Freight’s Holiday Blues

Annual Christmas sales are always huge events for freight-hauling industries. The season’s bright lights serve as a beacon drawing shipments in the presale buildup phase, and cast a glare for months afterward by shaping how much replacement stock retailers order to reload their shelves and warehouses.

This year, intermodal and trucking reports have been mixed at best, with most companies seeing just a muted peak season. Freight shippers and carriers wonder if they will see only dim Christmas lights.
Warren Buffett, whose Berkshire Hathaway investment firm is buying out the 77 percent of BNSF Railway it does not yet own — and which owns a wide range of industrial, consumer goods and financial firms — said there are few signs of much recovery under way, even though the financial crisis of the past year is over.

While the financial and economic panic has subsided, “it’s left real scars on the American public psyche,” he said on the Nov. 13 Charlie Rose Show. “I mean, the reset of how they spend their money and how they’re thinking about their future changed in a big way last fall, and that . . . that has not come back.”

For instance, Buffett said Berkshire’s businesses have “bottomed,” but “there are very few upticks. It’s more or less flat right now ... It has not changed much.”

There are hopeful signs. Despite complaints from railroad officials that they did not see enough extra intermodal traffic in the usual September-October period to qualify as a peak in terms of busy train operations, the Intermodal Association of North America said mid-October traffic in rail-hauled boxed cargoes was “some 9 percent above its springtime levels, following a fairly typical seasonal pattern.”

IANA said 2009 would probably end with a double-digit intermodal volume decline, for the first three-year drop since reporting of box loads began 50 years ago. Still, “it was encouraging to see volume deliver a reasonable seasonal peak,” the group said in its latest outlook report.

“Given the huge inventory drawdown of early 2009, this probably represented some rebuilding of depleted stocks,” IANA said. “Perhaps they also presaged a stronger-than-expected holiday season, which would give a boost to the broader economy as well as to intermodal freight markets.”

Some important retailers aren’t so sure they will have a bright Christmas. Wal-Mart said it expects U.S. comparable-store sales for the 13 weeks from Oct. 31 through Jan. 29, 2010, “to be flat, plus or minus 1 percent” from a year earlier. Last year, its comparable stores gained 2.4 percent.

Kevin Mansell, chairman, president and CEO of Kohl’s, said his company is pursuing a value strategy with customers “as we expect them to continue to be conservative in their spending during this holiday season.”

Macy’s outlook for the final quarter has improved from earlier this year, but the company still said it “expects same-store sales to be down 1 percent to 2 percent.”

Trucking measures also indicate improvement, while still a long way from good. Equipment industry consultant FTR Associates said its Trucking Conditions Index in October rose for the third straight month to its best reading since November 2008, but at minus-16.4, it was far below the index neutral zone of zero.

“The continued negative TCI reading is a clear sign that the transportation industry is still struggling from the steep downturn” FTR President Eric Starks said. Any real pickup for the trucking industry’s fundamentals, he said, “will likely wait for a substantial recovery in volumes and capacity utilization, which we don’t expect to occur for at least another year.”

Up to now, truckers have been cutting rates to fight railroads for box shipments. Intermodal players accuse banks of propping up some truck lines that might otherwise fail to avoid absorbing the losses from a record surplus of used trucks.

Meanwhile, railroads have watched their carloads of bulk materials and equipment flatten this fall, after growing steadily since the lows of last spring. That does not point to a faltering in the economy, rail executives and analysts said, because weekly traffic remains in a higher zone than a few months ago.

Still, it indicates at least a slowing in the freight recovery, as the economy waits for a shot in the arm. A bright Christmas would provide one, but a dim holiday may not.

Contact John D. Boyd at jboyd@joc.com.