Recession, White House Made for Year of Challenges

This story appears in the Dec. 21 & 28 print edition of Transport Topics.

Trucking fleets focused on survival in 2009 as freight haulers battled a widespread economic downturn and confronted the prospect of significant new safety and environmental regulations from the Obama administration.

A continuing decline in truck tonnage forced many carriers to slash rates and shrink the size of their fleets, depressing profits and curbing demand for new and used tractors and trailers.

The inauguration of Barack Obama as president  in January marked a turning point for several key federal agencies. The Environmental Protection Agency took the first steps toward regulating carbon emissions. Meanwhile, truck and engine manufacturers ramped up new models to comply with EPA’s tailpipe emissions standards for 2010.

At the Department of Transportation, Secretary Ray LaHood announced a plan to re-examine driver hours-of-service rules in effect since 2004 and sparred with congressional leaders over upcoming highway funding legislation.

“These are very unsettling and challenging times,” American Trucking Associations President Bill Graves said in his annual “State of the Industry” address in October, when he painted a picture of an increasingly hostile business and regulatory environment for trucking.

Many carriers took drastic action to cope with the downturn.

YRC Worldwide Inc., the nation’s largest less-than-truckload freight carrier, sold off terminal properties, struck a deal with the Teamsters union to cut wages in return for a share of ownership and renegotiated payment terms with major lenders to cut costs.

Several debt-laden large freight haulers — Gainey Corp., Greatwide Logistics Services and Velocity Express — were taken over by new owners.

The pace of trucking bankruptcies slowed as many banks were reluctant to foreclose on delinquent loans when used equipment prices were so low. Several carriers that filed for bankruptcy in 2008, including Jim Palmer Trucking and Hoosier Tradewinds, restructured and continued to operate on a smaller scale.

Although credit conditions re-mained tight throughout much of the year, stock values rebounded, partly because of optimism about the economy and concern about future freight-hauling capacity. U.S. gross domestic product did grow by 2.8% in the third quarter, marking at least a temporary end to the recession. The unemployment rate, however, topped 10% for the first time in more than 25 years.

Nearly two out of three trucking executives surveyed by Transport Capital Partners in the fourth quarter said they expected freight volume to improve in the next seven to 12 months.

The year also featured a number of prominent transportation deals.

Investor Warren Buffett, chairman of Berkshire Hathaway Inc., offered to buy BNSF Railway in what he called an “all-in wager on the economic future of the United States.”

In a move that combines two trucking software providers, TMW System said it would acquire Innovative Computing Corp.

PepsiCo Inc. moved to acquire its two largest independent bottlers, which would create the nation’s largest private truck fleet.

Earlier in the year, CenterPoint Properties, Oak Brook, Ill., proposed a multibillion-dollar deal to operate state-owned marine terminals in Norfolk, Portsmouth and Newport News, Va., and an inland distribution center in Front Royal, Va.

Notwithstanding signs of economic recovery, industry experts expect freight-hauling demand to remain relatively weak.

Eric Starks, president of FTR Associates, a company that tracks equipment purchasing trends, said excess capacity created by the record drop in freight shipments from 2006 to 2009 “will put a drag on equipment sales well into 2010 and possibly into 2011.”

“After a spurt in August due to government stimulus, the economy has settled into the slow, uneven movement typical of recession bottoms,” Starks said.

There are signs of improved market conditions and customers’ willingness to add new equipment, said Robert Stowers, president of Altec Capital Services, but the economy has “a long way to go to get back to some form of normalcy.” Altec Capital Services, Birmingham, Ala., is a unit of Altec Industries, a manufacturer of utility line service trucks.

Another hopeful sign is that the average number of miles driven by truck owner-operators was up 1.5% in the first half of the year, according to a survey conducted by American Truck Business Services.

“It really feels like we’re at the bottom of the cycle,” said Todd Amen, president and founder of ATBS.

“This is a resilient industry,” David Bradley, president of the Ontario Trucking Association, said in a year-end wrap up at the OTA’s annual convention in Toronto.

“While it was a struggle, most OTA members have weathered the storm,” he said. “Costs have been cut to the bone. Companies restructured. Carriers should be positioning themselves to take advantage of the turnaround when it comes.”