wars and rumors of wars... or is it bankruptcies?

[the48thronin]

I am watching transport and freight because I am closer to that than other aspects of the on going collapse of the global system. As almost every reader here know already knows the freight volumes both world wide on ships and nationally on rail and truck are still shrinking no matter how they might try to claim they are not.

3 days before Christmas a 1400 truck special hauler ( flat beds, removable neck trailer for over dimensional loads and drop decks) went out of business in a flaming collapse that stranded 1400 drivers. As an industry truckers turned and helped their fellow get home and hoped they would find work somewhere else.

Monday of this week on an overnight radio show that caters to drivers a caller claimed he had been notified his company ( where he had worked 7 years) was going to shut the doors the last day of January. He asked other drivers to let him know who might be hiring drivers still after the glut of arrow drivers that are still being re absorbed by the industry. There is no official word of this yet, but if that company closes, it will have a tremendous impact on some distribution of some products. That company is also in the flat bed drop deck etc business. Those trucking companies in that line have been hit the hardest by the cancellation of construction projects . Unlike myself they have little work tearing down or closing businesses, their thrust has to be new construction and remodel work which is DEAD at the moment . These companies are over a year away from their last profitable quarter. They will begin to fall off the cliff now.

The first quarter of the year has always seen some attrition in the trucking industry. The loss of produce in Florida due to the prolonged cold spell, and the continued depression in construction will now play out with a vengeance.

The commercial real estate bust is upon us, but more importantly the transportation infrastructure is at or close to the breaking point. Just my opinion.

[redstategreen]

Thanks for the heads-up.

What do you think needs to change to make these companies profitable? It seems that trucking is a very needed service, it should be making all kinds of money.

[FoolYap]

The commercial real estate bust is upon us, but more importantly the transportation infrastructure is at or close to the breaking point. Just my opinion.

Dumb question: If shipped volumes are still declining, then I'm not sure I see how shippers going belly-up means that the transportation infrastructure is in danger? I mean, I understand the human impact on those losing jobs, and I hate this, and I understand the ripple effect that job-losses can have on the economy.

But in terms of shipping-what-is-needed-to-where-it's-needed, isn't this just a case of supply (number of shippers) adjusting to meet demand (goods needing to be shipped)? Doesn't this leave the survivor companies in a stronger position?

--Steve

[strider3700]

Technically in the long run you're probably correct the survivors will be better off. Up here in BC however the logging industry has been in this downward spiral for awhile now. The issue we're seeing is everyone is will to take a hit to keep going as long as possible. Eventually even the guys on good financial ground are being seriously hurt by the competition. Everyone is taking huge losses just to stay running or they shut down and take losses on equipment/plants sitting idle. When/if we ever hit bottom there is no guarantee any of the original players will be in positions to start back up again and there is no guarantee that the market will be able/willing to pay a price that the businesses will make a profit again.

Some races to the bottom are a 1 way drop.

[FoolYap]

Some races to the bottom are a 1 way drop.

Yeah, I can believe it. It just seems a little early to call that for the trucking industry?

I'm not sure if there any normal businesses not being squeezed hard now? Excepting the banks, which seem to have figured out how to have their cake, eat it, and have someone else pay for both the cake and their "effort" spent eating it.

--Steve

[Jack]

Dumb question: If shipped volumes are still declining, then I'm not sure I see how shippers going belly-up means that the transportation infrastructure is in danger?

If I may be permitted a speculation...

Yes, the weaker players will be driven out of business and the stronger will (ultimately) survive. But if overall capacity declines, then it will create a constraint (a bottleneck) in the future. Should the economy expand, then lack of capacity will be an impediment to that expansion.

There is another issue. In the case of an emergency, large capacity permits moving a lot of cargo. Less capacity seems to imply less flexibility in responding to any sort of emergency.

Third, when the capacity has been trimmed, rates are likely to increase. This may suggest that transportation costs for everything will increase. That, in turn, could change the availability of a variety of different goods.

But perhaps Ronin could refine my understanding of the matter?

[patience]

Jack, I think you're right over the long term, that the system will downsize to meet the demand. It is getting from here to there that is gonna suck. Shortages, out-of-stock items, longer lead times for catalog orders, cancelled orders, and lots of price increases for several reasons. And, it could hit a tipping point and cause pure havoc.

[the48thronin]

Dumb question: If shipped volumes are still declining, then I'm not sure I see how shippers going belly-up means that the transportation infrastructure is in danger?

If I may be permitted a speculation...

Yes, the weaker players will be driven out of business and the stronger will (ultimately) survive. But if overall capacity declines, then it will create a constraint (a bottleneck) in the future. Should the economy expand, then lack of capacity will be an impediment to that expansion.

There is another issue. In the case of an emergency, large capacity permits moving a lot of cargo. Less capacity seems to imply less flexibility in responding to any sort of emergency.

Third, when the capacity has been trimmed, rates are likely to increase. This may suggest that transportation costs for everything will increase. That, in turn, could change the availability of a variety of different goods.

But perhaps Ronin could refine my understanding of the matter?

The industry is still shrinking, Yes there is over capacity. Loss of the weaker players will help the survivors, but those survivors are also weakened by the effort to survive. As an example Mary and I are prepared for years to continue operating our present equipment just to avoid the pressure of the debt needed to purchase newer better equipment.

Take that prevention or caution and project it across the industry, and you have major manufacturers going out of business because of falling sales. I discussed this aspect on mypersonal blog.

The difficulty is in the interconnected complexity of our countries ( and the worlds) transportation needs. Back where the Soviet Union dissolved due to spending itself into oblivion, there were many mentions of the fact that Stalin had set factory systems up that decreed that parts were made in one place and assembled in others. Many of the economic systems crossed several internal borders and everyone was shocked thinking nothing would be able to survive the break up due to the separation that would result in denying complete industries from the connections and transport they were used to.
In our world as we now know it, we face the same problems. From the refineries that produce chemicals and parts and energy supplies, to the manufacturer who assembles parts made at great and small distances, to the grocery that sells food from all corners of the world, our society depends on transport.
That transport depends on a system of provision for fuels and parts, and manufacturing for tools (vehicles). The entire chain is interdependent, and in fact very permeated with JIT (no warehoused supplies) supply chains that themselves use the transit time and transit volume as regulation of supply the way last centuries storekeeper used the back stock room to overcome delivery delay time from order to receive.

My statement that in every big city, the civil populace is 9 meals form anarchy describes the effect of the stoppage of transport on a city. The effect of a shortage of supply will come on small at first as missing items, but at some point, the missing items will cause even more shortage of transport which will become a self feeding crisis.

The thinning of the herd we are experiencing now due to the credit crisis is eliminating operators of all sizes of companies that have used credit to provide the backing to their operation. There are operators who do not use credit. The non credit operators have survived the low prices offered by those who thought their credit backed operations could survive by constant expansion.. but at some cost to their economic well being and a diminished ability to actually expand if expansion should become necessary or to continue in operation beyond the limits of their present equipment.

The first new truck I bought cost $13,000 The last truck I bough cost me 35,000 used. The last new truck I bought cost $130,000. To replace this truck with a new one will cost me $145,000.

The first gallon of diesel fuel I put in a truck fuel tank cost me $.18 today I paid $2.89.

The first load of freight I ever hauled paid $1.47 for every mile traveled, the load I have in my trailer now pays $1.45 for every mile.

Independent truckers went on strike in 1973 because fuel went from $.25 a gallon to $.43 a gallon and the government mandated a 10 percent fuel surcharge ( 14 cents a mile) that expired 10 years later. Today I am making $.31 a mile fuel surcharge.

If trucking is to survive, freight will at todays prices have to go to some figure that results in the truck making $2 a mile unless some major cost is lowered. Failing to raise the rate to $2 means no possibility of replacing the old truck with a new one except for the big companies that get millions of dollars worth of "grants" from states and federal sources in the spurious name of green or clean trucking.

The tipping point will happen when disrupted supply chain failure leads to corporate failure. One rumor floating now involves the in house distribution carrier for a large retail chain going out of business at the end of this month. The question then becomes how can that retail chain survive with suddenly increased prices or with faltering distribution. At some point I believe before summer this question will be answered. As I said last year to someone on that other site "enjoy your summer" I meant then and still believe that before this summer there will be changes in the American JIT dependent retail systems.

[bing]

48th, (this is merely conversational) a lady at work whose husband is an OTR truck driver said that the reason the 1400 truck firm collapsed was because of mismanagement and internal theft and that there is no problem finding someone to take their place. (just a different opinion, I'm with what you said).

[the48thronin]

The 1400 truck company ARROW was in fact mismanaged. They had a gross income of 1.4 BILLION dollars. They were a typical family corporation structure. The husband and wife who built the company from a one truck operation owned a holding company that owned 51 percent of every subsidiary. One subsidiary was the trucking company, Another was the Arizona insurance company that they were insured by. For several years even befor the founder died they started shorting the necessary set aside of capitol to back the insurance subsidiary, and 3 years ago the founder died in a plane crash.

The wife was owner of the holding company, as such she controlled 51 percent of all the subsidiaries.

The children a son and a daughter were typical first gen rich kids. spoiled, used to getting anything they wanted, and educated ( supposedly) in business management. The wife married another country club set man, who did not take the wifes business and run it because he didn't want to get between his new wife and her kids who would inherit anyway.

The kids had the modern management theory down pat, grow 20 percent a year and live on credit. Take all the assets you want because you can grow yourself out f debt by increasing the debt for more growth. ( look at YRC to see the same thing writ large, or go over to banking and see it writ even larger.) As long as the 20% growth was accomplished no one needed to look at the bottom line too close. POOF a crash... POOF all the raided escrow accounts could not be hidden, the insurance underfunding came to light when a drunk truck driver killed someone and a settlement was reached that could not be paid by the insurance subsidiary nor covered by personal wealth tied up in real estate that had dwindling values.

Mis managed.. you bet, and criminally so. The tax debt will be 14 million or more from missing quarterly deposits, another million or two for payroll deductions for court ordered payment and tax liens of employees, and a few million more for the state of Arizona for fines for the lax self insurance subsidiary funding.. Then there is the agreed to settlement to the drunk drivers victims family.

All that is true, none of it would have been a problem had they continued to grow 20% year over year as they projected when they started spending money.

Non of that story affects my point about the rest of jit and the crisis in the transportation industry, it serves only to point out the compounding problems faced by myriads of new management system thinkers when growth stops. When credit is denied that was anticipated, when real estate values do not accrue but shrink.

In the ultimate collapse of many companies in the next few months stories of raided trust funds and escrows, rampant over spending to achieve semblance of status thinking that will guarantee credit and entrance into the country club set etc will come out. None of the stories about the trappings of failure will mean much to those people unable to get fuel or food.
The interdependence of the system on credit and projected growth is the weapon that will bring about the death of the system, the actual trigger event may be something few notice while it is happening, Myself I believe the trigger past when we allowed the first frantic "save the system now" bail out!

[the48thronin]

a comment on easily replaced.

1400 tractors, one month later 30 percent of them still unaccounted for ( I called the state police in Va last Sunday on one that was driving around the back of truck stop parking lots looking for a dropped trailer of any kind to steal.) ( anther fast growing problem trailer theft including loaded trailers)

3500 trailers over half of which are unaccounted for ( this number is arrow trailers only)
800 loads of freight ranging from heavy equipment to lumber still undelivered most of which is missing.

The customers damaged by lost, diverted, stolen, or just late delivery have no recourse other than their own insurance possibly. Ripples of smaller economic woes still spreading including both damaged customers and suppliers, and drivers families.
Lawsuits from banks, creditors, suppliers the ripples spread......

[bing]

wow, thanks for going to the trouble to reply....will print out and forward...

the Walmart manager lady who is my sons' girlfriends mother was over last night, said WM is unbelievably dead, up until noon no one in the store, then when people trickle in in the afternoon, no one is buying anything except the bare essentials.

[bing]

wow it is as you say, the del monte jars now say made in Mexico and made in China...

also noted that the old size jars (24oz) which have been replaced with 20oz jars now have a label change, "now with 20% more...." the price of course stayed the same for the smaller jar...

[patience]

I was in Harbor Freight, Pep Boys, Home Depot, and Bass Pro tonight in the Louisville area. All had more employees than customers. This is not a good sign, I think.

[patience]

the48thronin,

Our Yellow Freight driver was in today. He's a customer of ours, besides delivering to us. I asked about his company, now YRC. He says they were threatened with bankruptcy by their bondholders (so they could collect on insurance on their "bad debt") when they couldn't pay up earlier this year, but that recently they pulled a highly improbable move and and got the bondholders to agree to convert their bonds to common stock!!!!

Result is, the bondholders are now the new owners--all "money people". Driver says the Louisvilee terminal where he is headquartered, did have 91 employees, and is now down to 48. Everything cut to the bone, and the new owners are waiting for things to improve so they can (hopefully) make some money on the deal.

Makes you go "Hmmmm".

[the48thronin]

They have a payment due to the new creditors in 30 days or so.. The bond holders who were pressured to accept 25 cents of stock for each dollar of bond did not agree until one of the major banksters bought 35 million dollars of the bonds and agreed to the immediate loss for stock.. Now what did YRC get that allowed them to escape bankruptcy just before Christmas.. They got access to 160,000,000 dollars in new credit from the same bankster.. BUT another group of bonds is coming due and still no money to pay them with. Will the same banksters buy out those bond holders under threat of a "managed bankruptcy" ala GM where the bond holders were contrary to all bankruptcy laws left swinging in the wind while the government became a majority stock holder and protected the smaller stock holders from the claims of the bond holders.. Think about what shafting the bond holders first does to the stock/bond picture for investors....

Changing the subject another company bigger than the 1400 truck company that went under has begun laying drivers off by the hundreds.. They files chapter 11 several years ago and tried to modify that filing and were denied by the court.. The "rumor" has been floating from their drivers that they are shutting down the last day of this month. Today one of 200 drivers laid off from one of several terminals repeated the rumor as he was driving home to look for a new job.. IF this is true they cannot hide it much longer because that company is the exclusive in house trucking company for a large retail home improvement supply chain.

As I mentioned before when the failure of transport starts a chain of corporate failures.. the end of the system we now have is near... We will know in a week won't we..
The failure of YRC is almost certain in many opinions.. The failure of others is also almost unavoidable. Changes are happening in some small circles of the industry, but the failures I see coming wont be solved with band aid measures like the changes now being made.

[gnm]

They got access to 160,000,000 dollars in new credit from the same bankster.. BUT another group of bonds is coming due and still no money to pay them with. Will the same banksters buy out those bond holders under threat of a "managed bankruptcy" ala GM where the bond holders were contrary to all bankruptcy laws left swinging in the wind while the government became a majority stock holder and protected the smaller stock holders from the claims of the bond holders.. Think about what shafting the bond holders first does to the stock/bond picture for investors....

48th, another great backdoor way for the .gov to pump equities and reduce bond obligations - just scare all the bondholders out.

on the other - Great, guess I better go buy those building supplies now. Tell me, should I go to H--- ----- or L---- and stock up?


-G

[the48thronin]

h--- ----- might have a problem soon. Maybe at the end of this month?.. It is rumors, but the number of drivers being laid off this month is going to be phenominal.

Among my own friends, I see one major company that is canceling leases ( you don't lay off independent contractors) by the hundreds all over the country, that same trucking company starved out ( you dont have to lay off people who are paid in peice work simply give them no work and they will leave on thier own) several hundred company drivers by not having loads for them since before Christmas. Thier major contract is with a multi national retailer who has multiple fleets working for them (mostly of independent contractors) and a small very well paid in house fleet of thier own that has been shrinking for years through attrition.

I am in my trade show time of year...so far this month I have plenty of work, the shows are smaller, and more trucks are trying to get the work so prices are at the edge of the cliff. If they drop, I will start parking between good paying loads if there are any...LOL Today I am loading a medical robotics display, last year this particular show was twice as big as it is this year I think.

About independent contractors;
For years I tried to convince people not to become share croppers in this industry. I also followed my own advice becoming a paid off run on cash not credit operator. We are beginning to shed customers we have worked for for years not because they try to lower our price, but because they stopped paying in less than 3 days, or less than 14 days, or less than 30 days and are now wanting to pay in 90 or 120 days this is unacceptable to us so we simply say no.
Most so called independent contractors are not independent, and should in facvt be employees . They sign a lease on a tractor and then sign a lease to work that tractor only for one company. The leasing company that finances the tractor is usually a seperate entity from the loading company to avoid IRS investigations as to I C status. But these share croppers bcome non employee workers who have no independence and in fact almost never end up owning the truck.

Yesterday you saw in the news sams club laying off 11,000 employees that they will end up replacing with people furnished by a marketing contractor.. removing them from sams club payroll but not removing the cost of them from sams club bottom line.. anyone want to discuss why they would do this? Anyone know who owns the company the contract went to?

[the48thronin]

I just noticed New Mexico Mountains in your profile. Are you near my brother who lives near La Cueva? Used to be mountain route box 32 jemez Springs LOL

8,000 ft of altitude makes for a short short growing season. propane vehicles have problems with fuel freeze too LOL

[gnm]

I am about 60 miles from the Jemez mountains. La Cueva.... LOL theres about 10 of those in this state so I couldn't be sure if I know where that is... I'm closer to Tijeras/Manzanos...

Yep short growing season. Been damn cold this year too although not a huge amount of snow. Better than last year though. Almost 100% snow cover for the last 2 months straight. Usually we get a mud fest in between storms tho so I can't complain...

-G