The United States Department of Transportation's U.S. Freight Transportation Services Index fell 1.4 percent in November 2008 from its October level, the national Bureau of Transportation Statistics reported in January. Based on the latest data available, the November decline was the third monthly decrease in four months, and, at 107.6, the freight TSI was at its lowest level since January 2004.

For the first 11 months of 2008, the Freight Transportation Services Index — which measures month-to-month changes in the output of services provided by the for-hire freight transportation industries — fell 0.7 percent. The index includes trucking, rail, inland waterways, pipelines and air freight.

Moreover, according to the most recent data available, the U.S., European Union, Japan and China all suffered 10 percent declines in exports in November, denoting an inclement 2009 for global trade.

"With overcapacity and a drop in trade, the bottom recently fell out on shipping rates," notes a recent Wall Street Journal report.

The combination of global economic weakening and capacity problems makes the future of container shipping dependent on a wide range of economic and political unknowns, but here are some of the trends for U.S. shippers and carriers so far. (Note: For an update on the trucking sector, see today's Spotlight: Trucking Trends.)

Rail Freight
Average rail rates for freight have dropped by more than half since 1981 while productivity has tripled, according to the Association of American Railroads (AAR). Freight railroads generated 93 percent more ton-miles of freight in 2007 than in 1980 — with fewer miles of track, fewer workers, fewer locomotives and fewer gallons of diesel fuel. Based on revenue per ton-mile, average rail rates have fallen 54 percent from 1981 through 2007.

Yet the recent economic downturn has significantly affected U.S. shipment volumes and the financial performance of overland transport providers, and the situation is widely expected to become more difficult in 2009.

Shipments on U.S. rails so far this year are down 16.8 percent compared with the same period in 2007, according to the AAR.

Rail capacity constraints still exist, particularly in the Midwest, according to the Supply Chain Consortium's recent Domestic Transportation Capacity Hot Topic Survey Report. "To combat rail capacity limitations, investments have been made in locomotives and intermodal rolling stock, and select rail corridors have received physical improvements," Supply Chain Brain reports of the consortium's findings. "Furthermore, the Midwest is not only known for its capacity constraints — survey respondents also view it as the area of the U.S. with the greatest price increases."

On the other hand, according to a new Transport Intelligence report on the state of the North American transport and logistics market, rail freight operators have suffered less than trucking companies serving the U.S. market, with underlying rates for their traffic remaining relatively firm. (Source: Supply Chain Brain)

Despite the many challenges facing rail shippers and carriers, AAR President and CEO Edward R. Hamberger recently stated that U.S. freight railroad demand alone is expected to grow 88 percent by 2035.

Air Freight
The recent Transport Intelligence report highlights the prominence of the U.S. in the global air freight market. Combining international and domestic tonnage, 11 of the world's top 30 airports were located in the U.S. in 2007.

However, as with rail freight, the economic downturn has had a sizable impact on the U.S. air cargo market. Limited freight density alone is keeping many planes from flying, as the volumes simply aren't there.

The latest data from the International Air Transport Association (IATA) show a 13.5 percent drop in international cargo for November. The most alarming drop was with Asia Pacific carriers — the largest players in the market. That region's carriers reported a 16.9 percent decline in November, the largest decline of any region. European, Latin American and North American carriers saw their cargo traffic fall 11 percent, 17.7 percent and 14.4 percent, respectively.

"The 13.5 percent drop in international cargo is shocking. 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," Giovanni Bisignani, IATA's Director General and CEO, said in a statement.

In its 2009 forecast, the IATA now expects cargo traffic to decline by 5 percent this year, following a 1.5 percent drop last year. Prior to 2008, the last time cargo declined was in 2001 (a 6 percent drop).

"The outlook is bleak. The chronic industry crisis will continue into 2009 with $2.5 billion in losses," Bisignani said in December. "We face the worst revenue environment in 50 years."

Sea Freight
Cargo volumes at the nation's major retail container ports have also been feeling retailers' pain.

The ports surveyed in the latest Port Tracker report — including Los Angeles, Long Beach and Oakland, Calif.; Seattle and Tacoma, Wash.; Houston, Tex.; New York/New Jersey; Hampton Roads, Va.; Charleston, S.C.; and Savannah, Ga. — handled a cumulative 1.23 million twenty-foot-equivalent units (TEU) in November. This is off by 10.3 percent compared to October 2008 at 1.37 million TEU, which is typically the busiest month of the year (October 2008 was down 5.4 percent compared to October 2007).

In December, container volume totaled an estimated 1.2 million TEU, the 17th consecutive month-over-month decline, according to the National Retail Federation (NRF) and IHS Global Insight's findings. The last month to see a year-over-year container throughput increase was July 2007.

"The number of loaded shipping containers going in and out of the busiest U.S. port complex in Southern California fell 23 percent in December from a year earlier, and 16.4 percent from the previous month," according to data from the Port of Los Angeles and the Port of Long Beach reported by Reuters. "Together the ports — the two largest in the country — handle more than 40 percent of U.S. imported goods."

Last month's Port Tracker reports that 2008 was the slowest year for retail container volume since 2004's 14 million TEU. Annual volume for 2008 is estimated at 15.3 million TEU compared to 2007's 16.5 million, marking a 7.1 percent annual dip. (Comparatively, Drewry Shipping Consultant's recently revised estimate for 2008 global container growth is 152.8 million TEU.)

"2008 was a slow year for the ports for the simple reason that it was a slow year for retail sales," NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said in a statement. "We don't expect a significant increase in traffic at the ports until retail sales return to normal levels, and even then retailers will be careful not to over-stock."

In the short term, Port Tracker projects January volume to total 1.16 million TEU, which would represent a 6.3 percent decrease from January 2008's total. February is forecast at 1.1 million TEU, down 11.1 percent. However, volume is expected to reach 1.17 million TEU in March, rising 1.1 percent, then to total 1.23 million TEUs in April. May is forecast at 1.25 million TEU, representing a 4 percent year-over-year drop.

Intermodal and Parcel
In 2008, intermodal originations for containers and trailers were down 4.2 percent from 2007, according to the AAR's estimates. In the fourth quarter alone, intermodal loadings (not included in carload figures) were down 7.7 percent. For the first few weeks of 2009, intermodal volume of containers or trailers was off 7.1 percent from last year.

However, the recent Supply Chain Consortium's findings have logistics professionals expecting to see major increases in intermodal rail usage over the next three years.

"[T]he leverage is ... in favor of the shipper," according to Logistics Management. "If a shipper is considering changing his network or shifting to intermodal, or going from LTL to TL, he should do it now," one supply-chain transportation expert tells the publication. "The opportunity won't get any better than in the first half of this year, so this is the time for the shipper to take care of business."

In the parcel sector, former customers of the low-cost provider DHL will "most likely ... continue to be price-conscious and migrate to USPS, UPS and then FedEx," according to Logistics Management's observations. "But this apparent tightening of capacity isn't necessarily a threat for shippers," says Logistic Management, noting that now is the time for shippers to bargain for lower rates or "consider changing the timeframe and thus the mode by which they move their product."

"Virtually every industry observer in every sector agrees that the first half of 2009 will be an almost unique period of bargaining strength for the shipper," Logistics Management says.

As such, the publication concludes that "the first half of 2009 should be the time for shippers to turn the situation to their own cost-saving advantage" by reviewing all carrier contracts and bargaining hard for currently available lower rates while maintaining carrier relationships.

Resources

Freight Transportation Services Index (TSI) Fell 1.4 Percent in November from October
Bureau of Transportation Statistics, Jan. 14, 2009

The Mega Containers Invade
by John W. Miller
The Wall Street Journal, Jan. 26, 2009

Federal Highway Administration: Freight Analysis Framework
U.S. Department of Transportation

Association of American Railroads: Economy
Association of American Railroads

U.S. Freight Railroad Productivity
Association of American Railroads, May 2008

The Cost-Effectiveness of America's Freight Railroads
Association of American Railroads, January 2009

North America Logistics 2009
by Chris Thorby
Transport Intelligence / Supply Chain Brain, Jan. 21, 2009

Rail Seen as Big Winner Over Other Transportation Modes in Report by Supply Chain Consortium
Supply Chain Consortium / Supply Chain Brain, Dec. 19, 2008

ASCE Releases Key Findings of 2009 Report Card for America's Infrastructure
Association of American Railroads, Jan. 29, 2009

International Cargo Down 13.5% in November
International Air Transport Association, Dec. 20, 2008

International Cargo Down 13.5% in November - Passenger Declines by 4.6%
International Air Transport Association, Dec. 20, 2008

2009 Industry Financial Forecast
International Air Transport Association, December 2008

US$2.5 Billion Loss for 2009 - Worst Revenue Environment in 50 Years
International Air Transport Association, Dec. 9, 2008

Port Tracker: January 2009
National Retail Federation / IHS Global Insight, Jan. 8, 2009

2008 Retail Container Traffic Marks Lowest Level in Four Years
National Retail Federation / IHS Global Insight, Jan. 8, 2009

Weak US Port Traffic Casts Shadow on Energy Demand
Reuters, Jan. 29, 2009

More Container Failures Expected
Outsourced Logistics, Jan. 14, 2009

2009 Logistics Rate Outlook: Window of Opportunity
by John Paul Quinn
Logistics Management, Jan. 1, 2009

International Trade and Economic Growth
Global Insight, Nov. 20, 2008

Container Shipping Industry Faces an Abundance of Questions
by Peter T. Leach
Shipping Digest, Jan. 5, 2009