(The Associated Press circulated the following story by Samantha Bomkamp on February 6, 2009.)
NEW YORK — Sliding demand and stiffer competition for customers promise to make 2009 another tough year for the nation’s freight carriers.
Trucking companies and railroads have already faced more than a year of challenging times and expect more difficulty ahead.
In the fourth quarter of 2008, many trucking companies reaped the benefits of sharply lower fuel prices, but shrinking shipping demand hampered earnings.
San Mateo, Calif.-based Con-way Inc. swung to a loss, and the trucker’s chief executive said the fourth-quarter results “foreshadowed an extraordinary decline in demand for freight services.”
Heartland Express said profit rose on gains from property sales, but added that first-quarter shipments this year are “off to a dismal start,” and it doesn’t expect them to pick up in the near future.
YRC Worldwide Inc., one of the nation’s largest trucking companies, reported a much wider loss than Wall Street expected, although it was narrower than a year earlier because of cost cuts. The company is continuing to talk to its banks about restructuring the terms of its bank debt.
Trucking companies saw shipping demand fall off dramatically as consumer spending pulled back and retailers slowed orders in the second-half of 2008. Competition was fierce for the remaining business, and truckers were forced to keep rates low. Thousands of smaller truckers went out of business and even more scaled back their fleets.
Stifel Nicolaus analyst John Larkin predicted that pricing would get even worse this year, because the size of truck fleets isn’t falling as fast as demand. Even if demand does flatten out, he said there are still too many trucks on the road competing for too few shipments.
Railroad operators told a different tale, as higher rates continued to buoy the bottom line in the face of tumbling demand.
Union Pacific Corp., the nation’s largest railroad, said its fourth-quarter profit jumped 35 percent. Another western railroad, Burlington Northern Santa Fe Corp., said fourth-quarter earnings rose 19 percent.
Norfolk Southern Corp.’s fourth-quarter profit climbed 13 percent.
Some railroads are cutting costs by running fewer trains and furloughing or laying off workers.
Norfolk Southern Corp. said it has reduced the number of its train and engine service employees by 6 percent in the last eight months through furloughs and a hiring slowdown, and more job cuts are likely. Union Pacific furloughed 3,150 workers during 2008. Burlington Northern has furloughed about 2,000 of its employees so far this year and said it expects to furlough another 500 workers “shortly.”
CSX has furloughed 1,100 workers over the last year, while Norfolk Southern has furloughed about 800 in the last 8 months. Union Pacific said it released 3,150 workers, while Burlington Northern let go 2,000. Almost all the major rails have warned there are more cuts to come.
The railroads’ better quarterly results also have brought complaints, as some shipper groups say dramatic price increases are hurting customers – and ultimately consumers – amid the worst recession in 80 years. Shippers have lamented that contracted prices have jumped anywhere from 10 percent to double what they paid in years past.
The railroads insist that their pricing structure is fair, and point to operational improvements – everything from faster train speeds to shorter time spent in terminals – as key parts of their success.
Some companies and collectives that rely on railroads to transport their goods have sought compensation – saying prices are unreasonably high. Last summer, for example, the Surface Transportation Board ordered CSX to reduce its chemical shipping rates and pay fines to DuPont (nyse: DD – news – people ) Co.
Earlier this month, Sen. Herb Kohl and Rep. Tammy Baldwin, both Wisconsin Democrats, revived legislation that would remove the railroad’s antitrust exemptions, which they said led to higher rates for shipping coal and other goods.
The lawmakers said current law prevents antitrust review of railroad combinations, which are reviewed only by the STB, and doesn’t stop railroads from collective ratemaking. Their legislation would let federal and state officials and private parties sue to block mergers and acquisitions and put review of those combinations under the Justice Department.
Similar legislation died last year after passage by the House and Senate judiciary committees.