Transportation Outlook 2006

by Larin Huntze, Kansas City SmartPort

The transportation industry is seeing an immense demand increase for all carriers. Profits have surged in the past year for truck and air cargo carriers due to the increase in the volume of U.S. and international package shipments. Volumes for intermodal transportation are also increasing. Railroads are feeling the effects of increased freight volumes, helping offset the rising price of fuel. Fuel prices are expected to continue rising making it more expensive for transportation carriers to move goods.

These surges in growth are not limited to transportation per se: the Sarbanes-Oxley Act addresses not only criminal activity, but also violations of government regulations, including those applicable to transportation. Since supply-chain managers must now include import and export compliance as part of their jobs, compliance oversight is becoming a rapidly growing industry in its own right.

The center of the boom is China - this year imports have spiked by 33.2 percent and exports increased by 13.7 percent. Boeing’s World Air Cargo Forecast predicts that China’s domestic air cargo could grow at 10.6 percent at an annual rate through 2023, while North America is only predicted to grow at 4.1 percent. As imports from China surge, bottlenecks have developed at the thronged Los Angeles/Long Beach ports. This has encouraged development of alternatives.

Kansas City SmartPort decided on a new route which can bypass much of the West Coast’s congestion - the Lazaro Cardenas to Kansas City Corridor. The Corridor is ideal for moving shipments from Asia. Freight arriving at the Port of Lazaro Cardenas (in the Gulf of California) can not only bypass the bottlenecks but then also move directly by rail to Kansas City. As capacity increases over the next few years, Lazaro Cardenas will be able to handle steadily increasing volumes of freight on its way to Kansas City – a central location ideal for distribution. Given the tightening connections between the US and Mexico, changes to improve customs and security procedures have arrived. Both governments have agreed that Kansas City will house an off-site Mexican Customs Facility, the first of its kind. It will allow trucks and rail cars to be cleared, sealed and dispatched, keeping cross-border delays to an absolute minimum. This kind of system’s speed and efficiency is likely to attract shipping companies to Kansas City as competition intensifies in global shipping. Further linking Kansas City and Mexico, Kansas City Southern Railroad purchased a controlling interest in Texas Mexican Railway Company and TFM of Mexico this past year. These three companies will now operate under common leadership in order to create a seamless transportation system extending across North America.

In addition, Yellow Roadway Corporation successfully completed its acquisition of USF Corporation. The addition of USF to Yellow Roadway Corporation will aid the company by adding immediate nationwide scale in next-day and regional markets, which are among the fastest-growing transportation segments. Another recent endeavor by Yellow Roadway was the formation of the joint venture with Shanghai Jin Jiang International Industrial Investment Company of China. Both companies will own 50 percent of JHJ International Transportation Company, which is the freight forwarding subsidiary of Jin Jiang Investment.

Despite these many positive indicators, the aftermath of Katrina and Rita may hinder certain aspects of the transportation industry. Both hurricanes devastated the Gulf Coast with effects that spread through the nation’s economy as disruptions in transport nets sent fuel prices soaring. The closing of the Port of New Orleans created substantial problems for export shippers, particularly in the agriculture sector. And damage to offshore oil & gas rigs, refineries and temporary closure of the LOOP will all play a role in higher energy prices in the short term. Early estimates are that the storms may shave one-half of one percent from GDP in the fourth quarter, though a more precise assessment will take more time.

Other recent indicators point to a generally positive 2006 in transportation:

United States ocean freight exports increased 10.4 percent in June, the strongest monthly growth in outbound volume in more than a year.

An increase in globalization is drawing more small businesses into the world economy. It is becoming more common for small to mid-sized companies to move goods internationally, to source overseas, and to contract manufacturing in low-wage countries. This trend and the demand for specific expertise allow companies to establish dependable and continuous growth.

The retail sector is forecasting strong sales through the rest of 2005, promising strong shipping through the fall despite reports of a slowdown in the sector late this summer.

The American Trucking Associations said its for-hire truck tonnage index for June slipped by two-tenths of a percent from the month earlier, which the association blamed on 'soft patches' in the production of steel and other commodities.