Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
Segments of the U.S. transportation industry have been swimming upstream for most of 2015, and events over the past five days don't give any indication that the water levels are receding.
After the financial markets closed Monday, Roadrunner Transportation Systems Inc., a Cudahy, Wis.-based asset-light—think control of assets but not ownership— provider of less-than-truckload (LTL), truckload, and intermodal services, shocked everyone by posting third-quarter revenue and income results well below analysts' estimates. Traders and investors responded Tuesday by cutting the company's market capitalization almost in half, sending shares down nearly $9 a share over Monday's closing levels. Prices rose fractionally on Wednesday.
Today, Saia Inc., the Johns Creek, Ga.-based LTL and truckload carrier, a highly regarded player, posted third-quarter results that pleased no one. Revenues year-over-year dropped 4.6 percent, operating income was down 27 percent, shipments and tonnage fell 4.2 and 7.6 percent, respectively, and operating ratio—a ratio of revenues to expenses and a key measure of a business' ability to operate profitably—rose nearly 2 percentage points, to 93.7. That's not the direction Saia wants it to go. But an increase in driver wages—a reality for all trucking companies in an environment where qualified drivers are at a premium—took costs up, which, in turn, raised the operating ratio. On a per-ton basis, labor costs rose 15.8 percent in the quarter, to $157 a ton, according to a report from BB&T Capital Markets, an investment firm. Saia shares closed Wednesday at $23.86, down $6.29 a share.
Last Friday, Swift Transportation Co., the largest truckload carrier by sales, reported a 1-percent third-quarter decline in year-over-year operating revenue, a drop it blamed on the impact of declining fuel surcharges. Phoenix-based Swift, whose truck count in the third quarter rose by 831 trucks over 2014 levels, said it will end up adding 500 to 600 trucks by the end of 2015, down from its initial projections of 700 to 1,100 trucks. This means no more new equipment for the foreseeable future, and possibly reductions in rigs, Swift CEO Jerry Moyes told analysts. Swift's shares have been priced within a narrow range this week.
The biggest carrier of them all, UPS Inc., on Tuesday reported a decline in its core U.S. ground package volume in the third quarter, its first year-over-year drop in the category since the first quarter of 2011. Atlanta-based UPS attributed the decline to "slow industrial production" activity that hit business-to-business shipping activity. Business-to-consumer traffic, propelled by burgeoning e-commerce demand, rose from the same period a year ago. Otherwise, the company posted decent quarterly results. As of midday Wednesday, UPS stock had dropped nearly 5 percent from its close on Monday.
ECONOMIC DOWNSHIFT
While each company had its unique story to tell, the common thread was that transport companies are being impacted by a U.S. economy that has shifted into lower gear as the year has progressed. For carriers with LTL exposure, September was not a good month, and October, from anecdotal evidence, hasn't been much better. Roadrunner's third-quarter volumes, which historically start slow and finish strong, started slow but never got going. Its truckload traffic, heavily weighted toward refrigerated food items, was hurt by lower poultry, beef, and produce demand. LTL, which accounts for about 25 to 30 percent of the company's mix, was hit by a weak manufacturing climate and what management said was "aggressive pricing," language that seemed surprising—and which no one else is seeing, given the LTL industry's four-year track record of disciplined pricing measures following by a bout of disastrous rate-cutting during and after the Great Recession. Roadrunner also said its intermodal volumes were affected by lower-than-expected activity at the West Coast ports, and noncontractual pricing was pressured by excess truck capacity. The company said it expects no rebound in the current quarter.
At Saia, the story was somewhat better, but not by much. President and CEO Rick O'Dell called the results "disappointing" and blamed "declining tonnage trends" that made it hard to offset the impact of higher driver wages. The company said it also incurred higher costs relating to self-insurance claims. The one bright spot was a 2.2-percent increase in revenue per hundredweight, the revenue a carrier generates for each 100 pounds of freight hauled and a key metric of the success of its pricing strategy. Saia posted the gain despite the headwind of lower fuel surcharges, which depress carrier revenues.
For Saia, "the real test will be in the coming quarters if industry yields can weather further weakness in freight," said David G. Ross, analyst at investment firm Stifel, in a note today. Although 2016 should be a better year for Saia, the company is currently "running up a down escalator" given reduced volume levels, Ross said.
For truck users, the saving grace is that the always-imminent capacity crunch has been put off yet again. Truck space is readily available in most markets, and there is little upward movement in spot and contract rates. But that may be for the wrong reason. "The (U.S.) economy is much weaker than most people realize," Michael P. Regan, founder of TranzAct Technologies Inc., a consultancy and audit firm based in Elmhurst, Ill., said today at the "Value Creation 2015" conference in Chicago sponsored by consultancy Armstrong and Associates Inc. Regan said he was told by a major client, whom he described as a Fortune 50 company, that it expects a recession in the U.S. to start sometime in 2016.
Ross, in a separate note today, said an industrial recession in the U.S. may have already begun, a broad trend which will hurt railroads and LTL carriers, the latter having benefited from truckload-carrier overflow that has evaporated. By contrast, Ross noted that the consumer seems to be in good shape. Jobs and wages are growing, and lower gasoline prices should add to consumers' discretionary spending.
OVERSTOCK TO THE RESCUE?
There is near-term hope for the LTL industry, according to YRC Freight, the long-haul LTL unit of YRC Worldwide Inc. In a note on its website, the carrier noted—as many others have—that many U.S. businesses are sitting on excess inventory, the result of overly optimistic projections of consumer demand and the lingering impact of the West Coast port slowdown earlier in the year, when delayed shipments arrived at stores after the spring and early summer seasons, leaving retailers with overstocks that no one wanted.
In this environment, businesses will be vigilant in managing their inventories, and will order in smaller quantities but do so more frequently, according to YRC Freight. This type of behavior, if it materializes, will be tailored to the capabilities of LTL carriers, YRC said.
Autonomous forklift maker Cyngn is deploying its DriveMod Tugger model at COATS Company, the largest full-line wheel service equipment manufacturer in North America, the companies said today.
By delivering the self-driving tuggers to COATS’ 150,000+ square foot manufacturing facility in La Vergne, Tennessee, Cyngn said it would enable COATS to enhance efficiency by automating the delivery of wheel service components from its production lines.
“Cyngn’s self-driving tugger was the perfect solution to support our strategy of advancing automation and incorporating scalable technology seamlessly into our operations,” Steve Bergmeyer, Continuous Improvement and Quality Manager at COATS, said in a release. “With its high load capacity, we can concentrate on increasing our ability to manage heavier components and bulk orders, driving greater efficiency, reducing costs, and accelerating delivery timelines.”
Terms of the deal were not disclosed, but it follows another deployment of DriveMod Tuggers with electric automaker Rivian earlier this year.
Manufacturing and logistics workers are raising a red flag over workplace quality issues according to industry research released this week.
A comparative study of more than 4,000 workers from the United States, the United Kingdom, and Australia found that manufacturing and logistics workers say they have seen colleagues reduce the quality of their work and not follow processes in the workplace over the past year, with rates exceeding the overall average by 11% and 8%, respectively.
The study—the Resilience Nation report—was commissioned by UK-based regulatory and compliance software company Ideagen, and it polled workers in industries such as energy, aviation, healthcare, and financial services. The results “explore the major threats and macroeconomic factors affecting people today, providing perspectives on resilience across global landscapes,” according to the authors.
According to the study, 41% of manufacturing and logistics workers said they’d witnessed their peers hiding mistakes, and 45% said they’ve observed coworkers cutting corners due to apathy—9% above the average. The results also showed that workers are seeing colleagues take safety risks: More than a third of respondents said they’ve seen people putting themselves in physical danger at work.
The authors said growing pressure inside and outside of the workplace are to blame for the lack of diligence and resiliency on the job. Internally, workers say they are under pressure to deliver more despite reduced capacity. Among the external pressures, respondents cited the rising cost of living as the biggest problem (39%), closely followed by inflation rates, supply chain challenges, and energy prices.
“People are being asked to deliver more at work when their resilience is being challenged by economic and political headwinds,” Ideagen’s CEO Ben Dorks said in a statement announcing the findings. “Ultimately, this is having a determinantal impact on business productivity, workplace health and safety, and the quality of work produced, as well as further reducing the resilience of the nation at large.”
Respondents said they believe technology will eventually alleviate some of the stress occurring in manufacturing and logistics, however.
“People are optimistic that emerging tech and AI will ultimately lighten the load, but they’re not yet feeling the benefits,” Dorks added. “It’s a gap that now, more than ever, business leaders must look to close and support their workforce to ensure their staff remain safe and compliance needs are met across the business.”
The “2024 Year in Review” report lists the various transportation delays, freight volume restrictions, and infrastructure repair costs of a long string of events. Those disruptions include labor strikes at Canadian ports and postal sites, the U.S. East and Gulf coast port strike; hurricanes Helene, Francine, and Milton; the Francis Scott key Bridge collapse in Baltimore Harbor; the CrowdStrike cyber attack; and Red Sea missile attacks on passing cargo ships.
“While 2024 was characterized by frequent and overlapping disruptions that exposed many supply chain vulnerabilities, it was also a year of resilience,” the Project44 report said. “From labor strikes and natural disasters to geopolitical tensions, each event served as a critical learning opportunity, underscoring the necessity for robust contingency planning, effective labor relations, and durable infrastructure. As supply chains continue to evolve, the lessons learned this past year highlight the increased importance of proactive measures and collaborative efforts. These strategies are essential to fostering stability and adaptability in a world where unpredictability is becoming the norm.”
In addition to tallying the supply chain impact of those events, the report also made four broad predictions for trends in 2025 that may affect logistics operations. In Project44’s analysis, they include:
More technology and automation will be introduced into supply chains, particularly ports. This will help make operations more efficient but also increase the risk of cybersecurity attacks and service interruptions due to glitches and bugs. This could also add tensions among the labor pool and unions, who do not want jobs to be replaced with automation.
The new administration in the United States introduces a lot of uncertainty, with talks of major tariffs for numerous countries as well as talks of US freight getting preferential treatment through the Panama Canal. If these things do come to fruition, expect to see shifts in global trade patterns and sourcing.
Natural disasters will continue to become more frequent and more severe, as exhibited by the wildfires in Los Angeles and the winter storms throughout the southern states in the U.S. As a result, expect companies to invest more heavily in sustainability to mitigate climate change.
The peace treaty announced on Wednesday between Isael and Hamas in the Middle East could support increased freight volumes returning to the Suez Canal as political crisis in the area are resolved.
The French transportation visibility provider Shippeo today said it has raised $30 million in financial backing, saying the money will support its accelerated expansion across North America and APAC, while driving enhancements to its “Real-Time Transportation Visibility Platform” product.
The funding round was led by Woven Capital, Toyota’s growth fund, with participation from existing investors: Battery Ventures, Partech, NGP Capital, Bpifrance Digital Venture, LFX Venture Partners, Shift4Good and Yamaha Motor Ventures. With this round, Shippeo’s total funding exceeds $140 million.
Shippeo says it offers real-time shipment tracking across all transport modes, helping companies create sustainable, resilient supply chains. Its platform enables users to reduce logistics-related carbon emissions by making informed trade-offs between modes and carriers based on carbon footprint data.
"Global supply chains are facing unprecedented complexity, and real-time transport visibility is essential for building resilience” Prashant Bothra, Principal at Woven Capital, who is joining the Shippeo board, said in a release. “Shippeo’s platform empowers businesses to proactively address disruptions by transforming fragmented operations into streamlined, data-driven processes across all transport modes, offering precise tracking and predictive ETAs at scale—capabilities that would be resource-intensive to develop in-house. We are excited to support Shippeo’s journey to accelerate digitization while enhancing cost efficiency, planning accuracy, and customer experience across the supply chain.”
Donald Trump has been clear that he plans to hit the ground running after his inauguration on January 20, launching ambitious plans that could have significant repercussions for global supply chains.
As Mark Baxa, CSCMP president and CEO, says in the executive forward to the white paper, the incoming Trump Administration and a majority Republican congress are “poised to reshape trade policies, regulatory frameworks, and the very fabric of how we approach global commerce.”
The paper is written by import/export expert Thomas Cook, managing director for Blue Tiger International, a U.S.-based supply chain management consulting company that focuses on international trade. Cook is the former CEO of American River International in New York and Apex Global Logistics Supply Chain Operation in Los Angeles and has written 19 books on global trade.
In the paper, Cook, of course, takes a close look at tariff implications and new trade deals, emphasizing that Trump will seek revisions that will favor U.S. businesses and encourage manufacturing to return to the U.S. The paper, however, also looks beyond global trade to addresses topics such as Trump’s tougher stance on immigration and the possibility of mass deportations, greater support of Israel in the Middle East, proposals for increased energy production and mining, and intent to end the war in the Ukraine.
In general, Cook believes that many of the administration’s new policies will be beneficial to the overall economy. He does warn, however, that some policies will be disruptive and add risk and cost to global supply chains.
In light of those risks and possible disruptions, Cook’s paper offers 14 recommendations. Some of which include:
Create a team responsible for studying the changes Trump will introduce when he takes office;
Attend trade shows and make connections with vendors, suppliers, and service providers who can help you navigate those changes;
Consider becoming C-TPAT (Customs-Trade Partnership Against Terrorism) certified to help mitigate potential import/export issues;
Adopt a risk management mindset and shift from focusing on lowest cost to best value for your spend;
Increase collaboration with internal and external partners;
Expect warehousing costs to rise in the short term as companies look to bring in foreign-made goods ahead of tariffs;
Expect greater scrutiny from U.S. Customs and Border Patrol of origin statements for imports in recognition of attempts by some Chinese manufacturers to evade U.S. import policies;
Reduce dependency on China for sourcing; and
Consider manufacturing and/or sourcing in the United States.
Cook advises readers to expect a loosening up of regulations and a reduction in government under Trump. He warns that while some world leaders will look to work with Trump, others will take more of a defiant stance. As a result, companies should expect to see retaliatory tariffs and duties on exports.
Cook concludes by offering advice to the incoming administration, including being sensitive to the effect retaliatory tariffs can have on American exports, working on federal debt reduction, and considering promoting free trade zones. He also proposes an ambitious water works program through the Army Corps of Engineers.