Transportation and logistics companies must carry many burdens on their road to profitability—an ailing economy, rising insurance premiums, and increased security requirements and restrictions. Indeed, the consequences of the 9/11 terrorist attacks have reverberated in this industry, which moves freight via planes, trains, boats and trucks. And while it still grapples with the events of 2001, the industry faces the ramifications of a possible war with Iraq, which will keep fuel prices high.

The airfreight industry in particular has been in a tailspin since 9/11, and it's unclear when the instability will end. Rocked by plummeting volumes and overcapacity, the industry has seen minimal growth this year. In fact, air cargo volumes are still much lower than 2000 levels. Security restrictions on mail have pummeled cargo/passenger combination carriers. The U.S. Postal Service, which hauls mail via passenger airlines, lost up to four million pounds of new business this year to freight-only carrier, FedEx.

According to Robert Dahl, project director for Seattle-based Air Cargo Management Group, domestic air express market volumes remained virtually unchanged through the first three quarters of 2002—discouraging news considering that in recent years a domestic growth rate of 15-20% was average. Even a year-over-year volume increase in fourth quarter 2002 won't signify substantial growth for the year, says Dahl, but will only reflect the severity of the downturn in late 2001.

In fact, air is losing ground to, well, ground in the express freight market. To reduce costs, some domestic shippers are forgoing high-end express air services for less-than-truckload (LTL) truckers, which have improved their services, and other ground carriers. For example, UPS and FedEx have broadened their ground networks and enhanced their overnight ground coverage, making it a viable alternative to air service. In short, the forecast for the airfreight industry is cloudy.

Trucking, meanwhile, can look forward to an even bigger piece of the domestic freight pie by 2020. By that year, its share of domestic freight by weight will reach 80% from 71% in 1998, says a recent Department of Transportation report. From a value standpoint, trucking will account for 84% of domestic freight, up from 80% in 1998. By 2020, the study says, trucking volume will climb by 83%, from 1998 levels, to 18.1-billion tons and will triple in value to $20.2 billion.

But the trucking industry is not without its challenges. Like many markets in the airfreight industry, its LTL segment has been plagued by overcapacity. The recent closing of Consolidated Freightways (except for its CF AirFreight and Canadian Freightways subsidiaries)—the country's third biggest LTL carrier—will bring some relief, however, removing 15% capacity from the industry, according to Dan Moore, a trucking industry analyst at Stephens, Inc. The result—LTL rate hikes.

"Consolidated's bankruptcy should be a significant earnings catalyst for the other LTL carriers," says Mark Levin, transport analyst at Virginia-based Davenport & Co. "Consolidated was a notorious price discounter."

Shippers can expect truckload rates to go up as well. In contrast to the LTL market, the truckload market is short on capacity. This is because many small and medium carriers have not been able to cope with rising fuel and insurance costs and have gone out of business. Another capacity crunch contributor: the cost-saving practice of consolidating LTL shipments into full truckloads, adhered to by many large shippers. Third, many carriers are reluctant to buy new vehicles that have government-mandated cleaner-burning engines, keeping capacity low. In fact, industry analysts say that capacity will stay tight through most of 2003.

However, even with trucking rates inching up, trucking companies still face tight margins because major costs—including insurance, fuel and drivers—continue to escalate. Big carriers have a better chance of enduring such rising cost pressures because their operations are more efficient than those of smaller competitors. In short, the forecast for the trucking industry: rocky road ahead, with many small to medium carriers expected to stall along the way.

Indeed, it's becoming harder to be a small guy in the transportation industry where consolidation is the name of the game. In the rail freight segment, the biggest U.S. players, including Union Pacific, Norfolk Southern and Burlington Northern Santa Fe, have gained efficiencies by merging with other rail companies. In fact, rail by far has the fewest available carriers out of all the modes. In addition, intermodal partnerships are thriving. Such team-ups involve rail and trucking companies working together to haul freight by train and truck—usually the truck handles both ends, while the railroad takes care of the long haul through flatcar service for trailers.

In fact, intermodal rail traffic is growing more rapidly than rail carload traffic. According to the Association of American Railroads (AAR) intermodal rail traffic increased 6.4% last month compared to Nov. 2001, while U.S. rail carload traffic went up by 0.8%. The rail traffic upswing was propelled by increases in carloads of metallic ores, chemicals, primary metals and metal products, waste and scrap material, and coke, but set back by decreases in carloads of coal, crushed stone and gravel, and grain mill products.

"Much of the increase in U.S. rail carloadings in November can be tied to the steel sector," says Craig F. Rockey, AAR vice president. "Domestic raw steel production in November 2002 was up 22% over November 2001. Looking forward, railroads—like everyone else—hope that vigorous economic growth returns quickly." Indeed, while Nov. 2002 showed improvements over Nov. 2001, year-to-date total carloadings through November 2002 were down 0.9% while year-to-date intermodal traffic went up by 4.2% over the same period for 2001. The forecast for the rail freight industry? It may be slow going but derailment is unlikely for the few big carriers in the industry which each control their own corridors.

Year-to-date figures are also down for waterborne transportation. According to the Maritime Administration and the U.S. Army Corps of Engineers, year-to-date import volumes through August 2002 fell by 4% while export volumes remained flat. Total U.S. domestic waterborne figures are not yet available for 2002. In 2000, however, the latest year for which domestic volumes were calculated, volumes went up 22% from the previous year to 1,174 million metric tons.

The 10-day shutdown of 29 major West Coast ports in late September/early October caused some freight to be diverted from ocean and ground carriers to air transportation. Now that a tentative contract between the two sides of the labor dispute is likely to be approved, another West Coast port shutdown appears unlikely—welcome news for maritime shipping.

Another bright spot in the transportation and logistics industry is the logistics services segment, which has grown rapidly and proven to be recession-proof. Third-party logistics service providers (3PLs) are thriving because companies are choosing to focus on their core competencies and seeking the expertise of these logistics specialists when they want to warehouse, distribute and ship goods more efficiently. To learn more about this flourishing segment, check out "3PLs Take Over the Supply Chain."

Not all news is grim for the transportation and logistics industry. Instability may continue to rock certain markets, but analysts say recovery will come slowly but surely. "I'm not a double dipper," says Bob Costello, American Trucking Association's chief economist. "I don't think there's going to be another recession, but I do think that growth is sluggish." And this slow recovery will apply to the transportation and logistics industry in general.

Primer Links

Associations

The American Society of Transportation & Logistics http://www.astl.org/center.html

American Trucking Associations http://www.trucking.org/

Association of American Railroads http://www.aar.org/

The International Air Cargo Association http://www.tiaca.org/main.html

International Ship Suppliers Association http://www.shipsupply.org/

The Railway Progress Institute http://www.rpi.org/

Government Agencies

Bureau of Transportation Statistics http://www.bts.gov/

The Federal Aviation Administration http://www2.faa.gov/

Federal Highway Administration http://www.fhwa.dot.gov/

Federal Railroad Administration http://www.fra.dot.gov/site/

U.S. Department of Transportation http://www.dot.gov/

U.S. Maritime Administration http://www.marad.dot.gov/

Publications and Resources

Fleet Owner http://fleetowner.com/

Inbound Logistics http://www.inboundlogistics.com

Logistics Management http://www.manufacturing.net/lm

LogisticsWorld: Logistics Glossary http://www.logisticsworld.com/logistics/glossary.htm

Newport's Heavy Duty Trucking http://www.heavydutytrucking.com/

Total Supply Chain http://www.totalsupplychain.com

The Transportation Institute: Glossary of Maritime Terminology http://www.trans-inst.org/seawords.htm

Warehousing Management http://www.manufacturing.net/wm

Sources: Economic Comeback? Fits & Starts
Patricia Smith
Newport's Heavy Duty Trucking
http://www.heavydutytrucking.com/2002/10/042a0210.asp

Filled to Capacity
James Aaron Cooke
Logistics Management, Oct. 1, 2002
http://www.manufacturing.net/lm

CF Shutdown to Raise Rates; Buyers Turn Eye to CF Assets
David Hannon
Purchasing, Nov. 7, 2002
http://www.manufacturing.net/pur

FYI
Fleet Owner, Nov. 1, 2002
http://fleetowner.com/ar/fleet_fyi_11/index.htm

Waterborne Commerce
U.S. Maritime Administration & U.S. Army Corps of Engineers
http://www.marad.dot.gov/Marad_Statistics/US%20Waterborne%20Commerce%202000.htm

U.S. Foreign Waterborne Transportation Statistics
U.S. Maritime Administration & U.S. Army Corps of Engineers
Press Release, Nov. 29, 2002
http://www.marad.dot.gov/statistics/usfwts/PR2002/PRAUG2002.htm

Transportation Industry Profile
Yahoo! Finance
http://biz.yahoo.com/ic/45.html

Air Freight Outlook: Swirling Winds in 2002 Make for Unclear Forecasts
David Hannon
Purchasing, Oct. 24, 2002
http://www.manufacturing.net/pur

Rail Traffic Up in November
Association of American Railroads
Press Release, Dec. 5, 2002
http://www.aar.org/ViewContent.asp?Content_ID=1111

State of the U.S. Airline Industry: A Report on Recent Trends for U.S. Air Carriers
Air Transport Association, Nov. 25, 2002
http://www.airlines.org/public/industry/bin/state.pdf

What Do You Really Know about Intermodal?
Tom Piatak
Inbound Logistics, Oct. 2002
http://www.inboundlogistics.com/articles/carriers/carriers1002.shtml