Walking my kids to school this morning, an image popped into my un-caffeinated mind: a 6 foot, 300 pound giant third grader, towering over his frightened classmates, with his report card in hand and crying out to his teacher, “I’m too big to fail. I’m too big to fail!”
I guess this financial crisis is starting to affect me. Freddie and Fannie were too big to fail, so was AIG, and now GM and the other domestic automakers are singing the same tune. This got me thinking: is there a logistics or transportation company that’s too big to fail?
This week, we saw DHL pull out of the US domestic express market. This move had been rumored for some time, so the pull out wasn’t too surprising. A day after the announcement, I received a marketing email from FedEx saying that they’ll “pick up when DHL drops off.” Very creative, I thought, and a reminder that there are always winners and losers in a market environment. From a customer’s perspective, the exit of DHL means less competition in the market, which isn’t ideal, but we still have two fierce competitors in the market, FedEx and UPS, which we hope will keep each other honest.
But what if FedEx and UPS get into financial trouble? Are they too big to fail? How about JB Hunt, Schneider National, Con-Way, YRC Worldwide, Ryder, and other large trucking and logistics companies?
Almost 2,000 trucking companies went bankrupt in the first half of 2008, due in large part to record high fuel prices. Donald Broughton at Avondale Partners expects the number to reach 4,000 by the end of the year. The only saving grace is the weak economy, which has translated into fewer shipments and less demand for truck capacity. But as I wrote earlier this year, all of this lost capacity will create significant pain for shippers when the economy recovers.
Yesterday, the Bureau of Transportation Statistics reported that the Freight Transportation Services Index (TSI) fell 2.5% in September from August. This was the fifth largest monthly decline in the past ten years. And don’t forget that the index also dropped 1.9% in August. In short, this data tells us what we already know: the economy is hurting.
In my opinion, there’s no single logistics company that’s too big to fail. But the industry as a whole is certainly too big to fail, and its death (if it happens) will come by a thousand cuts: thousands of additional bankruptcies, additional costs driven by new regulations (carbon tax, Employee Free Choice Act), the inevitable rise of fuel prices, more toll roads, severe driver shortages, and so on.
Did I mention that the teacher in my vision looked a lot like Henry Paulson?
What do you think? Is there a logistics or trucking company that’s too big to fail, or will it be death by a thousand cuts for the industry? Post a comment and let me know.
