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Pearl Harbor Portfolio Day 18:

Merry Christmas and a Silent Night for Arrow Trucking

Dec. 25,2009

Last week’s Quadruple witching day for  re-balancing stocks in the current indies,the Dow Jones Index is set to close on the high for the year. YRC Worldwide, who were dropped from the Dow Jones Index earlier this month are still renegotiating their near $537 million debt for equity swap to ensure the company’s continued survival.  YRC is a major player delivering individual freight to small and medium sized companies who cannot order a full truck load of freight.   They serve LTL, (less than truck load ) market, usually delivering 1-2 pallets of freight to customers.  The LTL freight rate charges are higher to their customers than a Full Truck Load carrier.   Theoretically LTL freight companies, like YRC,  should have higher profit margins.

However, YRC has been bleeding money due to the poor economy.   YRC has unionized drivers, most are paid and hourly rate and a combination of mileage plus delivery charges.  YRC union, the International Brotherhood of Teamsters, has given concessions, but the  small and medium sized customers of YRC  have not be able to have reliable lines of credit for operations. Therefore, YRC has continuing high overhead while suffering from the slowing economy.

The same thing happened to the UAW workers, who gave concessions to automakers, but the small auto part suppliers were not given a reliable lines  of credit to continue with operations, many have gone out of business.  The American consumer has demanded lower prices, and the best way for companies to cut prices is to use non-unionized transportation companies.  Unionized companies cannot make money competing in a non-unionized world due to their higher legacy costs and benefits.

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This should be a sign for the Obama Administration, that small and medium sizes businesses are till suffering.   The credit crisis is still alive, despite the Stock Market making year end highs.

Trucking serves as a barometer of the U.S. economy, representing nearly 69 percent of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. Non-unionized Trucking firms operate on low margins, several hundred companies exit the business each year.  In 2008, blindsided by higher fuel prices and the in-ability to recoup  fuel surcharges on freight, a whopping 3,065 trucking companies with five or more drivers went under. Currently the  trucking industry has lost 1,255 companies through the third quarter and will likely go higher just after the first of the year.   Trucking is a cyclical business with freight slow during the first quarter of 2010.

Economy  Kept Alive By Trucker’s Sacrifice

Non-unionized trucking companies have the majority of trucks on the road.  The non-unionized companies which survive in 2010, their drivers will be overworked and under paid even in a slowing economy.   There will always be a need for food and fuel, no matter how bad the economy failing.  ONE FACT:  95% of all the truck drivers currently on the road,  have less than 5 years driving experience.  According to the American Trucking Association, which started collecting data on driver turnover rates in 1995 and reported the 127% annualized rate for the first 3 months of 2007. The 6 percent increase from the last three months of 2006 showed the trucking industry ended the quarter with 1.8 percent fewer drivers than in the beginning.

Here is one of the reasons why trucking has a high turnover rate.

Non-unionized drivers are overworked and underpaid for the hours of service they provide their companies.  The Federal Government has imposed rules for safety, however the rules cost the drivers money not the company. Federal law states that a driver cannot be on duty, (loading/unloading) and driving more than 60 hrs per 7 days.   Once the driver begins work, he cannot stop his work time, and the maximum hours worked per day is limited to 14 hours in a 24 hr period.  So,Under the current guidelines, a driver who delivers in the morning at 6 am has a maximum work day ending at 8pm that night.   Then he has to go to the sleeper berth for 10 consecutive hours.

The problem arises when a driver does not have another load until 3-6 or 9 hrs  hours later. (6am to 8pm = 14hrs)  During a slow economy, a trucker may have to wait up to 24 hrs hrs for another load.  If a trucker does get a load, it may be later that day.  For example , at noontime, he has lost 6 hrs of pay for that day.  The average pay for drivers is between $18-20 per hour while driving.  If a Non-unionized driver is not driving, he is not getting paid.  So you can see this has a significant impact on his weekly paycheck!  There is no other industry in America, where you are required to show up to work, and give the company 3,4, or 6 hrs, or more  of  time and not be compensated for it!   Truckers that work for non-unionized companies have been helping consumers keep prices low, while sacrificing their own pay to keep a job. see chart below

“Consuming Nation”

Everything you buy at a store is shipped on a truck and most people are completely oblivious to that fact.

The Unionized trucking companies such as the newly merged Yellow/Roadway, will begin failing just at the banks have.  Unionized Trucking Companies have tremendous overhead from unfunded mandates and pension plans. The first signs of trucking trouble last year was with Yellow /Roadway trucking company.   Wall Street saw it as the “last merger” to benefit the big investment bankers.  The Yellow/Roadway would  benefit both  unionized companies.  Wall Street sites cost savings benefits for every merger.   I have always maintained that any and all company mergers are a warning sign for you to sell the stock!  All mergers, have had their share prices drop years after the merger has completed.  If you can find one merger in the last 10 years, whose company stock did not decline by more than 50% after the merger,  please bring it to my attention. As with the case of Yellow and Roadway merger being completed this year, those who headed my warning about selling early should be smiling.

Unionized VS. Non-Unionized

The current political climate is right for more unionized companies like Yellow/Roadway to have serious clout in the White House.  I expect more pressure to be placed on non-unionize companies as times begin to get tougher for truckers.   The non-unionized companies have kept transportation cost down for the consumer, lowering prices at the retail level.  Unionized trucking companies will increase the cost to the shippers and consumers.

The main contention between the unionized truckers and non-unionized truckers goes back to the last great Teamster strike and the disappearance of Jimmy Hoffa in the mid 70’s.  During the 70’s, the The Teamsters  controlled the majority of drivers for manufacturing and production in the economy with over 500k members.  Today, they have less members, but their political influence is still strong.  The Teamsters are the 11th largest contributor to the United States Election Campaign fund, with 92% of their 24 million dollars going to the Democratic party.  During the credit restructuring  and merger, YRC  received substantial credit assistance, leading non unionized trucking companies to cry foul.

Meanwhile Arrow Trucking of Tulsa Oklahoma, a non-unionized company, have sent their workers and drivers  home and suspended operations.  Many of their drivers have not been paid over the last 2 weeks, and the checks they did receive, bounced.   Maybe leaving their drivers stranded was not their intention, but without a line of credit to fuel the trucks, the Arrow Trucking  may not not had a choice.  If Arrow Trucking would had  similar unionized political clout as YRC, maybe they would still be in business.   The  failure of Arrow Trucking, with some 1,400 flatbed trucks and 2,600 trailers operating throughout the US,  will create ripples throughout the trucking industry. Non-unionized  company drivers should take heed of the current events affecting Arrow Trucking. The message  from the White House Administration is clear, if you are unionized you will be protected.  If you are not unionized, then may find yourself out in the cold in one Silent night!

Remember, non unionized drivers are being paid for miles driving, not for sitting, so as non-unionized companies struggle to find lines of credit and freight in a slowing economy, more drivers will be joining the unemployment line in 2010!

Meanwhile Congress Bails out Fannie and Freddie Again!

• Fannie And Freddie Receive Unlimited Future Funds To Stay Afloat (huffingtonpost.com)
• Arrow Trucking Strands Drivers During Layoff – ABC News (abcnews.go.com)
• YRC Shares Sink After Debt Exchange (abcnews.go.com)

Technorati Tags: Add new tag, business, Dow Jones Industrial Average, Economy of the United States, Federal government of the United States, Jimmy Hoffa, Transportation and Logistics, Trucking, United States

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1. Pearl Harbor Portfolio: Day 9

Said in May 2006….”

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The stage is set, for most Americans the collapse will be felt in their retirement accounts and 401(k). The next level of pain will be their home valuations, and lastly the cost of food and energy. It will be up to you to take the necessary steps to preserve your wealth by using protective stops and put options if you own individual stocks.

MarketWatch.com

By John Letzing,

SAN FRANCISCO (MarketWatch) — Cleveland-based AmTrust Bank, with 66 branches and roughly $8 billion in deposits, was closed by regulators Friday, as the ongoing credit crunch continued to claim victims.

Three smaller banks in Georgia, an Illinois-based bank and a Virginia bank were also shuttered, bringing the 2009 total to 130.

The three Georgia-based bank failures bring that state’s total this year to 24.

Flash back in time since April 2009… when only 23 banks had failed!

Huffington Post

2 more banks fail, lifting this year’s tally to 23

Apr 10, 2009 … This year’s tally of 23 bank failures is nearing the total for all of … to 25 for this year and 50 since start of 2008 for the failed banks…

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Three Questions to ask yourself if you are in your 20’s and want to save for Retirement.

1. If money were no object, what would you do with your time?
2. Are you frugal?
3. Are you interested in having children?

The Simple answer is….

Just worry about the saving for now – don’t sweat the details.

Many people get overly wrought about making sure that their money is in the “perfect” investment. To put it simply, your investment choice is secondary – by a long shot – to simply saving your money as soon as possible and as much as possible. Start saving now. If you don’t know what to invest in, just ask for suggestions from the representative there. Since it’s a tax-deferred retirement account, you can make investment changes later on without any tax issues.

Doctrader says: The most import aspects of long term planing is learning there are market cycles. If you can identify the market cycles, you will be miles ahead in your investment choices!  During bull markets, you should have your money invested in high growth areas of the market through an index fund.  When the bull market begins to wane, you should move your long term investments to a money market position or a  cash position.    If you chose a “stable fund” alternative to cash, you run the risk of losing money due to inflation or hidden land mines within a “stable fund”.

Stable funds usually are guaranteed by an insurance companies.  Insurance companies are subjected to the 7 deadly sins of investing.

These are:

• regulation
• investigation
• litigation
• arbitration
• capitalization
• Taxation
• politicization

These 7 deadly sins of investing will impact your future retirement.   If you are serious about your future, your best option is to “create a product or service” which can launch your career into a small business.  After all, our founding fathers were small businesses.  In  fact, most of new jobs created today and in the future will belong to small businesses.

My suggestion, turn your passion into a profitable small business!

doctrader

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DES MOINES, Iowa – Another major provider of 401(k) accounts says the typical retirement saver now has more money in their account than they did before the stock market began tumbling two years ago. The Vanguard Group Inc. said …

Younger workers with smaller balances caught up the quickest. Nine in 10 participants under age 25 were flat or were ahead of their balance two years ago. About eight in 10 workers in their mid-20s to mid-30s had recovered to 2007 levels.  However, just half of the participants in their 50s and 60s have recovered or gained slightly while half have not.  This was based on Vanguard’s selectively picking  participant balances between September 2007 and September 2009.   I want to know the total return of all their assets from 2000 to present! Given most 401k plans are for long term results, not just a short two year stint.  The overall stock market is up just under 60%, while the markets are still down from their previous highs of 2007 by 25%!   Since “Joe Six Pack” is not versed in the the way Wall Street uses numbers to lie, what will happen to the 60% gain “on paper” to his 401k plan when the market returns to new lows?

Financial News – http://finance.blogrange.com/

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by

Dave Seitter

For calendar-year plans, this PPA amendment deadline is December 31, 2009. (Governmental plans have an additional two years, and certain collectively bargained plans may enjoy an extension, as well.) As reported in our August 2009 article, tax-qualified retirement plans must be amended by the end of the 2009 plan year to reflect the mandatory changes enacted as part of the 2006 Pension Protection Act (“PPA”). … Modified assumptions

for converting annuities into lump-sum payments (even small, lump-sum cashouts); Benefit restrictions based on a plan’s funding status; Expansion of the direct rollover rules (e.g., allowing such rollovers to Roth IRAs, of after-tax …

The consequences of missing any of these amendment deadlines could be quite severe. The plan would lose its tax-qualified status. We therefore strongly recommend that retirement plan sponsors review the terms of their plans to ensure that all PPA-related and discretionary changes have been reflected in appropriate plan amendments. Due to the number and variety of PPA changes, this will not be a simple task.

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