Industry Outlook 2001 -- Distribution
Last summer Yellow Corp. (YELL), the No. 1 trucking outfit in the U.S., got a peek into the future of the freight industry--thanks to a youthful wizard named Harry. Scholastic Inc. needed 150,000 copies of the latest Harry Potter book shipped to stores across the country, and it needed them delivered just minutes before midnight on July 8. A late delivery would disappoint thousands of kids lined up for Harry Potter and the Goblet of Fire; conversely, if the books arrived too early, leaks about the plot twists might ruin the hoopla that Scholastic had painstakingly built up around the title's release. Only a few years ago, the assignment would have been a real stretch for a general freight hauler such as Yellow. But the Overland Park (Kan.) trucker delivered with flying colors, say Scholastic executives.
Yellow's magic, in this case, was just-in-time (JIT) inventory control. In recent years, this know-how has radiated beyond big manufacturers to the rest of the economy, helping the trucking industry--among others--to improve punctuality. Following up on last July's blast shipment for Scholastic, Yellow's Exact Express subsidiary is now logging thousands of to-the-hour deliveries every day. And the company sees demand only rising, as cost-conscious businesses grow more insistent on receiving orders precisely when they want. "The performance bar is being raised," says William D. Zollars, Yellow's chairman and chief executive--to the benefit of nearly everyone. Facing a slowing economy, transporters might have expected little or no growth in 2001. But industrywide revenues should grow by a healthy 3.2% in 2001, to more than $470 billion, according to forecasts from Standard & Poor's Corp.DRIVER SHORTAGE. Indeed, Corporate America's rush to minimize inventories is keeping the nation's freight companies rolling faster than ever, effectively turning their fleets into warehouses on the go. Traditional trucking companies such as Yellow and Roadway Express Inc. (ROAD) are pushing into realms once controlled by overnight shipping companies. Air-freight giant FedEx (FDX) is getting competition for same-day deliveries from United Airlines (UAL) and American Airlines (AMR). Even slowpoke railroads are getting into the act. Burlington Northern Santa Fe Corp. (BNI) now guarantees on-time deliveries or your money back. "More and more commerce is squeezing into smaller packages with more frequent deliveries," notes William J. Rennicke, a vice-president at Mercer Management Consulting Inc.
Encouraging as the spread of JIT management techniques may be, other factors will keep the transport sector's growth grounded. Across the industry, freight companies are struggling with sky-high fuel costs, while a rippling economic slowdown is cutting into orders. Meantime, the nation's major railroads are still fighting to win back business they lost when they let service erode as they engineered a series of huge mergers in the late 1990s. And on the highway, long-distance trucking companies are wrestling with a driver shortage that shows little sign of easing. "All in all, it will be a challenging year," predicts Samuel K. Skinner, CEO of USFreightways Corp. (USFC)
But barring an outright recession, 2001 still will be profitable for transportation companies, according to industry analysts. Merrill Lynch & Co. forecasts that earnings will be higher for all but a handful of second-tier trucking companies. One big reason is that the major trucking firms have been able to pass along the higher costs to customers through fuel surcharges.
But more than anything, the cost-cutting potential of the Internet is underpinning a generally upbeat mood within the industry. Linked by the Web from one end of their business to the other, freight companies and their customers now can better manage supply-chain flows, cutting costs by reducing unnecessary inventories. For freight haulers facing a slackening economy in 2001, it's a business boost--just in time.By Michael Arndt in ChicagoReturn to top