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Transportation


Industry Outlook 1999 -- DISTRIBUTION

Transportation

While railroads and truckers had more business than they could comfortably handle last year, customers could be back in the driver's seat in 1999. Slowing economic growth, rising competition in some sectors, and efforts to smooth out last year's service problems should give some customers more leverage.

In the rail business, mergers continue to dominate the agenda. Union Pacific Corp., the nation's largest railroad, should return to profitability for the year as it fixes the traffic snarls stemming from its 1996 acquisition of Southern Pacific. Chief Executive Richard K. Davidson figures the company lost business worth $600 million and some $400 million in potential new contracts because of its problems in the past year and a half. Now it's scrambling to win that business back. "We're not expecting huge price increases [in '99]. What we've got to do first is to re-earn our customers' respect," says Davidson, who has pushed more responsibility to regional managers, who are closer to customers.

With Union Pacific's problems fresh in their minds, CSX Corp. and Norfolk Southern Corp. are treading carefully as they plan to divide up Conrail in the first quarter. Railroad analysts fear that any problems with these mergers, approved by federal regulators in 1998, could prompt costly re-regulation of the industry.

Merrill Lynch & Co. analyst Michael H. Lloyd predicts that the five biggest U.S. railroads, including Conrail, will see revenue growth of 4.4% this year, vs. 0.4% in '98. But that's because of Union Pacific's rebound. Without UP, growth would slow to 2.9%, from 3.5% in '98.JUST IN TIME. Trucking companies are also expected to see a slowdown from the robust growth rates of the past few years. But they will still post solid gains, thanks to a growing demand for just-in-time deliveries. Lower fuel prices and rate increases should boost the bottom line, though a continuing scarcity of drivers will push up labor costs.

Truckload carriers, which carry freight on a truck for one customer, will post earnings and revenue gains of about 10%, compared with 15% in '98, predicts analyst Douglas W. Rockel of ING Baring Furman Selz. Nonunion less-than-truckload (LTL) carriers, which consolidate freight for multiple shippers on their trucks, will see strong gains, too, possibly matching last year's 10% growth. And after being hurt by a strike threat in early 1998, unionized LTL carriers should rebound.

Industry giants Federal Express Corp. and United Parcel Service of America Inc. are facing a lot more competition from these smaller companies. But FedEx and UPS should still see gains, thanks in part to the shipping boom sparked by the rise of Internet shopping. There's a development that helps both customers and their shipping companies.By Wendy Zellner in DallasReturn to top

TABLE

Positives and Negatives

POSITIVES

-- Some truckers are win-ning back business lost to a strike threat in 1998, and shipping rates are rising

-- Low fuel costs continue to boost all sectors

-- Union Pacific's service recovery should gain speedNEGATIVES

-- The breakup of Conrail could cause rail service problems in the East

-- Regulatory tinkering could pinch rail profits

-- Driver shortages plague trucking firms, leading to wage hikes of 3% or moreReturn to top


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