As peak shipping season winds down, transportation executives are less than gleeful this year. To sum it up, when peak season is a bust, you know you’re in tough times.

“It’s slow for everyone,” points out Keith Lovetro, President and CEO of YRC Regional Transportation. “We’re not expecting to see anything in terms of a ‘peak’ this year. In fact, we may not even reach last year’s levels,” he says.

In addition, it’s become more difficult to predict when the current market conditions will turn around. “In a normal year, it wouldn’t be uncommon to look ahead twelve months to forecast. Yet, there’s been such a big degree of change in such a short amount of time, that making accurate forecasts has become almost impossible,” he says. “The speed at which things have been changing has also caused the public to take a very conservative approach.”

However, one forecast that analysts are comfortable in making this year is that this ‘conservative approach’ will result in dampened consumption during the holiday season and into 2009. Indeed, even luxury retailers-a segment often times immune from broad retail trends-are warning of slower sales in the months ahead.

Higher fuel costs are obviously a top concern for transportation executives and shippers alike. “We’re all seeing the wild swings in the price of oil. And, it has definitely changed how customer buy their transportation,” say Lovetro. “There was a time when fuel was just an add-on, just a surcharge, it was no big deal. But today, fuel has become such a significant part of the total transportation cost that it has affected the way customers think about transportation. For some, that means changing their mode of transportation, maybe from LTL to truckload, or even from road to rail. And, customers are changing their distribution strategies as well,” he notes.

Because YRC is such a dominant player in the LTL sector (controlling over 25 percent of the market), analysts watch the company carefully to see how it’s responding to the current conditions and for signs as to what may be further down road.

Satish Jindel of SJ Consulting praises the company for its steps towards integrating its network. In September, YRC announced plans to combine its Yellow and Roadway long-haul LTL units into one operating network with combined sales forces and an integrated product portfolio.

“Given the positive customer response from our recent combination of the corporate sales teams and the increasingly dynamic operating environment, we believe now is the right time to take such significant action,” stated Bill Zollars, Chairman, President and CEO of YRC Worldwide. “The economic downturn has created the capacity in our networks needed to effectively integrate our operations, while improving service reliability and speed. By offering a comprehensive service portfolio through one unified network, we can more effectively serve our customers and simplify their experience.”

The move will help take excess capacity out of the market, says Jindel, which would help improve the overall picture. Capacity reduction is also occurring through the dwindling of competitors in the marketplace, and a number of companies have already called it quits this year.

However, Jindel questions the company’s decision to retain both the Yellow and Roadway brands.

“Customers are most concerned with service and consistency,” he emphasizes. “They want to see the same sales guy,” for example. Particularly today, “customers are less concerned with brand loyalty,” he explains, adding that a good customer survey would likely support his assertion.

On an upbeat note, Jindel believes that undertaking bold business moves such as YRC’s in the current economic environment can often times have a positive outcome.

Lovetro also sees an upside to the tough market conditions. “In times like this, it really allows you to hone your business process. Frankly, we become much better at what we do. You are really forced to improve your business and consequently the customers get a better level of service. And, because you’re running the company more efficiently, as business begins to build back up you’ll be making a higher contribution to revenue.”

The China strategy

In August, YRC Worldwide announced that YRC Logistics had successfully closed its acquisition of Shanghai Jiayu Logistics Co., Ltd., one of the largest providers of truckload and less-than-truckload ground transportation services in China. Jiayu maintains over 30,000 customers, 1,800 employees, 200 locations and a network of more than 3,000 vehicles, which makes it an ideal platform for YRC Worldwide to support the needs of both local Chinese customers and large multinational companies with transportation requirements in China.

“By virtue of Jiayu’s mature network and well developed operational resources, we can help our customers to improve transportation reliability, compliance, data integrity, and visibility for their shipments in China,” said Bill Zollars, Chairman, President and CEO of YRC Worldwide. “Shanghai Jiayu Logistics represents a key link in building an end-to-end supply chain capability.”

YRC Logistics acquired 65 percent of the stock of Jiayu for $44.7 million. YRC Logistics expects to purchase the remaining 35 percent interest in 2010, for an amount not to exceed $39 million, as determined by the level of Jiayu’s 2008-09 financial performance.

Jim Ritchie, President and CEO of YRC Logistics added, “Since entering into the agreement with Jiayu in December 2007, we have seen strong customer interest, and we believe the comprehensive services have a tremendous appeal to the China market and to our customers based in the U.S.”

According to Lovetro, the acquisition gives YRC Logistics the third-largest ground operation in China, including 250 local offices, 400 trucks, and another 3,000 under contract as owner-operators. Of Jiayu’s 30,000 customers, 90 percent are based in China while the remaining 10 percent are multinationals based outside of China.

Executives at YRC Logistics say that multinationals are beginning to search out companies that can provide service they’re more accustomed to receiving in the U.S. For instance, Chinese customers are used to dealing with less-than optimum service and pricing standards in what is still a very fragmented trucking market. In addition, because the market is largely comprised of owner-operators, it’s not unusual to drive 500 miles and return with an empty truck as it’s difficult to find a balanced trade lane they can operate in. wt

Sidebar: Trucking Survey Highlights Industry's Top Concerns

A newly released survey from the American Transportation Research Institute (ATRI), entitled “Critical Issues in the Trucking Industry-2008,” highlights some of the top concerns facing industry executives.

Not surprisingly, this year’s top two issues are fuel costs and the economy. According to the ATRI, fuel costs once again attained the top ranking in the survey, now in its fourth year. “Though motor carriers in 2008 aggressively sought to recoup fuel cost increases with fuel surcharges, the industry simply could not keep pace with the unprecedented rise in diesel fuel costs, topping $4.70 a gallon in July 2008. Fuel cost increases were directly related to equally unprecedented increases in oil prices; increasing from $90 a barrel in October 2007 to $147.27 in July 2008. Other oil- and fuel-related issues impacting the industry include increases in tire and motor oil costs. A secondary impact was the Federal Reserve Bank’s response to higher energy costs (multiple increases in the prime interest rate), which reduced the industry’s access to loans and capital. The year 2008 was also significant in that fuel replaced labor costs as the top operating expense for most carriers.”

The ATRI’s proposed strategies for dealing with higher fuel costs include:

Advocate for increased supply through expansion of domestic drilling and refinery capacity. Alarmingly high fuel prices spurred the trucking industry, as well as many others in the nation, to express a strong sentiment to increase domestic oil and fuel supplies. As Fuel Costs rose, carriers were impacted two-fold with higher operating costs and increases in other areas of their business. Sixty-eight percent of respondents ranked this strategy first.

Promote initiatives to conserve fuel including a national speed limit and tax incentives for fuel-saving technologies. In 2008, many motor carriers attempted and succeeded in reducing fuel consumption by reducing top vehicle speeds through the use of speed governors. Respondents indicate the need for a broader approach to conserve fuel. At the same time, many in the industry are wary of the potential safety impacts of policies that increase the differential between maximum truck and automobile speeds. The industry supports tax incentives to increase industry adoption of proven fuel-saving technology. Twenty-one percent ranked this strategy first.

Support increased design and deployment of alternative energy forms. The alternative energy market continues its dramatic expansion as industry, government, and consumers grapple with high fuel costs and increasingly stringent emission requirements. Despite the operational challenges associated with expanded use of alternative energy/fuel, the industry continues to support their increased use. Thirteen percent of respondents ranked this strategy first.

The economy debuts on the list as the second most pressing issue facing the industry, according to the ATRI. “As high fuel prices, a deepening credit crisis and rising inflationary pressures take a greater toll on the U.S. economy, the industry is pressed by increasing regulations, slumping demand, excess capacity, and increases in both fixed and marginal key cost centers. These factors result in a fiercely competitive environment where revenues decline or remain flat while regulatory compliance and operating costs continue to rise.”

The ATRI’s proposed strategies for dealing with the economy include:

Support pro-freight candidates in state and federal elections. The top strategy for mitigating the impacts of a slumping economy on the industry is to proactively support those candidates that understand the importance of trucking to the nation’s economy. Pro-freight candidates are more likely to have an understanding of the complexities of trucking and the burdens placed on the industry by economic externalities and excessive regulation. Lastly, pro-freight candidates are more likely to help industry educate fellow decision-makers. Forty-five percent of respondents ranked this strategy first.

Advocate for policies that control healthcare costs for employers. Narrowly missing the top strategy ranking was policies for controlling healthcare costs. As the industry’s already thin profit margins are squeezed further by economic conditions, the industry must focus on containing both fixed and operating costs, especially those that increasingly reduce profitability. As healthcare cost increases continue to outpace the overall inflation rate, the industry must advocate for public policies that keep these expenses in check.

Pursue full implementation of trade agreements (NAFTA, etc.). The two-year NAFTA pilot program, a precursor to full implementation of the trade agreement, remains a hotly debated topic. The U.S. House of Representatives recently passed a bill to end the pilot program. The bill awaits action by the U.S. Senate. Additionally, a lawsuit filed in federal court spearheaded by the Teamsters and other challenging the legality of the program remains pending. Respondents indicate that opening new markets for U.S. motor carriers via NAFTA is a key to the growth and health of the industry as well as the U.S. economy. Ten percent of respondents ranked this strategy first.