Executive Briefings

North America Logistics 2009

According to a new report on the state of the transport and logistics market in North America from Transport Intelligence, there are opportunities for investors, both in infrastructure improvement projects and in the provision of new services across the continent, despite the economic downturn.

Regional integration issues:
Transport Intelligence's first analysis of the entire North American region, highlights that whilst the US, Canada and Mexico are united within the 15-year-old North American Free Trade Agreement (NAFTA), the three countries' logistics markets vary substantially. Integration of the region's transportation industry is highly undeveloped, the most notable example being the lack of free access for Mexican trucks into the US market. However progress has been made on this issue within the last year, thanks to a scheme by the US Department of Transportation, under which a small number of Mexican trucking companies are permitted to operate beyond the approximately 40 km commercial zone that runs along the US-Mexico border. Even this minor initiative has faced severe opposition from US politicians, labor organizations and some within the industry itself.

Details of the main North American trade corridors, as well as each of the three countries' distribution clusters, are provided in several sections of this report.

US Ports Capacity and Security:
At US ports, particularly Los Angeles and Long Beach, the country's largest container gateways, badly needed additional capacity expansion projects have been stalled over the past few years, mainly for environmental reasons. This is set to change, due to some major initiatives to reduce air pollution caused by ships and trucks, encapsulated in the San Pedro Bay Clean Air Action Plan (CAAP). There are now a number of major projects underway to increase capacity and reduce traffic congestion on the vast US road and intermodal rail networks.

Significant progress is being made in improving supply chain security in the US. These include the Customs-Trade Partnership Against Terrorism (C-TPAT) program, that now has over 8,200 'certified partners', as well as the ambitious and controversial 'Implementing Regulations of the 9/11 Commission Act of 2007', signed into US Law in August 2007, under which 100% of US-bound containers will be scanned at their overseas ports of loading by July 2012.

US Air Freight:
The prominence of the US in the global airfreight market is highlighted in the report. Combining international and domestic tonnage, 11 of the world's top 30 airports were located in the US in 2007. Memphis International Airport, Tennessee, the US 'superhub' for FedEx, was the biggest cargo airport globally, while Anchorage International Airport, Alaska was the third largest. However the economic downturn is having a big impact on the US air cargo market. For example, DHL Express has announced the termination of its US domestic air and ground network and shippers are trading down to lower cost ground products.

Contract Logistics and out-sourcing:
The North American contract logistics market is highly fragmented, more so than its European counterpart. The top 10-contract logistics companies account for just over a third of the North American market, so there is plenty more potential for consolidation. There has already been a steady flow of mergers and acquisitions in the North American logistics industry over the past few years. Major recent acquisitions include CEVA Group's purchase of EGL.

Despite the US being a relatively mature market in terms of freight forwarding and logistics, it provides service providers with plenty of opportunities for expansion. The contract logistics market achieved a penetration rate of total logistics spend of 18.9% in 2007, marginally higher than in 2006. This proportion could grow quickly if more giant out-sourcing deals, such as that recently announced by UPSSCS and Merck, are concluded.

US Trucking: In the trucking sector the weak US economy has driven a large number of small operators out of business. This is acting to reduce available capacity in the market, which outstripped demand for loads. In 2007 the largest US trucking companies, in terms of revenues, were YRC Worldwide, followed by FedEx Freight, Schneider National and Pence Logistics. YRC specifically faces many challenges and has been forced to re-negotiate wage levels with its unions.

Mexico's growth potential
: While decreases in GDP growth in the US, Canada and Mexico are expected for the foreseeable future due to the current weak economic climate, in terms of transport and logistics development the Mexican market shows considerable potential.

Economically Mexico is considerably less developed than the US and Canada. However, in 2007 the volumes of import/export containerized cargoes by sea between Asia and Mexico grew at a considerably faster rate than those between Asia and the US, the world's largest intercontinental trade lane. While all major US west coast ports reported flat growth or volume declines in 2007, at Manzanillo, on Mexico's Pacific coast, a throughput increase of close to 13% was reported. Manzanillo is Mexico's largest container port, and a major gateway for Guadalajara and Mexico City.

Mexico's high throughput growth is expected to continue in the future, due to the rapid development of the country's port and other transport infrastructure. As the report explains, the Mexican west coast port of Lazaro Cardenas is being developed as a major transpacific gateway, and further north a new $5bn mega-port and intermodal (rail) project is planned at Punta Colonet. The Mexican Government hopes that the latter will replace the southern Californian ports of Los Angeles and Long Beach as the main gateways for shipments of raw materials and components imported, mainly from Asia, on behalf of the approximately 3,000 'maquiladoras' in Mexico. 'Maquiladoras' are mainly foreign owned assembly plants, manufacturing a wide variety of products, the majority located close to the US-Mexico border. Many US and Canadian importers, including major retailers, continue to source consumer goods from Mexico, in addition to lower cost Asian markets, such as China and Vietnam. The 'maquiladoras' import large volumes of raw materials and components from Asia, as well as other sources.

Canada: a new hub:
The North American Free Trade Agreement (NAFTA) has helped Canada develop as a hub, to distribute product both domestically and cross border to the US. Many US manufacturers are investing in the country as a lower cost alternative. In addition to this, the energy boom enjoyed over the past few years has been a major driver of developments for the logistics sector. This has meant that in contrast to the US, container volumes to/from Canadian ports such as that of Vancouver, British Columbia, are continuing to grow strongly.
Transport Intelligence

According to a new report on the state of the transport and logistics market in North America from Transport Intelligence, there are opportunities for investors, both in infrastructure improvement projects and in the provision of new services across the continent, despite the economic downturn.

Regional integration issues:
Transport Intelligence's first analysis of the entire North American region, highlights that whilst the US, Canada and Mexico are united within the 15-year-old North American Free Trade Agreement (NAFTA), the three countries' logistics markets vary substantially. Integration of the region's transportation industry is highly undeveloped, the most notable example being the lack of free access for Mexican trucks into the US market. However progress has been made on this issue within the last year, thanks to a scheme by the US Department of Transportation, under which a small number of Mexican trucking companies are permitted to operate beyond the approximately 40 km commercial zone that runs along the US-Mexico border. Even this minor initiative has faced severe opposition from US politicians, labor organizations and some within the industry itself.

Details of the main North American trade corridors, as well as each of the three countries' distribution clusters, are provided in several sections of this report.

US Ports Capacity and Security:
At US ports, particularly Los Angeles and Long Beach, the country's largest container gateways, badly needed additional capacity expansion projects have been stalled over the past few years, mainly for environmental reasons. This is set to change, due to some major initiatives to reduce air pollution caused by ships and trucks, encapsulated in the San Pedro Bay Clean Air Action Plan (CAAP). There are now a number of major projects underway to increase capacity and reduce traffic congestion on the vast US road and intermodal rail networks.

Significant progress is being made in improving supply chain security in the US. These include the Customs-Trade Partnership Against Terrorism (C-TPAT) program, that now has over 8,200 'certified partners', as well as the ambitious and controversial 'Implementing Regulations of the 9/11 Commission Act of 2007', signed into US Law in August 2007, under which 100% of US-bound containers will be scanned at their overseas ports of loading by July 2012.

US Air Freight:
The prominence of the US in the global airfreight market is highlighted in the report. Combining international and domestic tonnage, 11 of the world's top 30 airports were located in the US in 2007. Memphis International Airport, Tennessee, the US 'superhub' for FedEx, was the biggest cargo airport globally, while Anchorage International Airport, Alaska was the third largest. However the economic downturn is having a big impact on the US air cargo market. For example, DHL Express has announced the termination of its US domestic air and ground network and shippers are trading down to lower cost ground products.

Contract Logistics and out-sourcing:
The North American contract logistics market is highly fragmented, more so than its European counterpart. The top 10-contract logistics companies account for just over a third of the North American market, so there is plenty more potential for consolidation. There has already been a steady flow of mergers and acquisitions in the North American logistics industry over the past few years. Major recent acquisitions include CEVA Group's purchase of EGL.

Despite the US being a relatively mature market in terms of freight forwarding and logistics, it provides service providers with plenty of opportunities for expansion. The contract logistics market achieved a penetration rate of total logistics spend of 18.9% in 2007, marginally higher than in 2006. This proportion could grow quickly if more giant out-sourcing deals, such as that recently announced by UPSSCS and Merck, are concluded.

US Trucking: In the trucking sector the weak US economy has driven a large number of small operators out of business. This is acting to reduce available capacity in the market, which outstripped demand for loads. In 2007 the largest US trucking companies, in terms of revenues, were YRC Worldwide, followed by FedEx Freight, Schneider National and Pence Logistics. YRC specifically faces many challenges and has been forced to re-negotiate wage levels with its unions.

Mexico's growth potential
: While decreases in GDP growth in the US, Canada and Mexico are expected for the foreseeable future due to the current weak economic climate, in terms of transport and logistics development the Mexican market shows considerable potential.

Economically Mexico is considerably less developed than the US and Canada. However, in 2007 the volumes of import/export containerized cargoes by sea between Asia and Mexico grew at a considerably faster rate than those between Asia and the US, the world's largest intercontinental trade lane. While all major US west coast ports reported flat growth or volume declines in 2007, at Manzanillo, on Mexico's Pacific coast, a throughput increase of close to 13% was reported. Manzanillo is Mexico's largest container port, and a major gateway for Guadalajara and Mexico City.

Mexico's high throughput growth is expected to continue in the future, due to the rapid development of the country's port and other transport infrastructure. As the report explains, the Mexican west coast port of Lazaro Cardenas is being developed as a major transpacific gateway, and further north a new $5bn mega-port and intermodal (rail) project is planned at Punta Colonet. The Mexican Government hopes that the latter will replace the southern Californian ports of Los Angeles and Long Beach as the main gateways for shipments of raw materials and components imported, mainly from Asia, on behalf of the approximately 3,000 'maquiladoras' in Mexico. 'Maquiladoras' are mainly foreign owned assembly plants, manufacturing a wide variety of products, the majority located close to the US-Mexico border. Many US and Canadian importers, including major retailers, continue to source consumer goods from Mexico, in addition to lower cost Asian markets, such as China and Vietnam. The 'maquiladoras' import large volumes of raw materials and components from Asia, as well as other sources.

Canada: a new hub:
The North American Free Trade Agreement (NAFTA) has helped Canada develop as a hub, to distribute product both domestically and cross border to the US. Many US manufacturers are investing in the country as a lower cost alternative. In addition to this, the energy boom enjoyed over the past few years has been a major driver of developments for the logistics sector. This has meant that in contrast to the US, container volumes to/from Canadian ports such as that of Vancouver, British Columbia, are continuing to grow strongly.
Transport Intelligence