Image via Wikipedia

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.

Image via Wikipedia

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

Bookmark It

Hide Sites

Related posts:

1. Pearl Harbor Portfolio: Day 9