by Betty Beard
Source: The Arizona Republic
Most of what we buy in Arizona comes by truck or train, whether it's avocados from Mexico or cars from Detroit.
And that makes the freight-transportation business a leading economic indicator and a key sector to watch for a recovery during a recession.
So far this year, there hasn't been enough good news in the industry to indicate an upward swing.
Overall, the freight transportation business remains in a slump because consumers aren't buying, companies aren't ordering and factories aren't manufacturing as much as they were a year ago, experts say.
"We were in a recession before the recession hit the rest of the economy," said Karen Rasmussen, president and chief executive officer of the Arizona Trucking Association. "It started in 2006, and we're usually the first ones to see a recovery. We are seeing little things here and there but nothing that would establish a trend so far."
Much of the industry, particularly rail and overseas shipments, wasn't doing that badly for most of 2008 until the Lehman Brothers collapse in September, which resulted in frozen credit and global problems.
Freight shipments have picked up some since then, leading some experts to hope that the sector has bottomed out, enabling a recovery to start.
But when?
Truck shipments
The American Trucking Association's seasonally adjusted For-Hire Truck Tonnage Index, based on a survey of members, rose a total of 4.8 percent in January and February, indicating that business picked up nationwide. But the ATA said that does not erase a 7.8 percent contraction in December.
Truck-shipment data isn't available at the state level. But the industry is hurting, as the Arizona Department of Commerce reported this month that trucking jobs dropped almost 12 percent in March compared with a year earlier.
Last year was particularly hard on truckers. They had to deal with record-high diesel prices, on top of a reduced demand for hauling lumber and other construction materials; reduced demand for clothes, electronics and other products made in China, India and other countries and shipped to the U.S. in containers; and reduced demand for mining materials and cars and trucks.
Many drivers lost their jobs or shut down their companies, said Pam Howerton, who for 24 years has operated Security Truck Park Inc. in west Phoenix. The lot rents space by the day, week or longer to truck owners.
She sees firsthand how the truck business has slumped as she's lost customers she had served for decades.
"The main thing people are complaining about is that there is just no freight," she said. "People who used to drive every day a week now just drive a few days a week. It's not paying their insurance. It's not paying their costs."
I'm really sympathetic. I feel for them. I really do. It hurts me to see them hurt."
Knight Transportation, the largest public trucking company in the Phoenix area, reported Wednesday that shipments fell in the fourth quarter of 2008 and the slump continued into this year. But as the first quarter progressed, the decline in its shipments started moderating and shipments began increasing.
Loads hauled per week grew from about 12,150 in January to 12,800 so far this month, Kevin Knight, chairman and chief executive officer, said in an earnings conference.
Rail shipments
In contrast to the trucking business, most of last year was good for the rail business, said Tom White, a spokesman for the Association of American Railroads in Washington.
Because the dollar was weak for part of the year, foreigners were able to buy American products cheaply and there was a huge demand for coal, commodities and American goods, he said. It also helped that high diesel prices made it cheaper to transport goods by rail than truck.
Volumes of cargo moved on rails nationwide last year were running only a few percentage points below the previous year, but in mid-November the bottom dropped out, White said.
Union Pacific Corp., the country's largest railway company and operator of a line through the Phoenix area, reported a 26 percent increase in earnings, to $2.3 billion, in 2008. Even though it also posted a profit in the fourth quarter, business volumes fell 12 percent compared with a year earlier.
White is cautiously optimistic.
"At this point, about the best we can say is that maybe it shows signs of having bottomed out," he said. "But that's a little difficult to call right now because of the fact that we have had some really bad weather conditions in recent weeks and that has adversely affected our traffic. It's a little difficult to come up with any sort of pattern yet."
Ocean shipments
Reports on container shipments around the world show that international trade also dropped off sharply in the fall with the credit-market freeze. As a result, various trade publications report that ships have been idled and orders for new ships and containers have been canceled.
The shipping industry also now has to deal with increased piracy on some key trade routes, leading to more security costs and, in some cases, longer trips to avoid problem areas.
Singapore-based Neptune Orient Lines, a large container-shipping company that plans to move its American headquarters to metropolitan Phoenix this year, said in its 2008 earnings report in February that "the collapse in global trade over recent months is without precedent." It said shipments rapidly deteriorated beginning in September and continued to fall every week.
Neptune spokesman Mike Zampa said the U.S. exports to Asia rose in 2007 and part of 2008, but then fell. Recently, they have begun to rise again.
"It is not significant," he said. "There is nothing that would indicate that we are out of a recession, nothing that would indicate the U.S. shipping-container industry is past the worst of it. But at least it's a glimmer of hope."
Neptune plans to move its American headquarters from Oakland to metro Phoenix but has not announced the exact location. From here, the company will manage operations of 130 ships and thousands of containers as they move among ports throughout North, Central and South America.
The company doesn't expect to be hurt by pirates, who have increasingly begun attacking ships in the Gulf of Aden near Somalia, Zampa said. That is a major shipping route leading to the Red Sea and Suez Canal.
"Some carriers have begun to go clear around the tip of Africa to avoid it, but most shipping lines are still conducting routes through the canal," said Zampa, director of corporate communications.
He said Neptune's ships have security plans and trained crews, and follow prescribed routes through the area. Also, the ships are high and fast.
"We keep constant surveillance for approaching craft," he said. "And one thing in our favor is that our ships are fast and powerful and create quite a wake. And that is really one of the best deterrents against small pirate crafts. The wake can discourage unwelcome approaches."
