Credit Worthy

Credit Worthy

Copyright 2008, Traffic World, Inc.

It wasn''t all that long ago that the only thing better than an owning an American automobile was holding a freight contract with an American automobile manufacturer.

But just about the time executives at Detroit''s Big Three automakers started carpooling to Congress in search of a federal bailout, freight carriers and other suppliers for the car manufacturers started getting notices of amendments to contracts. Transportation industry executives say the general message was that effective immediately, all payments would be cut 5 percent.

That''s nice pricing power if you can get it, of course, but there''s little doubt this is not the sort of pricing leverage most manufacturers want to exercise, just as there are few in the increasingly beleaguered carrier ranks in any position to resist unilateral action from large shippers.

The behind-the-scenes moves by struggling manufacturers and public moves by truckers in recent weeks suggest the fallout from a steep crash in the freight market is starting to reverberate across the transportation market, hitting carriers with greater force and potentially hitting the longstanding relationships between carriers and shippers.

For all the talk about partnerships, of course, those relationships are built on economics, and that''s where they appear to be suffering the greatest strains.

A growing array of industry officials say the crisis in credit and liquidity that hit financial markets this fall now is coursing through the supply chain like the delayed aftershock of an earthquake.

Stung by poor sales and diminishing cash, some shippers are stretching out payments to carriers by 15, 30, even 60 days, essentially looking for credit from trucking companies. In some instances, industry sources say, troubled shippers have had to get letters of credit to get domestic shipments handled, a relatively uncommon practice on the domestic front.

Most trucking companies aren''t anxious to become banks - that''s not such a good business these days - but who''s in a position to turn down shipments these days?

As one logistics industry official who asked for anonymity told us, "They need each other. The carriers need the shippers to recover and the shippers need the carriers. It''s the walking wounded helping each other."

Unfortunately, that''s not really a great long-term business model and that''s why news from the carriers got far more distressing in recent weeks, just as some of those newly extended payment terms started coming due and reports of still steeper declines in shipping volume started coming out.

Plenty of people were expecting layoffs, wage cuts and slashed capital spending at even the country''s largest trucking operations in the usually slow month of January, but coming in early December with what should be a couple of weeks left in the peak season came as a shock. With no peak season in 2008, carriers couldn''t put off inevitable actions any longer.

After all, as one executive told us, January came early this year.

Many carriers and shippers alike are hoping that means a recovery will move on an accelerated schedule as well.