On a recent thread, Buckhed brought up the issue of property rights, and how they are being extinguished in the US. He rightfully pointed out that eminent domain was being used in order to acquire property for reasons other than those we have historically allowed – for instance, private dwellings are being taken so as to allow the development of industry/business, as it is deemed to be for the betterment of the community. Compensation for the acquisition is being provided to the owner, so I do not believe that property rights have been entirely extinguished in these cases.
However, as a businessman and owner of a manufacturing company, I have had many hundreds of thousands of dollars of my property rights extinguished without compensation. The extinguishment of company property rights has received very little, if any, attention from the media. The public in general would be clueless, or perhaps disinterested, that it is occurring. It is a major reason that manufacturing is leaving the country. The extinguishment of property rights is one reason manufacturers talk about “business uncertainty” and the pressure the uncertainty places upon them to abandon the US.
I invest heavily in equipment and plant. Over the years, regulations regarding health and safety change. Whenever there is a change in these regulations, some portion of my plant and equipment becomes instantly obsolete, and I lose the capital value of the affected equipment. For instance, when there was a change to the fire safety standards for my industry, I had to remove all of my facility’s lighting and replace it with “flame-proof” lighting. This cost many tens of thousands of dollars. I was in no way compensated for the old lighting, nor was I assisted with the cost of the new. When I asked an inspector what allowance was made for those companies without the capital to change the lighting, he said simply that he closed them down. No allowance for transition or capital costs was to be made. A couple of years later, a different inspector came through, and decided, based on his own interpretation of the regulations, that the lighting I had installed was insufficiently bright, and posed a safety hazard to my employees. I was required to further upgrade the lighting, at a cost of several tens of thousands of dollars. I, of course, lost my previous investment.
This scenario regarding safety has played out many, many times, at a cost to my company (i.e. to me and my partner) of hundreds of thousands of dollars. Other examples include upgrades to presses, to fork lifts, to paint booths, to electrical supply, etc. etc. etc. Each of these items was purchased and installed in good faith to prevailing regulation. And each of my investments was extinguished without compensation.
The scenario is very similar with regard to the EPA. They regularly change their regulations and interpretations. As we deal with the transport and automotive companies, the uncompensated costs to the industry are in the many billions of dollars. The cost to change engines to meet reduced missions targets is extreme. And when the engines change, so do the vehicles themselves. Previous investments on plant/equipment/tooling are lost in their entirety. I have lost hundreds of thousands of dollars when EPA regulations have changed, owing to the need to re-tool and re-equip, and to upgrade plant.
Recently, our local government changed its interpretation of zoning in our industrial estate, and we no longer meet the zoning regulations. We have been at our site for decades, but we are now fighting the rezoning. So far we have invested tens of thousands in the fight against the rezoning. If we lose (it appears we will be successful) the cost will be in the hundreds of thousands of dollars. We will receive no compensation, win or lose.
An additional area where regulations change is with regard to employment law/tax law. Continuous investment must be made to maintain compliance, and old investment becomes obsolete (software/personnel training/etc.). This seems like it would be a modest amount, but in fact it is substantial, albeit difficult to quantify.
It is my opinion that the major property rights issue in the USA is not related to private individual rights, but rather to property rights of corporations. The federal/state/local governments routinely strip value from corporations with no compensation. Their actions cannot be forecast, and are often driven by a small interest group. In addition to adding substantial cost to business, this situation creates business uncertainty, and as a result businesses stop investing, and look to take their businesses to areas/states/countries where there is more certainty.
It is no surprise that manufacturing in the USA has collapsed. The cost associated with the extinguishment of property rights is extreme, and growing, and the uncertainty factor is ever increasing. When these costs are combined with labor-rate differences, it is no wonder that manufacturing is fleeing to lower cost locations. Small manufacturing entities are trying to compete globally, against lower cost nations that provide greater certainty of capital investment protection. It is no wonder that they are struggling.
I have advised that people think long and hard before they buy into or found a manufacturing company, or any small company for that matter. There is extreme risk involved, and you simply cannot trust the governments to help maintain your investment. They can, and do, extinguish your property rights at a whim, and can send you broke overnight. Until governments begin to create a stable environment and give assurances that investments made will not be extinguished, then I expect businesses to keep fleeing to low cost and more stable environments.
I’m a little late to the discussion, but there is something which LLPOH’s tasty bite which may warrant a comment… as well as a few comments by Buckhead and even RE.
While safety and environmental regulations do indeed serve a purpose, a major issue at hand is the agent(s) charged with enforcing these regulations. It must be understood that LLPOH’s company is not entitled to a jury trial wherein the jury deliberates on issues of fact while the Judge applies the law to said facts. Before such an option is available to him, his company, or any individual for that matter, is under the jurisdiction of Administrative bodies who must first make their judgement. While this often streamlines common issues for business, the fact remains that it is a layered bureacray of several agencies with overlapping jurisdiction and, perhaps, conflicting agendas. The EPA, being federal, is one thing… zoning and many safety regulations, being State and local, are another.
Buckhead’s example of building a deck on your home is a great example of the similarities between his charges that LLPOH is whining about the safety of persons he employs… but building codes and inspection by a local government could be said to serve the same purpose… safety. The intent of the laws are to supposedly assure that this deck will not collapse and create a situation which has been thoroughly litigated… injury.
This brings to mind, of course, the Rand observation that the government’s fix to problems brings a host of others to fix, but I don’t think that’s what the post or commentary reflects.
What is reflected in the post and commentary is an issue I run across often. Let’s take said deck. Buckhead, wary of fines, pulls a permit from the locality he resides and crafts his deck to code. It’s solid, made of sound material, properly cantilevered, fastened and the railings won’t let any children slip through and fall. A pain in the ass, but Buckhead doesn’t mind springing a little more to have an awesome deck…
A year later, Buckhead remodels his kitchen and again pulls the proper permits. While passing Buckhead’s deck, the inspector sees some detail which perhaps another inspector overlooked, or perhaps a new building code enacted in the last month… or perhaps the inspector’s wife just left him or he has a boil on his ass the size of Texas… in any case, the inspector can say “I won’t give you a final inspection untill you tear that down and bring it to code”. Ouch. Buckhead is pissed because he did everything right and now he’s under the scrutiny of an agent of an administrative body who has been delegated a powerfull role in regulating his private property.
I’m sure LLPOH feels the same and goes through the same at another, more costly level. Either way, it sure can make one want to pack up for China (for business) or for an unincorporated area (individuals).
Property rights are subject to situation. In areas where the same issue arises, an administrative body is delegated the jurisdiction for better or worse. It is the spawn of liability. It is abused constantly.
One more thing to add to this moronically long post: Criminal prosecution is always possible for Criminal Negligence… if someone knows about something that another dies from. That’s a nasty bag of chips.
Right on, LLPOH… I understand why you talk of retiring often.
[img]http://t3.gstatic.com/images?q=tbn:ANd9GcShaRjNNi60qxQCmaAMaCmFaWV46ehZCOVoLfMNEIfQ9bw2QQfHUA[/img]
Some Maximum Overdrive for you crazy truckers.
I see that this thread is about to fall into the valley of doom. I thank all of the readers and commentators, as always.
This issue – commercial property rights and business uncertainty – is part of the overall business malaise. I am trying to formualte my personal opinion re how it all inter-relates to the situation we are currently seeing.
American corporations are sitting on trillions of dollars of cash. They are standing by and watching inflation and the falling dollar eat away at their pile. They are not investing the money, especially they are not investing the money back into the US, and they are not paying it out in dividends. They are either afraid of something, they are uncertain about something(s), they believe that the current erosion is better than the alternatives, or they see opportunity coming down the path toward them. I bellieve #1-3 are the most likely.
We live in uncertain times.
llpoh
God/Administrator has spoken. You’re back at the top.
Llpoh: We can keep it alive a little longer. There’s a shitload of unadressed questions and I, for one, love hearing from people who know what the fuck they’re talking about…
I was busy yesterday but am now lounging in the sun, which I haven’t seen for weeks literally!
Colma – I was posting my last comment at the same time as you put yours up.
One of my big gripes is that I do not deal with agencies – deal with little Hitlers who work for the agencies. And these little fucks are rotated frequently (so as to prevent corruption and familiarity, I suppose.). Each new little Hitler inspector that shows up wants to lift his or her leg (do’t for a minute think that women inspectors are more reasonable than men – far from it) and mark my plant as their territory. Every time one comes along – and I mean every time – they find something that they claim is not to code/spec/reg – no matter that it was signed off on by another inspector a month ago. pointing this out to them only pisses them off – they consider thimselves to be supreme authority over all they survey.
A company can fight – and generally lose, or at least be harrassed into submission – or it can simply submit immediately and do what is demanded. And they do not give a shit whether the business survives or not. They have told me so on more than one occassion. There job is to enforce the regs as they seem them – and tough shit if that sends you broke.
I hate the rotten bastards with a purple rage.
Llpoh: I see it often. “Jack said…” says contractor, Jill interupts with venom “I AM NOT JACK”.
That an individual inspector with what I believe to be inferiority issues can literally re-write the rules on the spot is what tryanny is made of.
I don’t have the quote but Mises pointed out that while most regard business as vile (Capitalist Pig) they disregard the fact that truly vile individuals seek political power… they have no skin in the game but their position and their projected personal issues.
What really sucks is IF you don’t comply, you must submit your appeal to the same sort (just longer on the job) on the panel of whatever administrative body, costing you not only the legal fees but a simultaneous possibility of shut-down! Then you can appeal or sue the body, for more legal fees and continued shut-down cost. Absolute bullshit. This isn’t the Triangle Shirt Factory days either.
What a mess.
Llpoh, a dumb question, but how many jobs and/or employee raises has this constant harrasment jeopardized? I’m talking peak to trough… and at your company?
I may have a nasty populist streak, but really, the wage issue is moot when there is less pie. Obviously, you’ve kept on shore and that alone is somewhat saintly in your sector… but offshoring due to labor costs aside, what has bullshit enforcement by these agencies cost J12P’s like myslelf? To comply and re-comply? Even in the recession…
“Llpoh” 8:29 was me! Same question, though.
I know the answer on the small scale, but gotta know for real.
Praise be!
So now lets talk about the question I raised earlier – why are corporations sitting on trillions, especially given the miniscule returns they are receiving from interest and the losses they are suffering from the falling dollar and inflation.
I am far from an expert in this tuff. Personally, I am not putting a lot of capital into my business at the moment.
The major reasons are 1) I am at continual risk of my customers offshoring my products, and I can and do lose my investments whenever it occurs, 2) I have no confidence in what the governments are going to do to me re zoning/tax rates (property/business/payroll in particular), 3) I am totally clueless as to what Obamacare will do to me, or whether it wil even survive the court challenges (so far it seems to be losing in court, but who knows), 4) oil price shocks could knock crap out of my industry, 5) the upheavals around the world are worrying me re the impact here, 6) I believe that there will be a financial shock occuring shortly.
Unlike the major corporations, I do not leave money in the business, but rather take it out and invest it personally. So the question is why are they leaving the cash sitting essentially unused? The corporations have shown to be pretty good at staying profitable, so I cannot believe they are hoarding money to offset against huge losses.
So I think they are 1) afraid of some of the impacts I have mentioned above (Obamacare/taxes/etc.) that could destroy there capital if invested in the US, 2) they are afraid of the upheaval in a lot of the world, and see any capital investment as too big of a risk, given new governments are such an unknown factor 3) they may be concerned about the possible downfall of the euro and the bankruptcy of the PIIGS, 4) Asia seems to be less of a goldmine than it was previously, and the corruption that exists there and the potential for loss of intellectual property without compensation that exists worries them considerably.
So I surmise that they are paralysed by fear – and would rather take modest slow losses than risk huge losses.
But that still does not explain why the dividends are not paid out to the owners. This may be a function of the fact that the shareholders are not clamoring for their money en masse. And without such a clamor, there is no real incentive for the directors to pay out the dividends, and it leaves them capable of making moves should an oportunity arise. Unless big funds start yelling for dividends to be paid out, I doubt it will hapen.
Anyway, I am not an expert in this, but I am very much confused to see so much capital being hoarded, and it flies in the face of history to do so. I welcome any reasonable explanation.
RE – please note the “reasonable” in that last sentence! 🙂
Colma – I think that the destruction of capital that occurs has cost millions of jobs – the number is impossible to calculate.
Companies move offshore to avoid uncertainty (as well as for lower cost), and so they take jobs with them. There is nothing more uncertain than what and when regs/laws will change, and the impact that will have on companies.
Companies fail in their entirety when they do not have the capital, or choose not to reinvest again owing to uncertainty, when their capital is confiscated without compensation when regs/laws change.
Llpoh:
I can’t speak for the big boys but personally, I’m holding on to a little lump of cash because I believe, in the short/medium term (I’m going to get reemed for saying this and RE probably will say the same in a drawn-out manner) there will be a crash…. the fundamentals for true profit just aren’t there. De-fuckin-flation. Untill the fed blows it, of course, which they are on the verge of doing (further).
Colma – are you suggesting some massive plays for hard assets? Could be a possibility.
Llpoh: It’s not outside the realm of possibility.
Hell if I know, really… I just adhere to “Punnet Square” investing. Fill the boxes with “Capital Gain vs. Capital Loss” and “Inflation vs. Deflation”. Cash is an integral asset. Not going to get rich that way, but will avoid losing my ass.
Hahaha… I hope.
Nice post, LLPOH. Really shows how the US and its states have become an unfriendly business environment. There are some real scumbags that run their companies like hell holes, folks who should be shut down. There always will be. There ought to be more time and energy spent on enforcement of a few hard and fast laws, yet the government attempts to regulate it out of existence. Idiots.
Got a question for you, that I have been meaning to ask… I’m sure you have heard the idea floating around regarding a temporary 2% cut in federal payroll taxes that Obama is considering to jump start job hiring. Given the nature of this article…. Would you hire more workers simply because you would get a 2% cut in the payroll tax? For only one year? Does that actually improve the business climate?
Punk – the 2% in my opinion isn’t a huge help, but payroll tax is one of my biggest complaints. SS is 7.65% of payroll – a tax for the pleasure of hiring people! What a crock of shit. My payroll tax is over $20k per month. Anyway…
The 2% is therefore worth about $5 k per month in round figures. I will not then go and spend this $5k on a new hire – for what? My sales will not be increasing enough, if any, to justify the hire, and it will only force up my stock positions, or force down my efficiencies. Perhaps I MIGHT spend it on new equipment, etc., but in reality it will mostly flow thru to our bottom line.
For some companies it will be the difference between life and death, however, so fine are their margins in these tough times, and so some jobs will definitely be saved. Not a lot, however, in my opinion. And the bigger companies will for sure pocket the money – they are not spending money on new employees, or anything else for that matter.
But in general the impact will be small. I think it is a joke to tax companies for hiring employees. Talk about a pure dis-incentive. You could not create a more pure barrier to hiring than that.
Yes there are scumbags out there – and they should be harassed out of business. My experience is that they are relatively rare, except in micro businesses, where there are many. Real businesses – say with 15 or more employees – usually cannot get away with being total scumbags.
Nice to see you up and about!
Good thread too, Smokey might almost believe that you and RE kissed and made up.
Sounds like the best case for it is that it might prevent businesses from going under and firing people, not really to get hiring back up.
And what will they do next year, I wonder?
Get yourself one of these, man. Government issue.
[/img]
[img
LLPOH, I love to pay that 7.5% twice for the privilege of being self employed. I think that is really special. Fuckers. Why the fuck shouldn’t I just say that I’m unemployed and not looking for work?
Punk – the crime of it is that you young folk may never see a cent of that 15 percent you are paying. If you were busy saving that money for yourself then you would have a bit of a pile at the end. And what is more, you would have a lot of incentive to save even more than they are forcing you to contribute to SS. But no-o-o, they know better than you what is good for you. You pay and they steal. Nice gig for them. Not so much good for you.
RE and I can occassionally speak. Mostly he made sense on this thread, and he does know a fair bit about trucking from the user end especially. I suspect you missed the name calling the day before.
The most likely reason the large corporations are sitting on cash is because of the 2 ton Dinosaur in the room, Derivatives. probably more the Interest Rate Swaps than CDS for corps other than Banks and Insurance Companies. IRS are a hedge against fluctuating rates in commercial paper.
I think everyone at the top is well aware of the instability in the system and the potential for a liquidity lock up if any one of a number of Black Swans come in for a landing. The piles of cash are kept in reserve in case any of these corps find it difficult to issue commercial paper during a liquidity crisis.
Remember also that even though this money is cheap ZIRP, its not entirely clear to anybody where to drop it to put it to work, in the Capitalist sens of the word. The emerging markets are basically saturated, so nobody in their right mind would be investing in more productive capacity in Asia for instance, they are already way overloaded on this end.
Further speculation in commodities also doesn’t hold much potential for good returns since commodities are already bubbled up quite high. The Chinese, who have been of late the major driving force in consumption of things like Cement and Steel for construction are seriously overbuilt, with their Ghost Cities probably even worse overbuilt than we are.
I think the problem for large Corps is much the same as for the individual trying to protect assets t this point. Anyhwere you drop the money holds the potential for a serious loss, without much upside gain for taking the risk with it. The hedging instruments in the derivatives are themselves extremely risky bets now, since you have no clue if the counterparty will be able to pay up. Its like you buying Fire Insurance on your house from a company you know is already insolvent. You can’t be sure you will actually get paid off if a fire burns down your house.
Anyhow, the fact major corps are sitting on piles of recently printed money from Helicopter Ben is likely the reason we haven’t seen more rapid inflation then we have already. Long as this money sits in notional “vaults” (its not real FRNs, just digibit balances held on supercomputers), its not floating around in the real economy to further drive up prices.
Bottom line (and this one will be a short bottom line), like any smart J6Ps out there these days, Corp CEOs at the top are saving rather than spending in preparation for a Rainy Day they are sure is coming. Its Keynes Paradox of Thrift. No matter how much money Helicopter Ben Prints, he is having extreme problems accelerating the velocity of money, IOW keeping commerce moving along here. You can print Trillions, but if it just sits as notional money on somebody’s laptop screen, it doesn’t get the economy moving.
Here’s a thought experiment for you guys. If you cannot get money moving this way, what is the logical next step to try, at least if you think like Helicopter Ben? 12 pack of Sam Adams to the first person to answer this question correctly.
RE
RE – that seems also a plausible scenario. I am no expert at the funding requirements of large corps so am not really qualified to comment other than that.
After all the emissions crap,tell engine builders to meet a certain level than after two years change that level so more multi millions need to be invested.Newest crap is needing to lessen stopping distance so now companys are going to front disk brakes,all this joy raises the prices five to ten grand per truck.Its like the new rules and regulations never stop.As to truck drivin,its slow and there is a lota waiting involved,Funny,well mabe not that funny watching all the fresh meat show up after being displaced in other fields and thinking theyre going to make some money.most dont stick around after finding out how it really is.Oh yeah all these broke states have picked up the safety ? enforcement like all the drivers are rich.Yeah its fun looking around at all the empty commercial buildings and talking to all the depressed people,I usually ask if they like that change?i come here to be around folks who actually know theyre fucked.sorry for the one long sentence.
Ron – sounds to me like you have a pretty good handle on what is going on. The changes to emissions regs cause havoc, not only to manufacturers but to drivers (fuel consumption goes up, now isn’t that wonderful) and truck owners.
Not easy to make an honest living when you are surrounded by thieves that see you as the milk cow.
Thanks, Ron.
You can rail on all you like about the regulations being dropped down here, and they certaily do make it more difficult to squeeze any profit out of pulling freight via truck. Fact is though, the problem is not in the regulation but rather in the sustainability of the paradigm as a whole. The Trucking industry, and in fact the entire automotive industry has been subsidized since its inception. The real costs of maintaining the roadway system both automobiles and the truckers depend on was built on the backof nearly free energy in the early years. As the energy becomes progressively more expensive due to lowered EROEI, you cannot maintain the roads ad you ill have lowered usage volume on those roads.
Fasist kludges to keep the system running in its entirety can work for a while, and this is where these regulations play in. As time goes by, the regulations will be ignored, passing bribes at weigh stations will be common. The system will become increasingly corrupt, and the roaways ever less maintained. The model is not sustainable. I drove truck for 6 years, I watched it occur. I got out of it when it was clear to me that it was deteriorating to the point that making a living rnning OTR freight was just going to get ever worse, and it was bad enough in 2003 when I cashed out of it.
Trucking is Dead Meat. It simply does not work econmically with expensive energy. End of story.
RE
I’m late to the party here. So, lemme hijack this thread before I hammer yet another stupid RE prediction.
As some of you may know — or, at least the nine of you who replied to my post — I went to NYC yesterday to attend an Economic Protest rally.
Wow.
What a bust.
There was noone there. N.O.B.O.D.Y.
The organizer of the event over at Amped Status had this to say;
==========================================================================
“Back home from Liberty Park. It is nice to know that I will be sleeping in a comfortable bed tonight, but pretty depressing that we didn’t get enough people willing to stand up and occupy the park. Despite thousands of emails, tweets, comments and a video that already has 200,000 views, only four people in NYC were ready to put serious action behind their words. (At this point, I don’t know how all the other actions went, so I’ll hold off on commenting on them.)
“It seems everyone is content just tweeting and writing strong comments, passively waiting and hoping that other people will do the hard work for them. As disappointed as I am now, given the attention we were able to get online, which obviously doesn’t translate into action, I know that we are building awareness.”
==========================================================================
Next time I’ll email the organizer and tell him to first check TBP as a “reality check”.
Like I said, I posted info about that rally here on TBP. It got 9 little replies. Of those nine, only ONE said he WISHED he could attend the event. And that was Goldorack. He’s from Sweden. lmao.
.
So, am I mad, angry, disappointed or anything like that? Nope! Not at all. Why should I be? It wasn’t my rally. I spent less than $50 bucks round trip, and that includes a copule (OK .. three) all beef (OK .. rat) hot dogs from a street vendor. Yummy. It was fun just walking around watching other people do their thing. It was time for a little reflection on what the day has wrought. And this is what I came up with.
We are fucked because no one really gives a shit. It’s like the guy above says … people like to bitch, moan, complain, email, tweet and all that shit. But, when it comes to action, what do you get? Four guys and a bunch of Passive Pussies. A “let the other guy do it” attitude. All talk, no action.
Sad. Really.
Oh … I know, a lot of you are taking action. Not being judgemental here at all. A lot of you are storing shit away. Lot of shit. Seeds. Tools. Food. Precious metals. Also, many of you have guns and bulletts. Lot’s of ’em. You’re gonna blow the living shit outta anybody who comes near you to take your stuff. That’s good. The Takers do need to have their heads blown off. Hopefully, you’re not complaining on the computer how bad things are while they are climbing through your back window.
So, what have you guys been bitching about the past day or so?
lol
“Trucking is Dead Meat. It simply does not work econmically with expensive energy. End of story.” — RE
I have yet to see an Amish buggy pulling up to restock any of the stores in my neck of the woods.
Pretty sure that ONE HUNDRED PERCENT of what I need — you know, food, water, medicine, clothes, and other minor shit —- is delivered by a FUCKING TRUCK!!!!
Another fucked forecast from RE !!
LLPOH
I have been moving shit into our new apartment for the past few days and haven’t had the time to relax and get on the web. I’m late to the party but I must say that this thread was very interesting. I know nothing about the trucking industry but after reading this thread and all the comments, I know a little bit. Our country has a rough road ahead of us. Thank you for taking the time to write another short story. For a passionate entrepreneur like myself, your stories help paint a real life perspective of our current and future small business environment. Unless our country changes drastically, I don’t see much of an incentive of starting a business in the US. The risk and uncertainity are too high. If Ron Paul gets elected in 2012, I may consider putting my capital to work in starting a business in the future but for the time being, I will continue to work for someone, save money, and learn everything I can from every experience I have.
Stuck, it’s prognostication not a description of the current state of trucking. That would better be described as having Leprosy and watching various parts of the body fall off a piece at a time. Read the following article buddy and then STFU because you know jack shit about the trucking industry.
RE
Trucking failures to accelerate this year
BANGALORE | Thu Feb 18, 2010 12:29pm EST
BANGALORE (Reuters) – Bankruptcies in the U.S. trucking industry are expected to escalate this year as higher fuel prices and excess capacity squeeze margins further and lenders start to tighten their noose on the sector.
The highly fragmented freight market in the United States has been in recession for about three years now. Excess capacity has put pressure on pricing and dented margins at truckers as well as freight brokers.
But the sector has not seen as many insolvencies as expected in the last two years, as lenders wait for the market to improve for the used trucks they hold as collateral.
Last year, lenders helped YRC Worldwide (YRCW.O), the No.1 U.S. trucker, narrowly avoid bankruptcy.
Industry analysts say a spike in bankruptcies might not be a bad thing after all for the sector — it will take away hundreds of underperforming companies, suck out the excess capacity and finally narrow the gap between supply and demand.
Some of the bigger players in the market, such as J.B. Hunt Transport Services (JBHT.O), Werner Enterprises (WERN.O) and Knight Transportation (KNX.N), are expected to benefit as the insolvency of smaller firms create some breathing space in the sector.
Andy Ahern of consultancy firm Ahern & Associates said he would be surprised if he doesn’t see at least 2,500 to 3,000 trucking companies go bankrupt in 2010.
According to Ahern, about 2,220 truckers went bankrupt in 2009, compared to 5,500 in 2008. The figures do not include companies that just shut down operations without filing for bankruptcy protection.
Even then, this represents a 60 percent decline in bankruptcies in a year when 70 percent of the trucking companies in the market made losses.
“We are going to see the collapse of two or three major carriers and that is going to be the beginning of the process of changing supply and demand, and when that happens trucking is going to start to rebound,” Ahern said.
LENDERS WAIT AND WATCH
Lender leniency has so far stemmed bankruptcies in the trucking industry. Banks have not forced truckers into bankruptcy so far as the current value of used trucks held as collateral is so low that they are worth less than the debt.
“Because there is excess capacity, owning a bunch of trucks may not be a great asset at the moment for a bank as collateral,” said Drew White of financial information company Sageworks Inc.
YRC, which narrowly avoided bankruptcy in December 2009, went through an elaborate debt exchange offer and received concessions from banks and labor union, avoiding a failure that would have changed the supply-demand dynamics in the trucking market.
But analysts don’t believe YRC is out of the woods yet.
BMO Capital Markets’ Jason Granger said YRC could at some point be forced into a position where it needs to significantly downsize its operations and resurface as a smaller organization.
Used trucks do not have a strong market as truckers are not adding to their fleet — they already have a lot of trucks that are not in use due to low freight volumes.
“Banks traditionally have become more lenient toward forcing troubled carriers into bankruptcy in early stages of the down cycle,” said BMO’s Granger.
“As asset value that the banks hold as collateral improves, banks start to become more aggressive in forcing carriers into bankruptcy.”
He expects the acceleration in bankruptcies to become more pronounced in late 2010 and 2011.
Rising fuel prices are another key factor in quickening the pace of bankruptcies. When the benchmark U.S. crude oil prices shot up 47 percent in the first half of 2008, U.S. trucking bankruptcies rose 130 percent, according to analyst Granger.
In the last two quarters of 2009, oil prices rose 13 percent. Oil averaged $76 a barrel in the fourth quarter, significantly higher than the $32.40 per barrel touched earlier that year.
Trucking failures are not the only way for excess capacity to leave the market. Some analysts believe mergers and acquisitions could start to see an upside as distressed deals happen and the larger players prepare for a recovery in 2011.
Tom Connolly, managing director at Eve Partners, an investment bank focusing on transportation and logistics, said some distressed deals and opportunistic acquisitions could happen, but he doesn’t see a dramatic rise in M&As.
“I don’t think bankruptcy is the only way (for excess capacity to leave the market) but it is the most logical way out,” said Connolly.
No, you STFU. I had a 3 year stint with Wabash Magnetics in Huntington, IN. We made anti-lock brake sensors and fuel sensors. My accounts (I was in sales) were Freightliner, PACCAR, Allied Signal, Cummins, CAtT, and other major accounts. I have been to all those plants. Doesn’t mean I know jack shit, but still, you STFU.
A decline in freight, bankrupt truck firms, or whatever other factoid you wanna throw at me is irrelevant to your statement, “Trucking is dead meat”.
It very well may be for some, or quite even many, but never all. Trucking will always be here … unless you expect to have your Diet Fat Pills delivered by sled dogs.
“Trucking will always be here”-Stuck
I’m supposed to believe somebody who attends Rallies nobody goes to? Dumkopf!
The only thing that will “always be here” are idiots. At least until we collide with Planet X
[img
[/img]
RE
Dumkopf hardly describes the half of it.
When I got there I sheepishly asked a stranger, “Are you here for the rally?” He looked at me like I was a TSA guy touching his junk. So, I just shut up thereafter. And waited. And waited.
Then I started to hallucinate pretending a bunch of my TBP buddies, including you, would show up at any moment and we’d have fun. Then a babe with really big hooters walked by and snapped me back into reality. It was a fun day, rally or not.
@Stuck
You couldn’t even find the guy who sent out the email?
Sounds like the guy who organized it was fabricating “10’s of thousands of Tweets”. I’ve never heard of a Zero Turnout demonstration. Anyhow, when you want to go to a real head buster Demonstration, just wait for the next time the G-20 meet up in the FSofA. That should draw a decent crowd.
RE
I doubt trucking will ever be dead meat. Long haul trucking perhaps but trucks will be needed for local and short haul trips. I think as the economy changes more of your day to day needs will be met by local suppliers and truckers.
In the really long term all businesses are dead meat.
Trucking has a long way to go before it dies off. The current expectation is that more will be moved by rail and that trucks will get smaller on average moving goods locally.
Still a long way to go before even that situation occurs.
Jmarz – thanks. I really hate to pour cold water on anyone’s dreams and aspirations, but I really think the risk of starting/owning a small business is too great given the current political and regulatory realities.
In the debate the other night the woman said she would abolish the EPA as it was a jobs destroyer. She is absolutely right, but she has been ridiculed in the press for her comments.
People are truly clueless.
On a long enough timeline, the survival rate for everyone drops to zero.
Trucks will be around for a while, until we run completely out of liquid fuels, which will take some time.
However, the Trucking Model, which uses Trucks on the Interstate system to move JIT goods all over the country will go the way of the Dinosaur well before the last trucks stop running.
As mentioned, more bulk goods will be moved by train, and at first smaller trucks will pick up at train depots to distribute out what the rails bring in. However, I have no doubt that over time those small trucks will be increasingly replaced by Amish Buggies.
What we are talking about here is the economic survivability of a model that has been persistently subsidized by cheap energy and increasing debt loads. Trucking may still live, but it has terminal Leprosy. I wouldn’t go near a truck anymore. LEPERS!
[img
[/img]
RE
Stuck – you really aren’t surprised that apathy still rules the day, are you?
Welcome back. I tried to taunt Smokey out of hiding yesterday but he didn’t bite.
Stucky, sorry I missed your post. I would not have made it to the rally/protest in NY even if I had, but I commend you for going. Sucks that no one else showed up. I would gladly attend a protest closer to home and when it comes time to crack some bankster skulls, I’ll make the trip down to the big apple.
Punk getting ready to kick some ass:
[img
[/img]
I do not support Illegal Violence as a means of redress. The Rule of Law must be reestablished.
[img
[/img]
RE
“I am having problems with your RSS.” ———— argentina lawyers
That problem has been brought to the attention of this site’s Administrator.
His response? “What the fuck is RSS??”
Good luck.