To borrow a truism from the real estate industry, the top three topics for business closing out 2009 are, in no particular order, the economy, the economy and the economy.
But closing out the worst year in business since 2001, it’s becoming clearer that it’s now misleading to talk about a single economy, national or global, in the world of commerce and trade. The story of 2009 that will carry over into 2010 is that there are two economies at work.
That was abundantly clear early this month when two large shippers, W.W. Grainger and Williams-Sonoma, within days of each other closed deals for distribution centers of a million square feet apiece.
The deals were signed while retailers were reporting mixed results in the holiday season and forecasters were projecting growing trouble in the commercial real estate market. But both companies had strong balance sheets that contrasted with a downturn in sales, and they showed they were willing to put their cash to work.
As one industry executive summed up when business started to turn down in 2008, “Cash is king.” We’re now seeing the results of that observation.
We’re seeing it in the maritime industry, where companies with cash reserves to match their scale are adding services and rolling out new initiatives even as some competitors look for new ways to attract state aid.
A.P. Moller-Maersk’s cash holdings fell by some $500 million in the first half of 2009, but the parent of the world’s largest container carrier, Maersk Line, still had nearly $2.2 billion in the bank at the year’s halfway point. The company’s balance sheet also shows strong growth in other assets, including 30 percent more holdings in property and equipment since mid-2008.
And Neptune Orient Lines may be wrestling with steep losses at container line subsidiary APL, but the overall NOL Group balance sheet has remained solid this year. Perhaps that’s a reflection of a business “hunkering down” but also a signal of tough discipline in hard times.
Like the holdings at Grainger and Williams-Sonoma, such strong reserves are signs that many companies may be operating in the larger economy, even as they do their best to work in a wholly separate, parallel economy aimed at creating stronger businesses in a recovery.
There may be no more striking example than the developments in the downtrodden domestic trucking industry over the past month.
YRC Worldwide, the country’s largest less-than-truckload carrier, was struggling through its second deadline for a debt-for-equity swap most consider critical to the company’s survival. Meanwhile, little Milwaukee-based Roadrunner Transportation Services was completing the purchase of a smaller operator in Southern California, adding range to a company that’s doubled in size in four years, and looking at reviving an initial public offering.
Roadrunner may seem to be operating in the same economy as YRC and other companies weighed down by the diminished freight market, but to them the 2009 economy was entirely different.
It’s the economy everyone else hopes to see in 2010.