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SURFACE & DOMESTIC TRANSPORTATION TRUCKING | RAIL | INTERMODAL | AIR & EXPEDITED | DISTRIBUTION 62 THE JOURNAL OF COMMERCE www.joc.com JULY 7.2014 By William B. Cassidy THERE'S A BUZZ about less-than-truckload transportation these days, and it's not the sound of drones. Despite predictions that tiny, unmanned aircraft flown by Amazon and others may drop packages on doorsteps some day, "until drones are invented that can handle 2,000 pound shipments, we're stuck with trucks," James Welch, chairman and CEO of YRC Worldwide, told the SMC3 Connections 2014 conference in Naples, Florida, in June. The LTL buzz is being generated by freight flowing more quickly through ter- minals nationwide, a sign that carriers hope indicates an accelerating economy. LTL pricing is rising, perhaps by 3 to 4 percent this year, according to most sources, and carriers are getting better at figuring out how to price by lane and use technology to recoup transportation costs. That could lead to more sustainable profits, ensuring a healthier, more reliable and flex- ible carrier base for shippers. Most LTL operators are enjoying their best year since the end of the recession in 2009, with rising volume and tonnage driv- ing up pricing, despite the general economic wreckage of the first quarter. "Revenue has bounced back" after a severe winter raised havoc with U.S. supply chains, said Welch, who was hired at YRC Worldwide in 2011 to turn the company around after the company suffered deep losses. "I'm excited to work in this piece of the trucking industry. LTL car- riers have always been resourceful, always found ways to meet the challenges we face. I'm convinced this group is smarter than we've been in the past." The head of the $4.9 billion truck- ing holding company is largely optimistic about LTL's outlook. "There are some fun- damental shifts in the economy we hope will remain strong," Welch said. For LTL, the key shift is in manufac- turing activity, which increased for the 12th consecutive month in May, according to the Institute for Supply Management. The steady, if not stellar, improvement in manufacturing is a shot in the arm for LTL carriers, which depend more on industrial freight than their more retail-oriented truckload counterparts. "Services don't put freight on trucks. Goods (manufactured) do," Welch said. Just how good a year 2014 will be for the LTL sector should become clearer as publicly owned carriers release second quarter earnings reports over the next six weeks. "Despite the horrible winter, LTLs did pretty well" in the first quarter, David G. Ross, a managing director at investment research firm Stifel, said in an SMC3 panel discussing the U.S. economy. "We think the second quarter will be even better for LTLs. Average tonnage per day is forecast to rise 6.7 percent (year-over-year). That's strong." Welch and other LTL executives at the conference reported experiencing a "win- ter freight hangover" in March and April, a surge of freight that wasn't deliverable or was delayed by winter storms in the first quarter. Warmer temperatures pushed that freight into LTL networks. LTL demand, however, remained ele- vated in May and June, a sign the economic recovery has finally picked up its tepid pace, they said. "June has stood up well," Welch said. Carriers, however, are still wondering, "Is this something we can bank on? Is the economic recovery really there?" That's because the recovery still lags compared to previous upswings. During the recovery from the 2001-03 downturn, U.S. gross domestic product grew 2.9 per - cent on average, compared with 2.2 percent GDP growth since 2009, Ross said. Economists recent ly sur veyed by Reuters predict the U.S. economy will grow 2.2 percent this year and 3 percent in 2015. At the SMC3 conference, Consulting Econ- omist Don Ratajczak concurred with that estimate, but warned that higher oil prices could drag the growth rate down. "Higher oil prices are slowing down the economy, but it hasn't slowed it down much yet," he said. "Oil will make a difference if it stays up. If we're staring at West Texas crude costing $110 a barrel in September, we won't see 3 percent GDP growth in the fourth quarter," he said. Ratajczak previously forecast a return to 3 percent growth by the end of the year, but the recovery has been stubbornly slow. In part, that's because "we have fewer arrows in our quiver to jumpstart growth," Ross said. "We took what we could out of our homes before the housing bubble broke, and median household income is still below pre- recession levels." That's reflected in truck shipments, as well. The number of dry van loads is also lower than a decade ago, he said. That's partly because of weak consumer spend - ing, but since 2008, higher fuel prices and the rise of intermodal rail also have checked growth in truckloads, Ross said. "Also, the dollar value of what's being moved is rising, PRICING IT RIGHT A strong second quarter is helping LTL carriers build more sustainable pricing power