Transportation Outlook 2005

by Chris Gutierrez and Carolyn Timberlake, Kansas City SmartPort

The transportation industry experienced many changes in 2004. New regulatory policies, shortages of equipment and drivers and positive economic growth were all factors facing the industry this past year. Transportation companies in each sector (air, barge, rail and truck) had their share of new regulatory reforms aimed at security and safety that caused them to review their business plans and policies. The economic recovery made them do this in a time when business was on the growth curve.

The U.S. Department of Transportation changed the hours of service rules for the first time in 65 years. Drivers will now only be allowed to drive 11 hours out of a 14-hour on-duty period, but, waiting time at pick up and drop off locations count into the driving time as well as other pauses in actual driving time. The courts have recently suspended the new rules and that decision is being appealed. The new rules have also caused motor carriers to work closely with their customers to avoid delays in pick up and drop offs.

Gas and diesel prices are continuing to increase with diesel prices at $1.754 per gallon, only 1.7 cents from the record high of $1.771 set on March 10, 2003, just prior to the invasion of Iraq. The current price is 31.6 cents higher than it was a year ago.

In an attempt to guard against terrorist attacks, the Bureau of Customs and Border Protection (CBP) recently changed transportation regulations. Cargo carriers are now required to notify customs electronically before arrival of what they are carrying, where it comes from and where it is going. Air carriers must now transmit cargo data four hours before arrival, rail carriers two hours before and trucks 30 minutes to one hour before. Some industry officials are worried that the regulations will create delays at U.S. borders and lead to higher prices for consumers.

With consumerism and the economy finally beginning to bounce back, the demand for transportation services is also on the rise. The Consumer Price Index, the government’s gauge of costs for goods and services, rose 0.3 percent in June, following a 0.6 percent rise in May. The Conference Board’s Consumer Confidence Index also showed an increase and rose to 106.1 in July, the highest level since June 2002. If consumer prices and economic expectations are rising, it could reflect an uptick in consumer spending and demand for goods, which increases the demand for transportation services.

Locally, the transportation industry is doing well. After combining with Roadway Corp. in a deal valued at $1.05 billion in December, Kansas City based Yellow Roadway Corp. blew away earnings expectations during the second quarter of this year, with earnings increasing more than 50 percent from last year.

SCS Transportation purchase of Clark Brothers Transfer Inc. for $30.5 million adds new markets to SCS’s territory as it adds Kansas City, Chicago, Minneapolis and St. Louis to the route map, boosting the trucking firm’s reach to 29 states with 127 terminals.

Improving operations and a stronger economy propelled Kansas City Southern Railway to a profit and higher revenue through the second quarter of 2004. Business is up more than 5 percent from its 2003 numbers and KCS’s operations in Mexico are showing positive growth moving into the later half of 2004.

An interesting sign of growth for the Kansas City region is the increase of companies considering the region for new distribution facilities. Companies and consultants are reporting that the Kansas City area is showing up on their transportation cost models as an ideal location for regional distribution and national distribution.

Manufacturing is also on the rise in the Midwest and especially Kansas City. Ford’s Kansas City manufacturing plant was recently named the most productive plant in the country. At 490,000 units a year, it builds more vehicles than any other assembly plant in the country. The National Association of Manufacturers (NAM) also announced plans to launch a pilot program in the fall to boost the manufacturing industry’s need for a trained workforce to meet the growing demand.

In conclusion, 2004 was a challenging year but also a growth year. In 2005, the challenges facing the rail industry with a shortage of engineers and equipment will cause additional strains on their network that will also affect the motor carrier industry. Increases in imports coming into the United States will challenge port cities to become more flexible and creative. Kansas City’s central location, excellent transportation infrastructure and available land and workforce position this region for continued growth in 2005.