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.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
Serious inland flooding and widespread power outages are likely to sweep across Florida and other Southeast states in coming days with the arrival of Hurricane Helene, which is now predicted to make landfall Thursday evening along Florida’s northwest coast as a major hurricane, according to the National Oceanic and Atmospheric Administration (NOAA).
While the most catastrophic landfall impact is expected in the sparsely-population Big Bend area of Florida, it’s not only sea-front cities that are at risk. Since Helene is an “unusually large storm,” its flooding, rainfall, and high winds won’t be limited only to the Gulf Coast, but are expected to travel hundreds of miles inland, the weather service said. Heavy rainfall is expected to begin in the region even before the storm comes ashore, and the wet conditions will continue to move northward into the southern Appalachians region through Friday, dumping storm total rainfall amounts of up to 18 inches. Specifically, the major flood risk includes the urban areas around Tallahassee, metro Atlanta, and western North Carolina.
In addition to its human toll, the storm could exert serious business impacts, according to the supply chain mapping and monitoring firm Resilinc. Those will be largely triggered by significant flooding, which could halt oil operations, force mandatory evacuations, restrict ports, and disrupt air traffic.
While the storm’s track is currently forecast to miss the critical ports of Miami and New Orleans, it could still hurt operations throughout the Southeast agricultural belt, which produces products like soybeans, cotton, peanuts, corn, and tobacco, according to Everstream Analytics.
That widespread footprint could also hinder supply chain and logistics flows along stretches of interstate highways I-10 and I-75 and on regional rail lines operated by Norfolk Southern and CSX. And Hurricane Helene could also likely impact business operations by unleashing power outages, deep flooding, and wind damage in northern Florida portions of Georgia, Everstream Analytics said.
Before the storm had even touched Florida soil, recovery efforts were already being launched by humanitarian aid group the American Logistics Aid Network (ALAN). In a statement on Wednesday, the group said it is urging residents in the storm's path across the Southeast to heed evacuation notices and safety advisories, and reminding members of the logistics community that their post-storm help could be needed soon. The group will continue to update its Disaster Micro-Site with Hurricane Helene resources and with requests for donated logistics assistance, most of which will start arriving within 24 to 72 hours after the storm’s initial landfall, ALAN said.