Friday, February 02, 2007

The mysterious trouble in the trucking industry.

The economy's message is: Keep on truckin'!

Or maybe not.

Even though GDP growth in the 2006 fourth quarter was much better than expected, the stocks of trucking companies, usually an important leading indicator for the economy overall, are mysteriously struggling.

Transport stocks are canaries in the coal mine for the Dow. Here's a very long-term chart of the Dow Jones Transportation Average against the Dow Jones Industrial Average. Since they move the goods, a slowdown in transport companies' business usually previews an overall slide. But here's where it gets weird. In theory, the fortunes of all the components of the Transport Index, which include shippers, truckers, railroads, and airlines, should move somewhat in tandem. Most goods that are sent by ship, rail, and air have to go on a truck at some point. It would be strange for one link in the freight chain to be doing well while others are dragging.

And yet that's precisely what seems to be happening. Truckers, who carry 70 percent of all domestic freight, are doing poorly. The American Trucking Associations' Truck Tonnage Index fell through 2006. And in the fourth quarter of 2006, the index was down noticeably from the fourth quarter of 2005, even after accounting for the temporary post-Katrina spike.

The earnings report of several firms in the Dow Jones Transportation index also point to trucking struggles. In December, YRC Worldwide reduced earnings guidance, and yesterday it reported 2006 fourth-quarter earnings fell more than 30 percent from the year before. The culprit: lower volumes. Earlier this week, trucking company J.B. Hunt reported that trucking revenue fell 16 percent, on a 4 percent decrease in the number of loads hauled in the 2006 fourth quarter. Last week, Arkansas Best announced that fourth-quarter net income was sharply down, with the total tonnage per day at its main trucking unit falling 6.8 percent between the 2005 fourth quarter and the 2006 fourth quarter. In October and November, which are usually great months for truckers (all that pre-Christmas shelf-stocking), "ABF experienced a sudden and dramatic reduction in business that mirrored conditions throughout the trucking industry," the company noted.

But even as truckers encountered speed-checks, railroads closed the books on a record-breaking year. The fourth quarter was the occasion for particular chest-thumping from the big railroads. On Jan. 25, Union Pacific reported excellent fourth-quarter earnings: Operating income soared 52 percent from the 2005 fourth quarter, and metrics like car loads and average revenue per car were higher. Norfolk Southern reported record fourth-quarter revenues and earnings. In its 2006 fourth-quarter earnings report, Burlington Northern Santa Fe clocked record earnings on a 4 percent increase in freight volumes.

The results describe a slowing economy for truckers and a growing one for railroads. How can that be?

For starters, the two sectors are operating in slightly different economies. Railroads are benefiting from economic trends that don't particularly help truckers. Coal, an increasingly popular energy source, is hauled almost exclusively by trains, as John McPhee documented in his elegiac book Uncommon Carriers. The Association of American Railroads reported that in 2006, coal accounted for 42 percent of "total non-intermodal U.S. rail carloadings." And industrywide coal carloads rose 5.9 percent in the fourth quarter of 2006. Indeed, Norfolk Southern noted that fourth-quarter coal revenues were up 13 percent between 2005 and 2006. At Burlington Northern, coal revenues were up a whopping 22 percent, thanks to heightened activity at the Powder River Basin.

A second rapidly growing energy source also helps rail companies while doing nothing for truckers: ethanol. As the Wall Street Journal reported this week, ethanol can't be pumped through existing oil pipelines. And it makes far more sense to ship the fuel in 30,000-gallon tank cars than in tanker trucks. Ethanol shipments tripled between 2001 and 2006 and are expected to rise 33 percent in 2007, the Journal reported.

Another large, but seemingly irrelevant, economic trend appears to be hurting truckers: gift cards. American Trucking Associations Chief Economist Bob Costello noted that "the fall freight season is changing." With the proliferation of gift cards, the holiday shopping season is spilling over into January. So, retailers aren't moving as much merchandise to stores in October and November as they have in the past.

There's another, less cyclical, explanation that might account for truckers' travails. The U.S. economy is remarkably dynamic. From year to year, the sectors that make the largest contributions to growth can vary. In the late 1990s, telecommunications and information technology were hugely influential. In recent years, housing emerged as a major contributor to growth. And housing is an industry that requires the movement of huge amounts of physical goods—lumber, cement, Home Depot merchandise. But in 2006, housing slowed down, and financial services firms—enormously profitable hedge funds, private equity funds, and investment banks like Goldman Sachs—made outsized contributions to growth. These companies move money around the globe, not goods. Whether Goldman Sachs makes $10 billion or $2 billion trading currencies, it probably ships the same amount of goods by truck: none.

Wednesday, January 31, 2007

Failed Trade Policies, Economy Show Bush Out of Touch With Workers

Official Statement of Teamsters General President James P. Hoffa

WASHINGTON, Jan. 30 /PRNewswire-USNewswire/ -- The following is a
statement of Teamsters General President James P. Hoffa:

President Bush today touted his failed trade policies as proof of a
strong economy, demonstrating to workers everywhere that he remains out of
touch with their reality.

Our globalization policies are being mismanaged. This administration
has yet to address China and Japan's currency manipulation as promised or
to remedy the U.S.-China trade imbalance. We need thoughtful and aggressive
policies on China, and yet, he remained silent on that.

Bush highlighted Caterpillar Inc. as reaping the benefits of U.S. trade
policies. But for a majority of Americans, jobs have been destroyed, wages
and benefits are stagnant, and communities have been stressed and terribly
impacted. Our competitiveness as a nation has even been severely hindered
-- forcing us to rely entirely on other countries around the world for
essential goods and services, even to equip our great men and women serving
in Iraq. This is a matter of national security, and yet our president
continues to be blind to this reality.

The Teamsters are mobilizing to fight against extending fast track
presidential trading authority when it comes up for renewal later this
year, and we are pushing for a new trade model that will truly uplift all
workers. Fast track has proven to be nothing more than a mechanism to rush
through a patchwork of bad, rubber-stamped free-trade agreements to fill
the pockets of multinational companies with the profits made by taking
advantage of cheap and exploitable labor. This is not only to the detriment
of those workers exploited, but also to workers in the United States.

So yes, Bush's economy may be great for corporate executives. But for
the millions of workers who have lost their jobs or who live in fear of
their jobs being shipped overseas, who are without health care and
retirement security and who are struggling to keep their families afloat,
Bush's so-called "strong" economy is a joke.

Tuesday, January 30, 2007

Bonuses Decline At Arkansas Best

Executive officers of Fort Smith-based Arkansas Best Corp. will take home smaller bonuses than they did last year, but the company also had less income.

According to Securities and Exchange Commission filing released Monday, the company paid Bob Davidson, president and chief executive officer, $794,053 as part of Arkansas Best's Executive Officer Annual Incentive Compensation Plan for 2006.

Other officers were compensated as follows:

* Judy McReynolds, senior vice president and chief financial officer -- $315,365.

* this w Richard Cooper, senior vice president of administration and general counsel -- $322,584.

* Christopher Baltz, ABF Freight System senior vice president of yield management and strategic management -- $358,354.

* Wesley Kemp, ABF senior vice president of operations -- $358,354.

* Roy Slagle, ABF senior vice president of sales and marketing -- $358,354.

Less-than-truckload carrier ABF is the largest subsidiary of Arkansas Best.

For 2005 performance, Robert Young, who was CEO until Jan. 31, 2005, received a bonus of $1.65 million, and the company paid Davidson $1.01 million.

Davidson then was president and chief operating officer. He succeeded Young as CEO on Feb. 1.

In 2005, Arkansas Best reported net income of $104.6 million compared to $75.5 million in 2004, a rise of 38.52 percent.

Net income fell 19.62 percent in 2006 to $84.09 million.

Less-than-truckload carriers like ABF Freight have more exposure to the ups and downs of industrial sector of the economy, said Thom Albrecht, a trucking analyst with Stephens Inc.

During the first two quarters of 2006 and well into the third quarter, he said the industry was "red hot" while the retail sector, served mostly by truckload carriers, was "spotty" all year. (Stephens, a Little Rock-based investment banking and securities brokerage firm, has provided financial and other services to Arkansas Best within the past year and expects to receive or seek compensation for investment banking services in the next three months.)

Executive officers of Old Dominion Freight Line, a Thomasville, N.C.-based, less-than-truckload carrier that will report 2006 results on Thursday, received bonuses for 2005 similar to those of Arkansas Best's. Market capitalization for Old Dominion and Arkansas Best is $999.96 million and $924.32 million, respectively, according to Yahoo! Finance.

Old Dominion paid its CEO Earl Congdon a bonus of $1.74 million and COO David Congdon $1.05 million for 2005 performance, according to an SEC filing.

That company's net income in 2005 rose 38.2 percent to $53.9 million from $39 million in 2004.

Shares of Arkansas Best (NASDAQ: ABFS) closed Monday at $37.19, up 71 cents. In the past 52 weeks, the price ranged from a $50.67 high to a $35.68 low.