This Week

This Week

Wicks Resignation Jolts YRC, Industry

Timothy Wicks’ resignation as YRC Worldwide’s president and COO shortly before the release of the company’s first quarter results sent shockwaves across the trucking industry, where it was widely seen as yet another sign that YRC is struggling with its recovery plans. Although the less-than-truckload operator reported higher volume in March, its progress was slowed by bitter winter weather in February and shipper unease over its future. The company narrowly avoided bankruptcy at the end of December with a $470 million debt-for-equity swap with bondholders. The $5.3 billion company’s nationwide LTL carrier handled approximately 42,700 shipments a day in the first quarter, down 10.5 percent from the fourth quarter. Other carriers continue to gain market share at YRC’s expense, said Satish Jindel, president of SJ Consulting Group. “Wicks may have been feeling pressure for not making progress as fast as the banks and the board wanted,” he said. “The company needs to not just maintain shipment levels but increase them.” That’s a big challenge for Chairman and CEO William D. Zollars and whomever the company chooses as its new president. Wicks is returning to United Healthcare, which he left in October 2008 to join YRC Worldwide as executive vice president and chief financial officer. He was promoted to chief operating officer last September and to president a month later — a rapid ascent powered by his handling of financial negotiations with YRC’s banking group. R.W. Baird transportation analyst Jon A. Langenfeld said Wicks’ resignation points to “ongoing leadership instability” at YRC Worldwide and is “an additional distraction” to YRC’s efforts to rebuild customer confidence. YRC signaled Wicks’ value early this year when it paid him $400,000 as part of a noncompetition and incentive package. If the company met certain performance goals, and he stayed with YRC, he was to receive an additional $200,000 April 1 and another $200,000 in July. Wicks received $879,874 in compensation, including salary, stock and $271,164 in relocation expenses, in 2009, according to company documents.

 

Air Cargo Surges in Europe, Asia

In the latest evidence that volumes are surging across all transportation modes and around the world, Frankfurt airport in March handled more than 200,000 metric tons of freight, the first time Europe’s biggest airport hub has ever topped that level in a single month. The new monthly record of 203,308 metric tons, which was up 37.4 percent from a year earlier, was 11,400 metric tons above the previous peak month of November 2007, airport owner Fraport AG said. The airport also set a new daily record of 8,511 metric tons on March 14. Lufthansa was a key contributor, with volume jumping 26.4 percent in the month, to 155,000 metric tons, on a 3.3 percent increase in capacity. The Fraport group’s five majority owned airports — Antalya, Turkey; Burgas and Varna, Bulgaria; Lima, Peru; and Frankfurt — boosted first quarter cargo traffic by 30.8 percent to 590,000 metric tons. Separately, London Heathrow, Europe’s third-largest cargo airport, increased freight traffic by 29.6 percent in March to 133,399 metric tons, taking throughput for the first three months to 352,720 metric tons, up 23.1 percent year-over-year. London Stansted, a freighter and express hub, boosted March cargo traffic by 23.3 percent to 18,865 metric tons. Asian gains have been equally impressive, as international cargo jumped 24.3 percent at Japan Airlines and 66.5 percent at All Nippon Airways in February.

 

Domestic Intermodal Primed for Growth

Domestic intermodal rail weathered the economic recession better than most transportation modes, and the industry appears now to be on the verge of unprecedented growth. The growth in domestic intermodal will be driven by shipper requirements to reduce transportation costs, improve reliability of intermodal services by all rail carriers and in corporate America’s desire to reduce its carbon footprint. “The changes are so profound I believe we are at an inflection point,” Brian McDonald, vice president of intermodal at Union Pacific Railroad, told the Los Angeles Transportation Club. UP is a case in point. Domestic intermodal was the only sector of UP’s 40 commodity lines to grow during the recession last year. In fact, UP handled a record number of domestic intermodal units in 2009. Changing customer requirements will be a primary driver of domestic intermodal growth. Traffic managers are acting under a mandate to reduce transportation costs, and substituting domestic intermodal for over-the-road trucking is the quickest way to cut costs over longer distances, McDonald said. Retailers have decided it is better to take control of imported merchandise earlier in the supply chain. Rather than shipping full 40-foot container loads of merchandise from Asia to distribution centers in the Midwest, retailers are stopping the containers at West Coast ports and transloading the contents into 53-foot domestic containers, thereby increasing their distribution options across the country, McDonald said. This transloading phenomenon last year resulted in an increase of some 100,000 domestic units in Southern California, he said.

 

Evergreen to Order Up to 100 Ships

Evergreen Line, which has earned a reputation and been rewarded for its caution in adding container capacity during the last few years, has decided it’s time to buy — in a big way. The Taiwanese line confirmed it would start negotiating with shipyards in May to build as many as 100 container ships. The news came as Evergreen Group Chairman Chang Yung-Fa said the group recorded an annual loss for the first time since the company’s inception. He said the group’s overall losses totaled only $300 million last year, with massive losses in the first half before returning to profitability in the second half. He said refraining from placing reckless vessel orders was a decisive factor in curbing its losses. Evergreen’s plans for new ships include orders for 32 vessels of a new type with capacity of 8,000 TEUs each, 20 S-type (7,024-TEU) ships, 20 U-type (5,364-TEU) ships and 20 or more 2,000-TEU ships of a new type that will be used for feeder services. Evergreen, the world’s fourth-largest container line by capacity for at least the last five years, slid into fifth place this year as APL, which also has been cautious about ordering new ships, moved past it, according to Paris-based consultant and analyst AXS-Alphaliner. Evergreen’s fleet includes 148 container ships, with a total capacity of 551,490 TEUs, of which it owns 87 and charters 61. It currently has no ships on order.

 

Carriers Put Idle Ships Back to Work

The number of laid-up container ships above 5,000 TEUs has dwindled to the lowest level in more than 14 months, largely due to slow-steaming, and will likely fall further in the coming two months as the peak shipping season gets under way and ocean carriers launch new services to cope with rising demand, Paris-based consultant and analyst AXS-Alphaliner said. The number of unemployed container ships is expected to fall below 20 by June from a peak of 82 in March 2009 with the introduction of 10 new services on the Far East-Europe and Far East-North America routes in the March-May period. Rising cargo demand also is expected to absorb all the large new container ships to be delivered in the first half of the year. All 20 container ships of more than 5,000 TEUs delivered since Jan. 1 have found work. But Alphaliner cautioned that “with more than 100 new ships of more than 5,000 TEUs scheduled for delivery in 2010, the idle capacity could rise again at the end of the peak season.” Larger container ships have benefited most from the move by carriers toward slow-steaming since the second half of 2009. Extra slow-steaming has absorbed more than 50 vessels of more than 5,000 TEUs, according to Alphaliner.

 

Asia-Europe Trade Soars 56 Percent

Containerized exports from Asia to Europe surged 56 percent in February from a year earlier and approached pre-recession levels, according to the latest figures from the European Liner Affairs Association. Westbound dry and reefer shipments to Europe rose to 960,800 TEUs from 617,920 TEUs in
February 2009, the Brussels-based carrier group said. But it urged caution, “because February 2009 was the low point in the recession in the Europe-Asia trade.” The ELAA noted, “When we compare the 2010 figures for January and February with those for 2008, they are virtually the same. All lines would like to forget 2009, and in doing our projections, this is what we should do.” Eastbound volume from Europe to Asia climbed more than 26 percent year-over-year in February to 452,600 TEUs. Eastbound traffic out of Europe also returned to 2008 levels in January and February, and the Indian subcontinent and Middle East trades “show exactly the same pattern,” the ELAA said. But the trans-Atlantic trade “is still languishing with volumes significantly below 2008,” the group said. Westbound traffic from Europe rose 13.5 percent in February from a year earlier to 242,400 TEUs while eastbound shipments from North America climbed nearly 16 percent to 223,400 TEUs.

 

Importers Stock Up As Consumers Spend

The inventory replenishment that began in January carried over into February as U.S. importers rushed to meet rising consumer demand. And with March retail sales jumping 7.6 percent, it appears transportation providers can look forward to the restocking trend continuing in the short term. Imports rose 1.7 percent in February, while exports barely inched up, leading to a 7.4 percent increase in the trade deficit from January. With inventories rising to an estimated $429.2 billion by the end of the month and sales estimated at $282.4 billion, the inventory-to-sales ratio climbed to 1.52 from 1.49 in January and a low of 1.15 in December, indicating that retailers were expecting higher sales. Those expectations were met in March, when retail sales rose 1.6 percent, up from February’s revised 0.5 percent. The increases were across-the-board. Car dealers, home furnishing stores, building suppliers, sporting goods stores, clothing retailers and general merchandise stores all reported gains. Better weather and an earlier Easter than in 2009, helped weather-sensitive items such as clothing and building materials, but there was an underlying pickup in consumer spending that goes beyond the weather, according to Nigel Gault, chief U.S. economist for IHS Global Insight. Last week’s report on consumer spending revised upward the sales estimates for January and February, and it now appears real consumer spending rose about 3.5 percent in the first quarter, the fastest increase in three years.

 

US, Mexico Look to Revive Cross-Border Trucking

The U.S. and Mexico moved closer to a new cross-border trucking agreement with plans for a “working group” to consider the next steps toward reviving cross-border trucking. In announcing the plans, Transportation Secretary Ray LaHood and his Mexican counterpart, Juan Molinar Horcasitas, said establishing a new binational trucking program is an issue of “highest priority.” After Congress killed a controversial Bush administration cross-border trucking program last year, Mexico slapped retaliatory tariffs on U.S. products. LaHood and Molinar also agreed to continue cooperating on aviation safety issues and reviewed the status of border region transportation infrastructure projects.