Airfreight & Logistics (Market Underweight):
We spoke with the transportation manager for a mid-sized media company regarding recent Express trends. Our contact currently spends roughly 75% of his $20M annual transportation budget on Domestic Air Express service. Our contact had previously used DHL for both his domestic U.S. Air and International Express service, but migrated to UPS for the domestic U.S. portion after DHL exited the market this past January. While our contact’s volumes remain weak as a result of the soft economy, our contact continues to trim his use of all Express services as his industry finds new ways of electronically transferring its content from one location to the next, reducing his Express volume by nearly 40% from the peak five years ago. Our contact has been generally happy with his current Next Day and Deferred Air rates with UPS, but FDX has been aggressively pursuing that business and our contact is now in the process of splitting volumes between the two carriers. Our contact utilizes a web-based platform called Neopost to select a carrier for each load depending on distance, service and weight. Based upon FDX’s aggressive rates, our contact believes that FDX is cheaper on nearly 70% of his Overnight/Next Day shipments, in some cases by around 5%-10%. Our contact feels that FDX may eventually win all of his domestic business as UPS does not seem thrilled to participate in the package-by-package rate shopping process. This shipper continues to use DHL for international service out of the UK and Germany; however, FDX is also aggressively pursuing that $1M book of business as well.

Trucking (Market Underweight): We spoke with a large manufacturer about volume, inventory and pricing trends. This shipper said order levels have been consistent since the beginning of the year on a y/y basis but at a slightly lower price point. He described the current demand environment as bouncing above the bottom rather than along the bottom. Our contact does not expect much volume improvement until 2H:10. This shipper remains cautious in regards to inventory levels and noted if he were to get caught with depressed inventory levels when the recovery begins, he would lose a significant amount of market share. Thus, our contact plans on rebuilding inventories a month in advance of an expected real recovery, likely sometime in late 2Q:10. On the pricing side, this shipper hasn’t done a TL bid since 3Q:08, with these contracts taking him into 2010. He has the ability to re-bid this TL freight in 4Q:09 but currently does not plan to as long as he continues to maintain below market rates and as long as he doesn’t have to change network lanes. Currently, our contact does not anticipate more than a 1 to 2 percentage point uptick in TL pricing in 2010. This shipper recently completed an LTL bid in which he expected to get about a 5% rate reduction and ended up with a 15% decrease with FDX Freight receiving a majority of the share. However, this price reduction was off of a 2007 base as that was the last time he bid this freight. Our contact indicated YRCW was not competitive on price and as a result he moved the remaining freight he had left with YRCW elsewhere.