United States Freight Transport Report Q1 2009

Two surveys published in October indicated that US trucking companies were most concerned over high fuel costs and the uncertainties facing the US economy. A Penske Logistics survey of the sector’s chief executive officers said they were focused mainly on a difficult pricing environment, the slowing economy, customer pressure for cost cutting, and fuel prices. Survey author Robert Lieb, professor of supply chain management at Northeastern University, noted that third-party logistics companies rely heavily on the retail, automobile, and electronics industries for their freight business. All three were suffering a downturn, with automobile sales reportedly at 15-year lows, and consumer spending flat. He also detected that customers were beginning to value low prices more than quality of service. A separate survey of over 5,000 trucking industry executives carried out by the American Transportation Research Institute (ATRI) said the price of fuel was the single most important issue for them, followed by the state of the US economy. The latest issue if BMI’s US Transport Report also notes that as the credit crunch bites, the road haulage industry is facing slower growth. We predict that over the 2009-2013 forecast period, US road haulage traffic will grow at a subdued average annual rate of 2.0%.

With attention now very strongly focused strongly on the 2008 US presidential race, we expect no legislative initiatives affecting the freight industry until H209. Companies will be monitoring the recession to assess how far and how fast the operating climate deteriorates. BMI predicts that overall freight traffic, measured in million tonne-kilometres, will rise by an annual average of 2.3% during 2009- 2013. In line with the pattern in developed economies, this is a little slower than overall economic growth, which will average 2.9% a year over the period. We expect transport and communications GDP to grow to US$1.215trn by 2013, representing 6.6% of US GDP.

The protectionist trend in US freight transport first hit the headlines early in 2006, when US Congress broke ranks with President George W. Bush and successfully opposed the sale of a controlling interest in six key ports (including New York, Philadelphia, and Miami) to Dubai Ports World (DPW) on security grounds. Under intense political pressure DPW, which acquired the ports through its takeover of Londonbased Peninsular & Oriental (P&O), then agreed to sell its US interests to a third party, an American International Group (AIG) unit. Similar protectionist trends have shown up in the aviation sector, where Congress and trade unions tried to hold back plans to give foreign investors a greater say in the running of US-based airlines. The exception, perhaps because it has gone largely unnoticed, was road transport, where a series of foreign toll-road operators have been buying large stakes in US roads over the past year or so. BMI believes both presidential candidates will be under continuing pressure to take a protectionist stance on a range of trade and transport issues.

As the largest economy in the world, it could be argued that there is already enough internally-generated competitive drive in the US freight business. BMI disagrees, taking the view that even major US companies could improve their performance by being exposed to greater external competition. Major US airlines have, despite some exceptions and recent improvements, piled up massive losses and have been in and out of bankruptcy protection. There has been a notorious lack of new investment in the country’s pipeline and refinery infrastructure, exposed during Hurricane Katrina. We score the US competitive environment at 69.9, which places the country at the higher end of the ranking.

Should the competitive environment deteriorate, the danger is that key US companies will lose some of their competitive edge facing new global players, particularly those in emerging Asia. On the whole, we believe it would be premature to make such a gloomy prediction, but it is a danger to be noted.