload, truckload is going after large LTL shipments, national LTL players are moving into regional LTL markets and LTL players are targeting air freight traffic. The battle for freight is so intense that the term “expedited trucking” is giving way to a new set of terms.

"Next Day" has been Expanded to 750 Miles

For some shippers the requirement is "Next Day Shipping". The next day footprint has been grown from 300 to 600 to 750 miles. All over North America, the “expedited truck” is giving way to the “next day” truck. The “next day” truck gains have come at the expense of air freight. Kitty Hawk that recently filed for bankruptcy is just one of the carriers that have been hurt by the evolution in service demands of LTL shippers. What used to be a premium service at a premium rate, next-day service is becoming the standard on many lanes.

The movement to “next day” lanes was started years ago by shipper pressure to reduce four day lanes to three, three day lanes to two and two day lanes to one. Carriers have been responding to the pressures for the past decade.

Major U.S. Carriers are Expanding their "Next Day" Networks

Recently USF Holland and Averitt Express indicated that they were adding more next day lanes to their networks. USF Holland, part of the YRC Group said it has upgraded 26 lanes in its Southeast and Midwest operating area to next day service. USF Holland had previously done the same for 13 service lanes. Half of Holland’s service lanes now offer next day service. Averitt Express has transitioned a number of second day Texas service lanes to next day service.

FedEx Freight is also targeting growth in this area by reducing its two-day shipping lanes between Las Vegas and the California cities of Oakland, San Jose, Sacramento and Bakersfield to one day. This comes on the heels of the reduction in transit times on about 1,000 U.S. shipping lanes in 2007.

"Next Day" Service on Cross-Border Freight

In September of 2007, USF Holland launched a guaranteed expedited next-day service for shipments arriving before 9 AM, noon or 3:30 PM. USF Holland followed this up with a claim that it is the first regional less-than-truckload (LTL) provider to offer time-specific Guaranteed Delivery before 3:30 p.m. between the US and Canada. “We have experienced an increased volume of shipping to and from Canada,” said John O’Sullivan, President of USF Holland, in a statement. “For shipments crossing the border, there is an increased need for speed and precision just as we have seen for domestic U.S. shipments. We are committed to matching the needs of our growing customer base. As such, USF Holland has tuned the process for shipments crossing the border so that our customers will receive the same speed, reliability and damage-free services provided elsewhere in our system.”

Service by noon and by 9:00, now offered within the U.S. domestic system of USF Holland, will be offered on cross-border service. The company said that all guaranteed and expedited services for this effort are backed by the USF Holland no-hassle, claim-free guarantee to be on-time and intact or no invoice will be sent to a shipper. FedEx Freight also has next-day cross-border service on its radar screen as it seeks to expand its business to its 11 terminals in Canada.

Next-day service is not a new thing. In fact, back in the mid-eighties, overnight service to Toronto was offered by selected carriers from major markets such as Chicago, Cleveland and New York City. What is different this time is the geographical scope of next day service. In the next blog, we will look at some of the other changes taking place in the expedited market.

In the previous blog, the focus was on one quickly evolving segment of the expedited freight business, the next-day freight segment. In this blog, we will look at some of the forces shaping the core of the expedited services market.

In the past, expedited delivery was all about fast delivery of freight. It was an ambulance or taxi service for freight. Just as the other sectors of the freight industry are changing, so is the so-called expedited freight market. A number of value-added services are being offered to enhance the core product. They include:

• One, two and three-day delivery options
• Guaranteed deliveries
• Time-specific deliveries (in particular for retailers and residences)
• Security compliance
• Security services such as trailers with anti-theft systems

Some services that formerly were value-added are now offered at no charge. With on time delivery so important in this market segment, shipment status information is extremely critical. Shipment tracking on the web is considered a requirement of being in this business. Proactive e mail updates is another necessary feature.

Experienced expedited freight shippers point to several key criteria in selecting carriers. In addition to price competitiveness and service, they include the speed and responsiveness with which the carrier can commit to make the pickup and delivery within very tight time windows (which may be as short as several minutes) and a history of dependability, probably the single most important factor in expedited carrier selection. Coupled with dependability is creativity - - the carrier finds a way to get the job done.

While some short haul air freight business is being converted to truck, the longer haul global markets are still very viable for air services (or truck and air freight in combination). In fact, the major air freight providers are mixing and matching the capabilities outlined above to provide a full portfolio of services.

On January 7, UPS announced that it was launching a simplified global portfolio for shipping air freight, including a substantially expanded express freight option with guaranteed door-to-door service. The feature item in the expanded international express service, called UPS Express Freight, provides “guaranteed time-definite, overnight-to-three day door-to-door delivery including routine customs clearance to major global metropolitan areas,” UPS said.

For less time-sensitive global movements, UPS offers two non-guaranteed alternatives: UPS Air Freight Direct, which is a one-to-three day airport-to-airport service, and UPS Air Freight Consolidated, which is a three-to-five day airport-to-airport service. Both services are available worldwide and offer pickup, delivery, and customs clearance as optional features. Freight shipments may move on either UPS or third-party aircraft, UPS said. With the new services, UPS says, it now becomes the “only transportation and supply chain provider offering guaranteed integrated air freight services in a single portfolio.” Commented Dan Brutto, president, UPS International, “We have designed an industry-leading suite of services that plays to the strengths of each air network and produces a higher degree of choice and predictability than any other company in the air freight industry.”

The three industry leaders, UPS, FedEx and DHL, all offer ground and air services. The growth in e commerce has provided a boost to both truck and air volumes. Consumers are becoming increasingly rate sensitive, weighing the cost of overnight service as compared to three day service at a much reduced rate. Many consumers are demonstrating that they are willing to wait an extra day or two for their book or CD from Amazon.com if it means a cost savings. Shippers require the higher speed associated with air freight and the higher reliability of ground transportation. Clearly there is a place for both expedited truck and air services.

From time to time a fellow blogger will share with me an interesting posting that has relevance to the readers of this blog. Thank you to Amy Quinn at HR World for forwarding this posting to me this week. Here is the link to the original article, Top 25 Careers to Pursue in a Recession.

I have adapted this blog to the Transportation industry and added a few thoughts of my own. I hope that you find it of interest. This is indeed a difficult time in the freight industry. A number of folks with whom I speak have a heightened level of anxiety as to whether their company will make it through this "freight recession" and whether they will continue to be employed by their current company. Here are a few segments of the industry where there is likely to be more job security and growth potential.

1. Health Care: Since people will always get sick, this is a good industry for truckers to target. With the large group of aging baby boomers, there will be an increased demand for pharmaceuticals and medical products. This market segment has growth potential.

2. Energy: Although consumers are likely to cut back, they're not going to stop using energy. In fact, this industry may grow, as companies look for more efficient ways to deliver using less energy. This is another strong industry segment for truckers.

3. International Business: Even when the economy is doing poorly, other countries may be doing well. So if your transportation company is involved in international business, you can expect your career to stay safe.

4. Accounting: Death and taxes are a sure thing. In a recession, companies are likely to get desperate for more deductions and take a hard look at their books. Strong CFO’s and controllers can provide valuable assistance to truckers seeking to weather the storm.

5. Sales: Strong salespeople who control large blocks of business and who can bring on more business are extremely valuable to transportation companies — they should have little to worry about.

6. Debt Management: Recessions mean crunch time for trucking companies with significant debts. They're sure to need some guidance.

7. Consulting: Recessions create opportunities for companies to bring in consultants for advice on efficiency and squeezing the most out of their resources, for assistance with the sale of a distressed company or the purchase of a company that will create more critical mass and more core competencies.

8. Food: People need food to survive, and it's not likely that anyone is going to just stop eating — no matter how bad the economy gets. While people may change their eating habits (e.g. more Kraft dinner, less dining out), food will continue to move to store shelves and trucking companies will continue to move this freight.

9. Debt Collection: As the economy contracts, some shippers will delay payment of their invoices and companies will look to debt collectors to recoup their costs.

10. Rail: One look at the stock market last year will tell you that rail was the hottest segment of the transportation industry. The economics of double stack containers are still compelling and this is where there will be growth.

11. Truck Drivers: As the “freight recession” comes to an end and volumes pick up, qualified drivers will be in short supply. The aging baby boomer population means that many good drivers will be leaving the workforce in the years to come. There will be an ample supply of jobs for those who enjoy driving on the open road.

12. Multilingual Workers: The importance of being able to speak multiple languages in the world of global commerce even made it to the TV debate between Hillary Clinton and Barrack Obama last week. The ability to speak Chinese, Mandarin, Russian, Spanish and a host of other languages provides you with a leg up on the many folks in North America who can only speak English.

13. New Port Development and Management: With the west coast ports still challenged in coping with the flow of offshore goods, the opportunity exits for new ports on the west coast (e.g. Prince Rupert) or east coast to grow their market shares.

14. Multifaceted Careers: If you don't put all of your eggs in one basket, you should be able to ride out a recession by relying on secondary income. So if you juggle a career that involves a regular job, plus other sources like online income, freelancing and investing, numerous failures have to happen before you're really in trouble.

15. Strong Leaders: It is often said that it is the ability to deal with a crisis that distinguishes strong leaders. To rally your troops, maintain good morale (while reducing work hours or announcing layoffs), make the bold decision, see the path to success that others can’t see while holding the company together through tough times is a true test of a leader. This is a time when true leaders really shine and this is when they are most in demand.

If necessity is the mother of invention, then the current “freight recession” is encouraging carriers to seek new ways to reduce costs. In the next two blogs, we will take a look at this issue. In this blog we will focus on some of the cost savings programs that have caught my eye in recent weeks. In the next blog, we will focus on the topic of how to reduce costs without cutting service.

The LTL business is a very labour and capital intensive industry. Carriers in this industry must have multiple terminal locations and employ people at these locations to “cross-dock” the freight and deconsolidate it into direct loads to specific destinations. In an effort to remove some of the costs from its “hub and spoke” network, YRC Corporation recently negotiated a new class of “utility” worker. Jim Roberts, president of Trucking Management Inc., the labour bargaining arm of YRC recently commented that with “a continuing erosion of freight levels for the foreseeable future, the union took the bold step of enabling the largest carriers to grow their operations by creating new shorthaul, expedited operations, as well as look at new ventures in the truckload market….It allows the companies to get away from the traditional hub-and-spoke system under which they currently operate.” Roberts stated that “they can touch the freight fewer times” and move it along more quickly”. These changes are expected to be particularly helpful to the Yellow Transportation, Roadway Express and USF Holland divisions of YRC.

YRC is also looking at other measures to improve its financial performance. YRC Officials have announced that it plans to take steps to integrate the operations of its two national carriers, Yellow Transportation and Roadway. This will be interesting to watch since the company has stated publicly that it plans to maintain the two brands in the market. The integration will likely take the form of running joint line haul schedules and combining terminal facilities in certain locations.

Both USF Holland and USF Reddaway, part of the YRC Regional Group, have had problems since taking over the operations of other USF regional carriers (e.g. USF Dugan). Company officials have stated that they plan to look at “the effective geography for these carriers.” Since freight density is so critical to the profitability of LTL carriers, it is likely that these carriers will pull out of those locations where there is insufficient freight to run consistent schedules. It will also use its new union agreement privileges to move goods through its so-called “corridor hubs” or “flow centers” to minimize handling and speed up deliveries.

Deutsche Post’s DHL Express is expected to employ a similar strategy to curtail its losses on its U.S. domestic small parcel operation. Research analyst Menno Sanderse with Morgan Stanley in Europe expects to see a “substantial cut in network size, combined with subcontracting and a focus on international services….”

In addition to labour and terminal costs, fuel is another large and increasing component of the LTL freight industry. LTL carriers are coming up with a variety of strategies to deal with rising fuel costs. A. Duie Pyle, a northeast based regional LTL carrier has something that most other carriers of a similar size don’t have, its own 500,000 gallon fuel tank in West Chester, Pennsylvania, the location of its head office. Interestingly enough, high fuel costs were not the original idea behind the purchase. Steve O’Kane, president of the company originally made the purchase as a safeguard against supply disruption. However the company has found ways to gain economic advantage by purchasing supplies in advance of a cost spike and filling its trucks in anticipation of a drop in prices. In this case, the company then goes out and stockpiles fuel at the lower price.

Other companies are employing different strategies to reign in the high cost of fuel. Dave Anderson fleet manager at North American Transportation in Hayward, California stated that they have “gone to auto-shift transmissions on 100% of our units”. North American is using transmissions made by Eaton Corp. (that were spec’d on its 2006 model Freightliners) for its 80 trucks. “It makes a perfect shift every time - - the computer does it all, helping with the shifting and fuel economy…. We’re also running more fuel efficient tires - - using low-rolling resistance tiers and constantly monitoring pressure”. Mr. Anderson also mentioned that his company monitors its drivers’ idling times and speeds in an effort to conserve fuel. Midwest regional carrier Djuric Trucking monitors drivers by using Global Positioning System equipment on its 65 trucks and by checking that its drivers do not go out of route.

Whether it is creating a new class of employee, by-passing “hub-and-spoke” networks, eliminating service in low volume areas, purchasing fuel tanks, acquiring fuel efficient engines and tires and/or utilizing GPS tracking systems to limit out of route miles, carriers are employing a variety of strategies to improve efficiencies during these challenging times.

In the countdown to the March 4 primary in Ohio, the North American Free Trade Agreement, that was signed off by the United States, Canada and Mexico almost fourteen years ago, is suddenly in play. Why? Let’s take a look at the facts, the circumstances that are thrusting this landmark trade agreement back into the limelight, the rhetoric and the potential scenarios that could evolve.

A Look at the Facts

The three NAFTA countries have created more jobs and grown more rapidly since NAFTA was signed than in the preceding years. From 1994 to 2006, the Canadian economy expanded an average of 4.1 percent per annum, the U.S. economy 3.8 percent and the Mexican economy 3.5 percent. Since 1993, the U.S. economy has generated 25 million new jobs and the jobless rate has averaged 5.1 percent as compared to 7.1 percent in the thirteen years prior to NAFTA. One needs to keep in mind that this low jobless rate has been maintained despite the acknowledged loss of jobs to low cost producing countries such as China during this period.

However, one of the issues in debate is how many of the jobs have been created because of NAFTA or as a result of the profound changes in technology and the increased global demand created during this period. Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington, has noted that the agreement has become a reflection of the biases and preconceived notions about trade. NAFTA has not been either the outstanding success or the economic disaster that it has been characterized to be. Mr. Hufbauer has estimated that NAFTA has created 60,000 U.S. jobs a year in an economy that creates and destroys 16 million jobs a year.

Why are we talking about NAFTA 14 Years Later?

Most political observers in the United States acknowledge that the primaries in Texas and Ohio are critical for both Senator Obama and Senator Clinton. If Hillary Clinton loses these two primaries, this would make it 13 straight losses and virtually ensure her withdrawal from the race to become the Democratic candidate for President. Should Senator Obama lose one or both primaries, this would create a new dynamic in the race and perhaps re-create a strong two person competition.

It should also be mentioned that the Democratic party is seen as the party of the workers and not as the party of “big business.” Ohio is a “blue collar” state and autos, steel and tires are still important industries. These are all industries that have suffered job losses for a variety of reasons, some unrelated to NAFTA. Nevertheless, in this heavily unionized state, 185,000 factory jobs have been lost over the past five years. This makes Ohio a receptive market to the NAFTA bashing rhetoric of the top two Democratic candidates. It is important to note that Senator McCain, a virtual certainty to receive the Republican nomination, has not jumped on the dump (or re-negotiate) NAFTA bandwagon.

A closer look at the statistics in Ohio paints a somewhat different picture. Since the deal was signed in 1994, its jobless rate has fallen, factory output has gone up and exports to Mexico have increased. In fact, the state’s exports have grown by nearly 10 percent every year since the signing of the agreement.

What are the Two Democratic Senators Saying?

The two Senators stated in the presidential debate this week that they would withdraw from NAFTA if Canada and Mexico don’t agree to renegotiate the trade pact. They have indicated that they would provide six months notice (which is allowed under this agreement) to meet with their trade partners and use this as leverage to secure a new deal with stronger labour and environmental conditions. Mrs. Clinton has indicated that she would like to eliminate the right of foreign firms to sue Washington for enacting measures to protect its workers. Senator Obama agreed. Some observers have read into this a move to protectionism that is politically appealing to “blue collar” American workers.

Where Do We Go From Here?

There are several scenarios that can unfold. Some folks think that when we wake up on the morning of March 5, the so-called “posturing” and vote-getting will have played itself out and this issue will fade from the radar screen. The argument is that NAFTA is working reasonably well and we should move on to other issues. Some folks believe that the critical comments are directed more at Mexico rather than Canada.

Other folks argue that it is time to re-negotiate the treaty. There are a variety of issues that all three sides can and should bring to the table. While this may open a “can of worms,” it will allow the parties to address certain issues that were not well structured fourteen years ago such as the dispute-resolution mechanism that failed to solve the long-running softwood trade war between Ottawa and Washington.

The headline in Thursday’s Globe & Mail (“Ottawa plays oil card in NAFTA spat”) is worth noting. Canada and the United States have free trade in energy because the accord effectively prohibits discriminatory export controls on oil and gas. Canada’s Trade Minister commented that “knowledgeable observers would have to take note of the fact that we are the largest supplier of energy to the United States and NAFTA has been kind of a foundation of integrating the North American energy markets.” This is not likely what the Democrats have in mind when they talk about re-negotiating NAFTA. There aren’t many Americans (or Canadians) who would like to see America buy more energy from the Middle East or Venezuela. By re-opening NAFTA, these provisions could end up being included in the discussions?

My hope is that a third scenario will prevail. Cooler heads will prevail. The three governments will identify their trade priorities. Bureaucrats from the three governments will meet after the U.S. election to review each others’ lists and craft amendments to a trade agreement that has been of enormous value to the three trading partners. Even if Senator McCain becomes President, it may still be worthwhile to revisit NAFTA, fix some of its weaknesses and enhance it so it remains an engine of growth for its three trading partners.