What will the new year bring for the United States economy? I think it can be one of the more critical years in the decade for those industry sectors of most interest to Journal of Commerce readers.
* Containership Liner Industry - Overcapacity in the trans-Atlantic and
trans-Pacific trades, except for seasonal retail and industrial peak demand, will continue to put pressure on rates. But Evergreen's joining the Mediterranean-USA Conference (Medusa) may indicate that the giant Taiwanese carrier will be more cooperative in supporting the rate increases in other trades as well. That seems logical since Evergreen's earnings in 1986 will be about a third less of what it earned in 1985 (from $85 million to around $50 million). Also, with United States Lines ending its own round the world service, Evergreen has less need to compete on price.One can expect Maersk and Sea-Land Service to strengthen their share of field positions in 1987. Look for Maersk to de-emphasize Panama Canal trips in favor of two ocean service with increased landbridge traffic across the United States. Once Sea-Land is integrated into CSX Corp., its landbridge service should not only rival American President Line's, but it will have the added advantage of offering an Atlantic service and the start-up of a South American service.
All in all, 1987 should be a good year for the liner companies to recoup profits as rates strengthen. That being the case, United States Lines, with a little luck, good management and the continued support of creditors and shippers, should be able to go a long way toward financially restructuring its business.
* Insurance - The insurance crisis, which made headlines through much of 1986, is pretty well over from a industry point of view. With one giant parallel effort among insurance companies radical reduction in coverage that was only exceeded by rapid increases in rates will mean that 1987 should be highly profitable for major insurance companies.
But they will need some of that money to buy commuter tickets to Washington, where the insurance crisis is just beginning to warm up. The ability of the industry to right itself financially so quickly is illustrative that more accountability is required and probably federal accountability is the only answer given the national nature of insurance. Not that The Journal of Commerce has ever sought that, from an editorial page point of view. But given the hidebound minds of top insurance executives there appears to be little alternative but federal regulation.
* Railroads - The railroads are entering into the second phase of deregulation. The second phase is characterized by at least two things: One, attempts by shippers to re-regulate the industry; and two, the need to improve profits from legitimate improvements in business rather than cost cutting.
Railroad executives also can look forward to spending a lot to time commuting to Washington to justify coal and grain rates. More important to the future profitability of the industry, however, is the need to develop service and rate strategies that can make a dent into the business now being hauled by truckers. Buying truckers is one way, and I think you can look for more of that. But ultimately the rails must compete on the shorter haul runs.
* Trucking - General Charles de Gaulle of France is supposed to have said during the darkest days of World War II, He who thinks of victory, survival is all. That's an appropriate slogan for trucking companies.
Trucking is the most competitive of all transportation industries now that it is deregulated. It's really been the secret to the efficiency of our national economy. The Soviet Union could improve its economy by 20 percent in one year if it had a deregulated trucking industry.
The major trucking companies in the United States - Roadway, Yellow Freight, Consolidated, Carolina, Preston and others - should be more profitable in 1987. The thousands of other trucking companies will continue to struggle with no end to the struggle in sight.
* Energy - This is the joker that is wild not only in the U.S. economy but the world's economy. It was the quick drop in the price of diesel fuel perhaps as much as anything that but pushed United States Lines into Chapter 11. Its 14-knot 12 huge 4,000-plus TEU (twenty-foot container equivalent) Econoline ships would have been profitable if fuel sold for $70 a barrel as many expected.
If you do not read the energy page of The Journal of Commerce and you are in business, you are jeopardizing your future. All aspects of the economy will be affected by whether or not the Organization of Petroleum Exporting Countries can maintain production cuts and keep prices at $18 a barrel or higher. The future of coal production, sales and transportation in 1987 also will be dependent on what OPEC is or isn't able to do. Best guess? Prices will hold. Too many U.S. oil companies (and Texas bankers) support higher prices.
* Business in general - I have observed in some 15 years as a business journalist and 10 years in business that the best managers are not the ones who have the best strategies. They are the ones who make the strategies they have work out best. The new year can be as good or bad as you make it.