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Nov.16, 2015

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SURFACE & DOMESTIC TRANSPORTATION TRUCKING | RAIL | INTERMODAL | AIR & EXPEDITED | DISTRIBUTION 32 THE JOURNAL OF COMMERCE NOVEMBER 16.2015 By William B. Cassidy U.S. BUSINESSES ARE sitting on large piles of inventory this fall that built up over the past year, partly in response to the West Coast port crisis. Although overstocked inventories tend to depress truck tonnage by reducing the need for restocking, YRC Freight sees an opportunity. Cautious shippers are more likely to restock in small bites, not big gulps, at least until consumers open their wallets wider, the company said. That could mean a larger number of smaller, palletized shipments moving in fast-cycle replenishment, rather than full truckloads and containers. And that would be good news for less- than-truckload carriers such as YRC Freight in the fourth quarter. "U.S. businesses are experiencing inventory overstock at a level we haven't seen since the beginning of the financial crisis in the fall of 2008," the com- pany said in a statement. "Businesses are still feeling the effect of massive West Coast port congestion experienced in March," the Overland Park, Kansas, company said in an analysis. "Much of the overstock we see is the result of mer- chandise arriving to businesses after the spring and early summer season. "When that window was missed for so many businesses, the result was a ton of inventory and few people still interested in buying it," YRC Freight said. Businesses also took advantage of the strong U.S. dollar and increased imports based on optimistic demand forecasts, it said. U.S. containerized imports peaked in July at 1,781,373 20-foot-equivalent units, according to JOC Economist Mario O. Moreno. In 2014, the peak month for imports was October. The earlier peak may be due to shippers scaling back orders as they pare down inflated inventories, Moreno said in his monthly JOC Insights newsletter for September. Consumer spending also didn't increase this spring and summer at the rate antici- pated last year, when the U.S. economy expanded at its fastest sustained pace since the end of the recession in 2009. That also contributed to the stockpile that has built up at retailers and at manufacturers. The buildup of goods is reflected in the sudden leap made by U.S. inventory-to-sales ratios last November. The average retail sales ratio, which had hovered between 1.42 and 1.43 for much of 2014, climbed to 1.47 by February, and was back at 1.47 in August after falling to 1.45 in April. Shippers are restocking cautiously, ordering smaller amounts of new stock than is typical, YRC Freight said in its analysis. Typically, that wouldn't be good news for trucking operators, but YRC sees a silver lin- ing for LTL companies. "The shift from large reorders to smaller, faster shipments means a greater need for carriers who specialize in smaller size shipments," the company said. That demand wasn't apparent in LTL car- riers' third-quarter results. UPS Freight, the nation's fifth-largest LTL operator, moved 148,000 fewer shipments in the quarter than a year earlier, a 5.2 percent decline. Multire- gional carrier Saia reported LTL a 4.2 percent drop in shipments year-over-year and LTL tonnage declined 6.7 percent, a sign that heavier shipments shifted to truckload carri- ers as more capacity became available. "In this type of volume environment, we will more aggressively manage costs and maintain a constant focus on mix management to ensure that proper compensatory pricing is in place," Saia President and CEO Rick O'Dell said. YRC Freight parent YRC Worldwide reported a third-quarter net profit of $19.8 million, compared with a $1.2 million a year earlier. For the first nine months of 2015, the LTL operator reported $24.2 million in net income, compared with a $73.9 million loss for the same period in 2014. Third- quarter shipments at YRC Freight dropped 7.3 percent year-over-year and 1.8 percent from the second quarter, to 2.8 million. Total tonnage dropped 6.2 percent. LTL demand typically picks up in the fourth quarter, YRC Freight said in its analysis. "Until U.S. businesses experience sell-through of current inventories, the mar- ketplace will remain in this cycle," it said. "Reorder cycles will be abnormal, and the use of LTL should increase." The next two months will tell by how much use of LTL, and package and truckload shipping, will increase. UPS forecasts a strong holiday shipping season, with deliveries ris- ing at least 10 percent year-over-year between Thanksgiving and New Year's Eve. YRC and other LTL operators can hope some of that demand puts more pallets in their trailers. JOC Contact William B. Cassidy at and follow him on Twitter: @wbcassidy _joc. TAKING INVENTORY Stockpiled goods increase opportunities for YRC Freight and other LTL carriers

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