Shipping Into 2010

Nov 9, 2009 5:00AM GMT
The Journal of Commerce Magazine - News Story
Maritime | Container Shipping | Trucking | Rail + Intermodal | Logistics + Economy
Q&A with Bruce J. Carlton, National Industrial Transportation League president and CEO
Bruce J. Carlton took charge at the National Industrial Transportation League just as the economy began its worst contraction in decades. As the economy struggles through the early stages of recovery, he sat with The Journal of Commerce for a discussion about the challenges facing shippers, carriers and transportation intermediaries in 2010, covering issues ranging from the impact of the worst recession since World War II on supply chains to the outlook for the highway bill, environmental regulation and trucking and rail regulation on Capitol Hill.
JOC: Clearly, the economy is the big question this year. What are your members telling you about the economy today, and the prospects for a recovery?
CARLTON: You’re right, it is the question this year. No one on the carrier side is happy or satisfied at the moment. Ocean shipping rates are as depressed as I have ever seen in 35 years. Trucking rates are down. We are seeing well-known companies struggling. Air freight has had record losses. In rail, they’re hanging on, but even with the strength of their market positioning, their returns are way down; freight loadings are way down.
On the shipper side, it is essentially the same. There is a greater variation because there are more segments. Homebuilding products, construction are flat as can be. New housing starts are not happening. It’s not mortgage rates and money availability that’s depressing the new housing market, it’s the economy, it’s the 10 percent unemployment, it’s the overhang of massive amounts of mortgage foreclosures. So if you take that back down the chain to the plywood, cement board, plasterboard and nail companies, they’re not getting orders.
In retail, there are periodic glimpses of sun. But in terms of something we would call full recovery, it’s not there. The ocean shipping peak, the key measure of the year, didn’t happen. That suggests inventories are adequate for the holiday season and retailers are assuming a relatively flat holiday season. In retail, that’s the difference between profit and loss.
I would prefer to be an optimist. I’m not there right now. I’m still pessimistic. I think recovery is going to be longer term. The truly massive amount of unemployment is like a massive anchor. It will slow recovery. I would like to think 2010 will be a better year. For me, I’m going to wait and see.
JOC: How has this recession changed your members, changed the way they operate and manage transportation?
CARLTON: I think across the board they are being much more careful. They are vetting carriers more carefully. I hear concerns from the shipper community about carrier performance over the long run. Are they going to be there? What condition will they be in when we do get to recovery? Will they be able to maintain their assets?
JOC: What type of carriers are they directing that toward?
CARLTON: Primarily trucking and ocean. I think there’s a “comfort” level with the rails, a belief that the Class 1s and the short lines are going to be there. They clearly won’t have as much in their corporate treasuries, because they’re not earning as much. Probably none of the carriers have more intense needs for capital investment than the rail side. They’re confronting new safety requirements like positive train control that are very costly. It’s a safety feature, and on one level it makes a lot of sense, but the cost is going to be huge.
On the ocean side, there’s a broad concern through industry generally: When is the other shoe going to drop? When is a major carrier going to be on the ropes? I haven’t heard anybody speculating about who it will be, but I hear a lot of speculation that if the market doesn’t turn around in a relatively short period, somebody is going to hit the ropes.
We have a lot of members who are dependent on the container market. And it is not a sustainable business model right now. Freight rates are so low they are not compensatory in many trade lanes. Carriers are making an effort to push rates up, and we’ll see if they stick.