5) Air Freight – After many quarters of reporting continuous downward slides, the air freight industry appears to have hit the bottom. Since December of 2008, the industry has seen five consecutive months resulting in a decline in demand by more than 20 percent. The International Air Transport Association (IATA) admits that freight levels are still at a shockingly low level, but the consecutive months of similar decline may be an indication that the worst is behind the industry. Although freight levels for April are down 21.8 percent year over year, the corresponding May values show an improved 17.4 percent decline. All regions have seen considerable declines, with Middle Eastern carriers performing the best in April with a 3.7 percent decline and Latin American carriers showing the worst decline of 21 percent. Recent sourcing activities have reflected the decline in freight as carriers offered savings ranging from six to 10 percent. Despite freight declines bottoming out, IATA did recently increase its June forecast to $9 billion, up from its $4.7 billion forecast for June that was made in March. The industry should expect a very long and slow comeback as the industry tries to rebound to previous demand levels. Some analysts feel it may be three or four years before the industry reaches a comfortable level. In an effort to hasten the recovery period, carriers have been aggressively removing capacity from the market to better match freight demand.

Market Buzz and Trends to Watch

UPS vs. FedEx – Union vs. Non Union
UPS and FedEx are currently in a head-to-head battle, but this time not over freight. The argument at hand surrounds FedEx’s labor laws. FedEx currently falls under the Railway Labor Act (RLA), which makes labor organization more difficult. FedEx cannot be unionized on a location by location basis; it must be done through a company-wide vote. Unlike FedEx, UPS is governed by the National Labor Relations Act, which allows for unionization at the local level. Provisions to change Fedex’s status were included in the FAA Reauthorization Act, which was recently passed by the House of Representative and waiting to be voted on by the Senate.

Ariba’s Take: It does seem fair that companies that are performing similar operations receive the same treatment, in this case the same government designation. However, since the U.S. small parcel market is currently structured as a duopoly, the fear exists that the union could easily affect price and service in the form of work interruptions. It will be interesting to see the outcome of the Senate vote as similar bills have died in the Senate in the past. However with new administration in office, many feel that there is a very high likelihood that this one will pass.

Yellow’s Uncertain Future
Like many trucking companies, YRC Worldwide has been struggling with low freight volumes. However, as the largest trucking company in the United States, YRC’s woes have gained much more publicity than their competitors. Over the last few months, the industry has watched YRC try to reorganize and recover. Recently they received approval from their pension fund to use some property as collateral instead of cash payments. The company also announced plans to ask for $1 billion in bailout money from the Troubled Asset Relief Program to help the company cover pension obligations. YRC also entered into labor modification talks with the Teamsters to help reduce its overall cost structure, preserve cash flow and prevent bankruptcy. A tentative deal is said to have been reached, however details will not be released until information is provided to union members.

Ariba’s Take: YRC Worldwide has changed leadership, closed facilities, reduced jobs and announced pay cuts, yet it still does not seem to be enough to give the trucking company sufficient breathing room. In the midst of implementing major company integration, YRC’s freight is down 30 percent in the first quarter of this year alone. Unfortunately, it seems like the cards are stacked against YRC and the hole that they are in is still too deep for them to get out of unscathed. Many analysts feel they cannot avoid some form of bankruptcy restructuring. When the trucking industry starts to show signs of constant improvement, there is little doubt YRC will still be in existence, however there is little certainty regarding the resulting form and fashion of the company.

U.S. Focus

by Nicoleta Diaconu