Truckload carrier Priority Transportation was forced to close its doors are a result of pressures from rising operational costs caused in large part to substantial fuel increases, weak truckload freight demand, and an ever tightening credit market. Trucking operations in New York and Indiana will be phased out as the company shuts down. In addition to truckload services, the freight company offers less-than-load (LTL) and freight brokerage services.

In 2006, Priority pulled in over $250 million in revenue, which at the time ranked the company in the top 100 list of the largest freight carriers in the United States. The company ran over 1000 tractors, over 2000 dry-van trailers, and over 500 reefer trailers at its peak. The freight company’s coverage was virtually the entire United States.

In closing its operations, Priority entered into an agreement with Celadon Group, based in Indiana that will help Priority wind down operations and help to ensure that current customers are not left in the lurch with respect to service. Celadon will cover some of Priority’s loads and assist in the collection of accounts receivable. Celandon’s deal is much like the workout arrangements made between other larger carriers with smaller operations that were forced to close.

Freight shippers and truckload shippers who relied on Priority for good shipping rates will now be forced to obtain their freight quote elsewhere. Many will need to turn to freight brokers in order to obtain the best shipping rates and cheap shipping options. Once again, the industry is consolidating because of weakness in the economy and higher freight shipping costs.

Freight carriers Old Dominion Freight Line and Con-Way Freight reported their second quarter results last week. While not better than expected, the earnings reports show that these companies, unlike some of their competitors, will remain solvent and strong throughout the current economic slowdown.

Old Dominion’s revenue increased over 15% during the first six months of 2008, from approximately $785.0 million from $670.0 million for the same period in 2007. Net income, however, decreased, with per share earnings of $0.92 per share versus $0.97 per share.

Key results include an increase in tonnage of over 10%, which was above company expectations. Revenue per hundredweight increased over 5%, mostly as a result of higher fuel surcharges. Importantly for freight shippers, Old Dominion’s cargo claims ratio decreased as a percentage of revenue, to the best level in company history.

Old Dominion executive’s comment that the freight carrier’s growth in tonnage shows that the company’s efforts to improve customer value are working. They feel the company is points to do better than the rest of the LTL freight carriers in terms of revenue and tonnage growth averages, and operating ratios.

Con-Way Freight also reported its second quarter results last week. Earnings per share decreased from $0.99 per share for 2007 to $0.98 per share for 2008. Con-Way’s less-than-truckload (LTL) unit posted good revenue gains and operating ratio improvements. The company gained market share as a result of its marketing activities, which included advertising in mainstream publications such as the USA Today newspaper. The company also began to see a stabilization in LTL pricing, which is expected to continue into the next quarter.

Con-Way Freight’s truckload sector reported a decline, attributable to the weak economy. Management sees opportunities down the road, however, as many truckload freight carriers have gone out of business and thus capacity has been reduced. When and if the economy turns around and demand returns, prices and margins should improve steadily.

Freight shippers of all kinds are well aware that their shipping rates are going through the roof.  Fuel surcharges are continually on the rise, and there seems to be no end in sight. Whether a person is shipping LTL, Truckload (TL), rail, or ocean freight, everybody is getting hit by higher fuel costs.  For a while, businesses tried to hold off passing on those costs to their customers, but they can’t do that any longer because the fuel costs are just too high.

And now, “official” confirmation that logistics and freight costs are out of hand.  According to a recent National Logistics Report, US companies spent over $1.3 trillion in freight and logistics spending during 2007. This accounted for over 10% of the US GDP.  This is a significant increase from 2006, where the figure was around 9.8%. 

Broken down into groupings, freight trucking (over the road motor carriage) constituted approximately $670 billion of this total, and almost 80% of the total transport costs. For typical freight shippers, LTL freight and Truckload freight company costs rose over 6% from 2006 to 2007. Other modes, such as intermodal, rail, and ocean freight saw increased costs of almost 7%.

The economic pressures affecting freight shipping do not appear to be changing over the near term. Fuel prices for diesel will likely continue to climb. What this means for freight shippers is that they need to discover new strategies to reduce freight rates and shipping costs. Optimum strategies include securing freight quotes from larger freight pools, such as those operated by Freightclick.com. 

Freight shippers need to be aware of what obligations they are assuming when they move freight using a freight bill of lading. Today, hundreds of shippers enter into contracts where they do not know the responsibilities and obligations they are taking on.

The main reason for this is because most of these loads involve only a bill of lading. Many times, this bill of lading comes from the carrier and the shipper just pulls one out and uses it when it comes time to ship. The freight shippers signs the bill of lading and the carrier hauls the freight.

Beware of these bills of ladings, because many times freight shippers can be caught agreeing to terms they don’t know about. For example, on freight shipping manager used a carriers bill of lading that referenced terms in another agreement which stated that, if freight bills were not paid in a timely manner, all the discounts would be waived for ALL SHIPMENTS with freight bills outstanding. This resulted in the shipper being charged an extra $26,000 for their shipments!

After deregulation, there is no government agency watching LTL and full truckload freight shipping. So make sure you know what you are agreeing to when you sign your carrier’s bill of lading.

FreightClick.com has joined the fight to help victims of the Myanmar cyclone.  For the next several weeks, the company is offering discounts off LTL (less-than-load) freight and Truckload freight services for customers shipping supplies destined for the victims of the Myanmar cyclone.

FreightClick’s customers can use the company’s on-line rating system to obtain freight quotes and rate shop between different leading LTL and Truckload freight companies and carriers. When notified that the shipment contains emergency relief supplies for Myanmar, customers will receive a reduced rate on their freight shipping.  The discounts apply to domestic shipments that are consigned to ports for ultimate transportation to Myanmar cyclone victims.

“We all need to try and help people in need,” explains FreightClick CEO Justin Lubin. “The discounts should help folks who are looking to do something positive.  Shippers simply need to contact us to get an LTL or Truckload freight quote. We will help them the best freight shipping solution for their load, and prepare all the required documentation. The ultimate goal is to help get critical supplies to the people in Myanmar who need them the most.”

FreightClick’s decision to help the victims of the Myanmar cyclone is just another example of American business working hard to help others.  Discounted freight shipping is especially helpful in light of the recent surge in shipping prices as a result of the record high oil prices. 

Unknown to most freight shippers is the freight futures market where companies can hedge against increases in freight rates. Analysts report that the activity on the Baltic Exchange’s Index (Dry) shows that investors and hedge funds are running to participate in these once obscure markets.

Ronald Willins, analyst of the FIS Freight Services, reports that “The freight futures derivatives market should continue to grow larger than the underlying freight market. Financial players want to exploit and profit from the growth of Asian markets, even in spite of America’s slowdown.”

The impact on domestic freight shippers could be felt as speculators on the freight futures derivatives markets could push pricing up for ocean freight, with a possible spillover into domestic LTL and Truckload freight rates.

Not all Carriers are being hurt by surging fuel prices. Burlington Northern Santa Fe, one of the largest railroad freight carriers in North America, announced that its first quarter net income substantially improved by 30%.

The details show that much of this financial improvement came as a result of the company’s ability to collect an extra $275 million in fuel surcharges from freight shippers who use the railway.

The results show that the rail carrier was, really, benefiting from the rise in fuel prices. Commentators note that companies that engage in freight shipping, LTL, Truckload, or rail, should note that fuel surcharges are not merely “cost pass-throughs”, but may also be profit centers for carriers.

This is because methods of determining fuel surcharges factor in variables other than just the price of fuel.  This means that a small increase in the actual cost of fuel can end up as a significantly greater boost in the “fuel surcharges” tacked on by carriers.

When navigating the pricing maze, freight shippers need to be be sure the freight quote they receive is an all-in price, including any fuel surcharges.  This way, shippers can avoid nasty surprises when the bill comes.

There are many different opinions on how involved the government should become in the freight shipping industry and transportation in the United States. First, there are tax issues. In its most recent report, The National Surface Transportation Policy and Revenue Student Commission, comprised of logistics industry figureheads, proposed a fuel tax increase to help support funding for interstate infrastructure.  The Bush administration is very much against any sort of tax hike.

Current administration officials explain that freight haulers need to use the current infrastructure more wisely; for example, spacing out volume by providing incentives for hauling freight during the night. The bottom line, the jury is out on tax increases, and any potential electoral candidate who supports them is risking quite a bit.

Government agencies are also focusing on truck safety. In doing so, they are paying attention to using new technologies to make sure truckers comply with rules. This regulation could further lessen the supply of freight which could come back to haunt us as we pull out of the recession and find lots of demand and a shrunken freight supply.

Stock market analysts lowered revenue and profit expectations for major domestic LTL freight cariers, including freight companies YRC Worldwide and SAIA.  Carriers are being hurt by increasing fuel costs and lower demand resulting from the growing recession.

“Carriers have experienced a marked decline in freight tonnage than most of us who follow the market had thought would happen,” explains analyst George Hattron. “We predict other carriers like Old Dominion and Con-way to demonstrate some weakness as well.”

The market will be shaky for trucking and freight shipping stocks in the near future, as the economy proceeds through the looming recession. Demand for freight will likely continue to be weaker than it has been in past years.  Fuel price increases could spell further divergences in the freight rates that carriers demand the the freight quotes that shippers receive.

With demand for LTL freight falling in early 2008, Carriers are being a lot more competitive with rates. Freight shippers, especially larger shippers, should be able to have their rates hold for this year.  This is especially so because carriers are concerned about lesser volume.

“I believe larger shippers should have more leverage in this environment,” says Tim Hutson, a freight consultant. “But smaller shippers would be best to work with a freight pooling company, because the carriers are still not happy about giving good rates to lower-volume shippers. This is even more so because fuel surcharges are so high.”