Jeff Rogers, YRC Freight’s President explained that they are trying to be a new company and transporting freight is what they do and it should be in the name.  YRC is a combination of the former Yellow Freight System and Roadway Express.  Interesting that one had freight in the name and the other did not.

 Initially YRC Freight will rebrand 1,000 city trucks this year and begin issuing uniforms with the new logo.  Rebranding is not an inexpensive adventure.  Not only do trucks have to be rebranded, but stationery, business cards, web-site, marketing literature, and buildings.

 Will this help YRC Freight gain new business?  Will this change company morale?  Will this create a new image in the industry?  It is clearly too early to tell, but if profitability doesn’t return soon, it won’t matter.  For years, YRC Worldwide has operated dark blue, swamp holly orange and orange/blue combination vehicles in their fleet.  It has been interesting seeing a Roadway tractor pulling a set of Yellow trailers, or vice versa.

 I hope it all works out and I favor the change so long as it doesn’t continue the drain on cash.  I want to see them survive.  They have been through so much, they can’t stop now!

 Over the past years, YRC had strived to enter into the regional markets to become a carrier offering both regional next day services as well as traditional longer lengths of haul.  The original goal was to capture as much of a customer’s freight as possible within one company.  Now, they are shifting that strategy and reverting to a network that will solely focus and support shipments moving greater than 500 miles.

 In conjunction with this change, YRC is proposing to transition from 28 hubs to 23 and convert the others as stand-alone end-of-line terminals.  Since YRC is a unionized carrier and governed by contracts signed with the Teamsters, a formal change of operations must be approved by the Teamsters. 

 In their filing with the Teamsters, approximately 700 hourly employees would be affected, resulting in the opportunity for such employees to relocate and follow work.  With such a change, YRC will gain some employee efficiency and eliminate multiple hourly  and management personnel. 

 It is anticipated that this change of operations will cost in excess of $2 million.  Naturally, YRC believes that the efficiencies gains will more than cover the one-time cost.

 This is a definite sign by YRC that it is returning to its roots… that of a long haul carrier.  While many LTL carriers continue to escalate the number of services offered (warehousing, international, expedited, household relocations), YRC is serving notice that they intend to focus on what it does best.  They are correct when they say they have regional carriers within the parent that can adequately service the next day market.  However, Reddaway, Holland and New Penn are constrained by their physical boundaries. Going forward next day movements outside those boundaries will not be offered.

 Given YRC’s cash position and recent profitability (or lack thereof), this strategy shift makes sense.  As they continue to fight for survival focusing on their core competencies may just be a good move. I guess only time will tell.

Truckload – If you use truckload carriers to move goods, you will be facing additional price hikes to tack onto the average 8% increase most shippers saw in 2011.  Trucking companies have been hesitant to add capacity after the 2008 recession and by controlling their fleets they can generate higher yields.  Of course, many can’t add enough qualified drivers anyway, so controlling capacity may be more about drivers than any other factor.  Tighter government regulations have limited qualified drivers and as the economy picks up, jobs where one can stay at home every night are more favorable than the gypsy lifestyle of a trucker.  Consequently, don’t be surprised if rates on average increase 5-8% for 2012.  The new hours of service won’t impact the industry much this year, but get ready for that in 2013.

Rail and Intermodal – If you are a rail shipper, I don’t have to tell you about increases you will be taking.  Just take the average you normally receive and expect the same.  If you are an intermodal shipper, expect those rates to escalate as demand for intermodal services has jumped double digits over the past year.  Rails continue to provide better, more reliable service and with the jump in demand, makes for a good case of higher rates.  However, given the dynamics from the truckload sector above, this segment of the market will only continue to grow, especially for longer hauls.

Small Package – No new entrants here so expect the same relative increases (5.9%-6.9%) per year as volume continues to escalate with the general growth of e-commerce.   I believe regional small package companies will continue to grow, but perhaps not seek the same level price increases especially with accessorial charges.

LTL – During the past year, LTL carriers have been successful in translating tighter market capacity into higher yields.  Most were successful in bumping their average revenue per hundred pounds by double digit percentage points, but needed to after hitting the bottom during the 2008 recession.  The big “IF” and it is a big one, is if YRC can stay in business.  They supposedly have enough cash to get them deep into the year.  Should the economy not continue to grow, YRC could face undue pressure and they do not have the staying power of the other national brands.  Absorbing YRC’s volume into the other carriers won’t be a significant challenge operationally for the other carriers, but will come at a price.  Expect 4-6% general rate increases (like always) and double that if YRC doesn’t survive.

Air – My sense is that air freight capacity is ample and that rates should remain mostly flat.  However, if inventory levels fall or remain flat, there is always the chance for expedited service needs and thus a tightening of capacity.  That leads to higher rates, but I would expect normal increases to be experienced.

Ocean – This might be the one bright spot.  There is ample steamship capacity in the marketplace and steamships are ordering record numbers of megaships, predicting that container traffic will double by 2020.  For those doing business in 2012, the capacity that is available yields bargain rates and there isn’t anything on the horizon that makes me think otherwise.

These forecasts are one person’s opinion based on reading reports, engaging carriers, shippers and others in the marketplace.  One thing is for certain, change is constant in the shipping world.

Airlines are catching up fast.  At least one particular airline (not to be named) has taken pricing to a new level.  I booked a flight for my Mom to see her brother in Phoenix in February.  I had heard about this discount airline and their ridiculously cheap flights, but also was warned that they don’t fly every route, every day.  No worries.  This is for my retired mother andI knew she could be flexible with her schedule.  So I looked up the fare on the airline’s web-site and flying  round trip, the fare was $109.75.  Yes round trip.  I couldn’t believe my eyes and couldn’t wait to book this outstanding deal.

Once I hit the “next” button, I learned that the taxes and fees were $49.63.  Wow, that seemed high.  Upon further review I learned that the $49.63 was comprised of many things one of which was $8.23 for FED Excise Tax.  Okay, I’ve heard of that before so I’m okay with it.  Next was a $7.40 segment fee.  It’s a direct flight, so I guess I don’t understand what a segment exactly is.  Oh well.  A $9.00 PFC charge was included.  Not sure what that means, but it sounds like an official acronym so I better go along.  I got hit with a$5.00 911 security fee (damn you Osama!).  And then, the best one was the $20.00 convenience fee.  Since I was booking on-line, they nabbed me for this one.  I suppose it is more convenient for them if I call them and tie them up for 15-20 minutes and perhaps I could avoid this fee.  Probably not, as they might have a person-to-person live chat fee.

Okay, so I think  I’m doing all right.  Let’s get this booked.  Next the airline charged me $5.00  for an early bird boarding fee.  I decided Mom could get on board later, she won’t mind.  Un-check.  Gee, I love you Mom, but as Southwest says, any seat will do.  Plus, Mom is very friendly and she can have conversations going with the people on each side of her middle seat, all at the same time.  Un-check.

Okay, Mom’s getting up there so I better let her check a bag.    Where was that Southwest Airlines referee when I clicked okay?  Now the fare is over $200 and that’s after I declined some options.  What happened to the $109.75?  It doubled.  Just before I clicked the “I want to purchase” button I noticed that a $23.00 Trip Flex fee had been added.  A what?  I researched that and it stated that this ticket could be changed anytime without having to pay one of those expensive change fees.  Well, Mom might have to change plans.  Interesting that for every four people who agree to this, they exceed the revenue of a change fee.  Nice insurance program for the airline.

So, all in, a round trip to Phoenix that started out at $109.75 came in at $232.36.  Even though that’s a good deal, it just doesn’t feel like it.  I feel like I got nickel and dimed.  It reminds me of that 80% LTL discount.  While 80% off anything sounds good, it depends on what that discount is applied.  And then, are there other fees.  At the end of the day, I simply want to know what something is going to cost without going through the entire buying exercise to find out.  I know that a good Transportation Management System (TMS) will quickly provide the total cost of shipping something so I can quickly make decisions and book shipments.  I guess I need a TMS that works for airlines so I know early on what the true total cost is without dragging me through an arduous process.

Anyway, I believe that this move by YRC makes sense from a practicality standpoint.  There isn’t any need to maintain two sets of rates when a single company has emerged from two.  However, rest assured that the new YRC base rates, if they adopted only one is the higher of the two.  If they created a new tariff altogether, it likely will be higher for most shippers.  The statement from YRC’s web-site mentioned that no discounts or minimums change.  They don’t need to change if the base rate is higher.

At least YRC informed the public of this move.  A year ago, when FedEx Freight consolidated FedEx National into a single company and network, FedEx quietly retired the FedEx National base rates and quietly transitioned everyone to the FedEx Freight base rates which resulted in a hidden increase of approximately 9.5%

No matter what, these tariffs and base rates are complex and tricky.  Shippers need assistance to figure out their net impact.  With ridiculous discounts, ever-growing accessorial and surcharges, the costs of shipping keep increasing and the routing decisions all that more important.

All the details are not known, such as the various changes to acceessorial charges, but this increase is similar to what FedEx already announced.  However, FedEx reported a fuel index redcution of 2% for domestic services, compared to UPS’s fuel index being reduced 1%. 

More will be coming on this subject, but keep in mind these increases will be taken in January.

Insurance rates are increasing as the industry is seeing the results of the first year of the CSA regulations.  Fewer qualified drivers are available and for those with good records, their compensation is increasing, thus helping to raise trucking rates.  According to Transcore, who monitors spot quote activity for the truckload market, spot quote activity is up 39% over a year ago. This indicates that the economy is better than it was during 2010, fortifying the demand equation for trucking services.

Various transportation economists are predicting that truckload rates will rise 10% in the coming year.  Given the evidence of tightening supply and higher demand, there appears to be evidence to support this increase.  Many shippers are shifting business to intermodal to minimize the impact on their budgets, though there are capacity limits within the rail system, and intermodal has always been an option for longer haul traffic, but transit time and reliability can be issues.

The trucking industry has faced very hard times over the last decade. It looks like the dynamics are in place for those who have survived to finally earn respectable returns.  And with trucking rates going up, the other modes will surely tag along.

According to Postmaster General and CEO Patrick Donahoe, “The Postal Servcie can become profitable again if Congress passes comprehensive legislation to provide us with a more flexible business model so we can respond better to a changing marketplace.  To return to profitability we must reduce our annual costs by $20 billion by the end of 2015.” 

The USPS is supposedly asking Congress to allow it to cut some 120,000 workers, close thousands of post offices and terminate Saturday deliveries.  There is no doubt that mail volumes are dropping as more communication is handled electronically.  The Postal Service saw mail volume decline 1.7% year-over-year and revenue down 5.8%.

I don’t want to add politics to my blog, but I don’t understand why the Postal Service doesn’t have the authority to do what it needs to do to operate as a for-profit business.  Going to Congress for approval, who can’t agree on anything and run by anything but business people, seems ridiculous.  Granted, there must be mail service available to the entire population, but perhaps its time to bring it into the modern era.  i can think of a dozen ways to modernize the business and begin turning a profit.  While I hate to see jobs lost, the USPS cannot operate with its current cost structure.

I don’t really understand the Occupy Wall Street movement.  There doesn’t seem to be any common theme and demand.  How about they shift their focus to Occupy Congress and focus for the time being on having Congress give authority to the Postal Service to become profitable and service the country.  Give the USPS the authority it needs to operate as a business.  If we had a movement like that, it would make real sense.  I’m afraid the USPS is going to be subject to political grand-standing and the typical partisan politics that are dividing the country and getting us no where fast.

Just like LTL, parcel carriers announce an increase but the amount of increases supposedly reflects an average impact for an “average” shipper.  The actual increases are dependent upon the size of your shipments, the types of your shipment and the zones to which you ship.  For example, FedEx raised raised higher zone shipments for its express service approximately 7% and various surcharges increased 8-10%.

Also interesting is that for international shipments, certain countries were placed in different zones, effectively increasing those costs without a flat rate increase.  Here are some other examples of rate increases from FedEx.

• Additional handling charge increases $0.50 per package to $8.50 or 6.25%
• Commercial Delivery Area Surcharge increases 8.1% or $0.15 to $2.00 per carton
• Residential Extended Delivery Area Surcharge increases 8.3% or $0.25 to $3.25 per package
• Oversize charge will increase $5.00 to $55.00 (10%)
• Residential Delivery will increase 9.1% or $0.25 to $3.00 per package

If you are a small package, parcel shipper, you need to get copies of the new rates and charges and determine how your particular mix of shipments will be impacted.  It’s exactly like LTL>  You can’t expect that your impact will be the same as what they call an average shipper.

Finally, does it really matter that the additional charges all be round numbers?  Rather than increase residential delivery charge by $0.25, how about $0.18?  Or, how about raising the additional handling by $0.33 instead of $0.50.  It’s seems like FedEx and soon-to-be, UPS simply round up to make it an even number when most every shipper would rather see a lower percentage increase than having these surcharges be round numbers.

Comparing on an apples-to-apples basis, it still exhibits a loss greater than last year and volumes have grown.  According to their results, YRC national gained 4.2% in tons per day compared to last year, same quarter, and 7.5% increase in revenue per pound.  The regional operating unit reported increases of 5.6% in tons per day and 8.2% in revenue per pound comparing on a year-over-year basis.

I am not a financial analyst and thus only commenting on what has been published by the company and certain analysts.  However, it appears that while there is modest improvement in business levels and yields, it is suffcient to get the ship righted.  LTL carriers will typically experience operational efficiencies with added tonnage.  This doesn’t seem to be happening at YRC, or not yet.  And that’s the point.  YRC is supposedly on a relatively short financial leash.  They must quickly show dramatic improvement so that current lenders can provide enough cash to keep the company viable.  There isn’t room for slippage. 

I don’t envy the job of James Welch and his new management team.  He knew he was in for a challenge and it may have just gotten tougher.  Third quarters are typically the highlight of the year for carriers.  Heading into the 4th Quarter this year and 1st Quarter next year will likely see lighter volumes and weather that could add to costs.  I am pulling for YRC.  They have gotten this far and they really have an outstanding history and are a good carrier. Clearly, the market cannot easily and cost-effectively absorb YRC’s business if they were to close the doors.