If the transportation industry is a leading economic indicator, then the economy is still heading in the wrong direction. Consider these recently-reported statistics:
- According to the Association of American Railroads, U.S. rail carloads were down 8.2 percent in Q4 2008, down 14.2 percent in December, and down 16.percent in the week ending January 3 (all compared to the same periods in 2007). The sharp decline in carloads of motor vehicles and equipment (down 21.2 percent) was a big contributing factor. The one positive “spin” on the results: total U.S. rail traffic in 2008 (more than 16.5 million carloads) was the fourth-highest in history (behind 2005, 2006, and 2007).
- According to the monthly Port Tracker report published by the National Retail Federation and IHS Global Insight, cargo volume at the nation’s major retail container ports declined 7.1 percent in 2008. Volume for the year was estimated at 15.3 million Twenty-Foot-Equivalent Units (TEU), compared with 16.5 million TEU in 2007. This is the lowest total since 2004, when 14 million TEU moved through the ports.
- According to the International Air Transport Association (IATA), international cargo volumes dropped 13.5 percent in November 2008 compared to November 2007. North American carriers experienced a 14.4 percent decline in freight volumes, and double-digit declines were also experienced by Latin American carriers (-15.7%) and European carriers (-11.0%). “The 13.5% drop in international cargo is shocking,” said Giovanni Bisignani, IATA’s Director General and CEO. “As air cargo handles 35 percent of the value of goods traded internationally, it clearly shows the rapid fall in global trade and the broadening impact of the economic slowdown. By comparison, this is largest drop since 2001, in the aftermath of September 11.”
- According to the American Trucking Associations, the non-seasonally adjusted For-Hire Truck Tonnage Index, which measures the change in actual tonnage volumes reported by the fleets before any seasonal adjustments, fell 15.4 percent in November compared to October. The seasonally-adjusted index, however, increased 1.7 percent in November, marking the first month-to-month improvement since June 2008. Then again, October’s level was the lowest in five years.
Simply stated, the weak economy will continue to challenge both shippers and carriers in 2009. Weak demand for capacity typically favors shippers in contract negotiations, which is why many shippers have conducted procurement engagements over the past 18 months. But carriers are taking action to improve their leverage, especially in the trucking segment, where capacity has been significantly reduced over the past year, either deliberately or via the estimated 4,000 carrier bankruptcies that occurred in 2008.
Can shippers “strong arm” their carriers into getting lower rates in this environment? Absolutely, but it’s a poor strategy from a long-term perspective. Smart shippers understand that maintaining “carrier-friendly” practices at this time is the best approach. It may take a few years, but fuel prices will climb over $100 a barrel again and there will be a severe shortage of capacity once the economy improves. Shippers that establish “strategic” relationships with their core carriers today will be in the best position to weather these future challenges.
I plan to keep track of these transportation statistics throughout the year, and provide my perspective on their implications for shippers, carriers, and logistics service providers. The general consensus is that the economy will not improve much (if at all) in 2009. But let’s hope that by this time next year these transportation statistics are heading in the right direction, indicating an economic recovery instead of an ongoing decline.
