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BusinessWeek: January 10, 2000 |
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Industry Outlook 2000 -- Distribution
Transportation
Old economy, meet the new. As e-commerce gains traction, it's kicking up opportunities all over the transportation sector. That means the coming year should be a good one for freight companies--at least those that can deliver small loads quickly. Parcel carriers, express delivery services, and "less-than-truckload" freight haulers should ride the wave of e-commerce to new revenues and profits. But full-load truckers and railways may have a harder time. "The whole movement toward just-in-time manufacturing and e-commerce has made for more shipments of smaller quantities moving faster," says Hugh Randall, head of Mercer Management Consulting Inc.'s transportation group. "And that hurts truckload carriers and railways." Even they may see some modest improvement in 2000, however. The transportation sector typically grows at about the same rate as the economy. As long as the current expansion continues, few players are likely to see their revenues decline. The sector overall saw sales grow to $443 billion in 1999 from $417 billion in 1998, an increase of 6.2%, according to Standard & Poor's research. In 2000, the transportation sector should achieve revenues of $464 billion. Even railways may get some growth, as CSX Corp. and Norfolk Southern Corp. have largely worked through problems stemming from their partition of Conrail Inc.'s assets, says James M. Higgins, railroad analyst for Donaldson, Lufkin & Jenrette Inc. The recently proposed merger of Burlington Northern Santa Fe Corp. and Canadian National Railway Co., though, creates new uncertainty that could cloud the outlook for the entire industry next year, Higgins says. But the big winners will be companies that can take full advantage of the opportunities offered by the new economy. Look for United Parcel Service and the U.S. Postal Service to profit as e-commerce expands. UPS, flush with cash from its record-breaking initial public offering and armed with a solid stock for takeovers, is likely to make a major acquisition in 2000. "We're a 92-year-old company that's reinvented itself several times, and we're doing it again," says James P. Kelly, CEO of UPS. Analysts expect Federal Express to have some problems, though, because of increasing fuel costs and declining "envelope" volumes as many documents that might once have been shipped overnight are now sent via e-mail. FUEL CRUNCH. So-called less-than-truckload (LTL) carriers--who move shipments that don't fill an entire semi-trailer--should benefit as more producers shift to just-in-time manufacturing. "The companies that have been successful over the last couple of years have become lighter on their feet and more customer-focused," says Bill Zollars, CEO of Yellow Corp., a Kansas-based LTL carrier. Potential problems for truckers--both LTL and full-load carriers--are increasing fuel costs and the difficulty of keeping drivers. Because of high driver turnover, trucking companies have to pay more and add new benefits, such as Internet access and cable-TV hookups at truck stops, a new truck every three years, full medical benefits, and even stock options. "I would say there's going to be a crunch on profit margins," says Bob Costello, an economist with the American Trucking Assn. Nonetheless, revenues and profits will likely be on the rise--at least for those who know how to use the Internet to generate freight traffic on roads and railways. Return to top | |
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  Return to top TABLE Positives and Negatives POSITIVES -- Growth in e-commerce should boost demand for truckers and express carriers that deliver directly to consumers. -- Recovery in Asia will increase global trade, which would lift shipping volumes. NEGATIVES -- E-business and just-in-time manufacturing can mean smaller quantities are shipped--a potential blow to railroads and large-shipment truckers. -- Expect a drop in shipping in first quarter as companies work off Y2K-related inventory buildup. Return to top |
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