New Normal

New Normal

With the peak shipping season here and activity barely causing a ripple in global transportation networks, attention among shippers and carriers alike is already turning to next year and what the business community is terming the “new normal.”

It’s a phrase that suggests reality has somehow changed and that in today’s seemingly uneasy stability, the expectations and forecasts for future activity need to be adjusted to reflect not simply the usual cyclical patterns of economic downturns and recoveries but also a truly changed economic landscape.

And after the uncertainty and seeming economic chaos of late 2008, the hard information from nearly nine months of economic fallout, shifting inventory management tactics, plunging shipping volume figures and tough capacity decisions actually provides a remarkably clear look at what the new normal looks like for global supply chains.

The International Air Transport Association filled in part of that map last week when it estimated that airlines during this downturn have parked 227 freighters, or around 12 percent of the global all-cargo fleet. Separately, the private Ascend consulting firm put the figure at closer to 480 aircraft, or nearly 25 percent of the existing freighter fleet.

That’s not far from estimates from AXS-Alphaliner that show about 10 percent of the world’s global container ship capacity is laid up — what one newspaper last week called a “ghost fleet.” It’s enough capacity to put one dominant new container line on the water, if that carrier could find the freight to fill it up.

And for many U.S. shippers, the new normal means there is the equivalent of one less Class 1 railroad in operation today.

That’s been evident this year in traffic figures that, for all the attention to the limited achievement of relative stability, show business down by more than 20 percent across a wide range of commodities. For the nation’s five major railroads, there were 2.1 million fewer carloads in the first 35 weeks of 2009 compared to the same period last year and 1.3 million fewer intermodal units moving.

And without much concern about market share hanging over them, railroads haven’t hesitated in applying the new normal in demand to their capacity decisions. Norfolk Southern, for instance, has returned 10,000 railcars to service since June, but that still leaves about
25 percent of the carrier’s rail-cars in storage. At the same time, 14 percent of its power units are parked.

Both figures are remarkably close to overall rail industry traffic figures, which show Class 1 carloads down 18.4 percent this year and ton-miles off 17.5 percent.

Industrywide data on trucking is harder to come by. Stifel Nicolaus Equity Research says less-than-truckload demand is off about a quarter since 2006 but that capacity is only down about 8 percent since then. Truckload capacity, meanwhile, has fallen 17 to 20 percent since 2005, the firm says.

The new normal, then, is already in place as far as shipping capacity is concerned. Across the global delivery chain, pipelines appear to be about 10 to 15 percent smaller, and carriers hope there’s no new normal beyond what they already will have to cope with in 2010.

Paul Page is editorial director of The Journal of Commerce. He can be contacted at 202-355-1170, or at ppage@joc.com.