Transport: More Business Than They Can Carry

>>Resurgent demand for shipping plus stripped-down capacity will push prices up
>>Small carriers will keep disappearing as big ones tighten their grip

Thomas L. Finkbiner hasn't seen the trucking business look this good in five years. As president of Tampa-based Quality Distribution Inc. (QLTY ), the nation's largest bulk trucking hauler, he's turning away 30 jobs a day. "It's a feeding frenzy out there," he says. Same story at United Parcel Service Inc. (UPS ). Compared to last year, "we're moving 200,000 more parcels a day," says CFO D. Scott Davis.

After years of consolidation and capacity reduction, haulers can finally raise prices and cherry-pick new customers. The result: The price to move goods in 2004 will jump by 3% to 4%, according to some industry analysts. "If you're one of the survivors, times will be good," says Robert P. Costello, chief economist for the American Trucking Assn.

Revenue growth for the transport sector should inch up in 2004 following a disappointing couple of years. According to Global Insight Inc., industry sales for the year should rise 1.7%, to $254.3 billion. Thanks to sustained cost-cutting and productivity gains, the consultant expects operating income for the sector to surge more dramatically, by 40%, to $125.1 billion, from last year's $89 billion.

Rail is especially stretched. Like many of its competitors, Burlington Northern Santa Fe Corp. (BNI ) shed about a quarter of its grain cars in recent years. So when the weak dollar helped hike U.S. wheat exports 24% at the end of 2003, grain was left waiting at the depot. "Now everyone is humping to meet demand," says Donald Broughton, a transport analyst at A.G. Edwards & Sons Inc.

Fewer Options

Transporters are adding new jobs but not yet new capacity. To help keep its current fleet operating 24/7, Burlington Northern is hiring 1,500 additional workers -- a third more in one quarter than in all of 2003. But Burlington isn't rushing to buy new cars. "We won't build a church just for Easter Sunday," says CEO Matthew K. Rose.

Likewise, road shippers are adding drivers but not trucks. Independent West Virginia trucker Fred Burns Jr. has raised wages 7% to lure the additional drivers he needs. Yet he's hesitant to shell out for new rigs while costs are rising. In recent years, federal regulations have tightened, requiring longer rest times for drivers between trips, more extensive security systems, and the use of cleaner engines. But truckers contend the engines burn more fuel and don't last as long. "Nobody wants them until we see how well they work. That takes time," says Quality Distribution's Finkbiner.

Indeed, growing costs have put hundreds of independents out of business for good, says James Corridore, a transportation analyst at Standard & Poor's (MHP ). And bankruptcies remain high -- which means fewer options for customers and higher prices all around.

By Charles Haddad in Atlanta

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