Waiting for Godot: When Will the Recovery Arrive?

The mood at the BB&T Capital Markets 25th Annual Transportation Services Conference in Miami last week could best be described as “cautiously optimistic.” Everyone agreed that the freight markets (marine, air, rail and trucking) had bottomed sometime during the third quarter of 2009 and have been bumping along the bottom ever since. Everyone agreed that the worst was behind us and Armageddon had been sighted and avoided and good companies would live to fight another day. But no one was sure just when the actual recovery would begin and, more importantly, take hold. Oh sure, we’ve had spikes here and there – in drybulk and tankers, notably – but these were largely attributable to seasonal factors and quickly fizzled out. Right now, for example, the container business seems to be on a roll, but we’ll see how long that one lasts.

The beauty of this particular conference (aside from its setting at the fabulous Biltmore in Coral Gables) is that it goes beyond maritime and includes the other three intermodal categories, so you get a wider perspective and a better idea of what is happening in transportation markets generally. Transportation, after all, is a leading economic indicator. When shipments pick up, it’s a sign that economic activity is improving and that good times lie ahead. Shipments have picked up, but mainly to China and Asia generally. For the recovery to truly take hold, the U.S. has to join in, not to mention the E.U. (which currently has its hands full with Greece and the other inelegantly tagged “PIIGS” countries – Portugal, Ireland, Italy and Spain).

We heard the same key messages repeated over and over again in company presentations: We’ve cut costs, slashed or omitted dividends, streamlined operations, and are “uniquely positioned” for the upturn. We’re hoarding cash, selling off older assets, and reducing capital spending to a bare minimum. When the recovery arrives, we’ll be ready.

“The recovery is underway,” boldly stated Don Campbell of Canadian Pacific Railway (CP). Hallelujah! That was good news. But not everyone agreed. Let’s look at a sampling of those companies that did and why they seem better positioned than others to prosper in the coming Great Recovery.

Atlas Air (AAWW) was one. Here’s a company that operates 747s and 747s only for customers like DHL and the U.S. military and also trains pilots to fly Air Force One, among other activities. It carries high-value and high-security cargoes to places like Iraq and Afghanistan for the military and all over the world for everyone else. “Asia is half our business,” proclaimed its CFO, who went on to paint a rosy picture of a company that had a great fourth quarter and a stronger-than-expected January.

Rand Logistics (RLOG) was another. We must confess we had never heard of Rand Logistics, but it is a company well worth knowing. Rand is a leading provider of bulk shipping services on the Great Lakes with a fleet of 10 self-unloading bulk carriers and three conventional bulk carriers. The fleet is old and Jones Act-protected and cannot be replaced or duplicated because of cost, but no matter. It operates in fresh water and is assiduously maintained and has an indefinite lifespan (at least according to the principals). Its major cargo is limestone with salt being number two. Despite a sailing season of only nine months (the Great Lakes are frozen over from January to March) and a depressed economy, Rand had a record year in 2009 and expects to do even better in 2010 – even if there is no recovery. Private equity firm Hyde Park Holdings, along with Rand’s officers and directors, have about a 15 percent ownership interest in the company.

Two other companies with upbeat stories to tell were Eagle Bulk Shipping (EGLE) and Aegean Marine Petroleum (ANW). You’ve heard us talk about Aegean before, so let’s start with Eagle. Eagle is that rare bird – a U.S.-based bulk shipping company headquartered in New York City, no less. It’s the largest operator of Supramax carriers in the world. Supramaxes are large Handymaxes, the size of two football fields in length. For comparison, Capesizes, the biggest of the bulkers, are three football fields in length. With its homogeneous fleet and ability to enter ports that larger vessels cannot and segregate cargoes in a way that larger vessels cannot, Eagle had a “very busy last few months,” according to its CFO, as it took delivery of two newbuilds in 2009 with five more on the way (all Supramaxes, of course) in the first quarter of this year. All told, Eagle anticipates delivery of 15 new Supramaxes this year and next – in stark contrast to those companies busy cancelling or postponing orders and a resounding affirmation of its confidence in the future.

Aegean, of course, is the fast-growing consolidator in the field of bunkering. Its motto is “Powering the World,” and its growing fleet of 42 vessels in 14 markets around the world continues to outperform. It is part of the Peter Georgiopoulos portfolio, which includes General Maritime and Genco Shipping & Trading, so it is well-managed and well-financed and in a good position to continue gobbling up smaller competitors. It is also making a big move into marine lubricants in an effort to expand its product offerings.

So there you have it – a snapshot of the transportation industry in its various forms. We haven’t mentioned trucking, which had the biggest representation at the conference, although the most interesting fact we learned was that 25 trips around a parked tractor trailer equals one mile. So when you see drivers in rest stops walking continuously around their rigs, that’s what they’re doing – exercising. All part of getting ready for the Great Recovery.

BB&T, incidentally, stands for Branch Banking and Trust. It was founded in 1872 by Alpheus Branch, the son of a cotton planter, in the area around Winston-Salem, North Carolina, where it continues to be headquartered. We were the guest of Kevin Sterling, Senior Research Analyst for BB&T Capital Markets and one of the co-hosts of the conference. Thank you, Kevin, for a most informative conference and a job well done! – MarEx

Jack O’Connell is the Senior Editor of THE MARITIME EXECUTIVE. He can be reached with comments on this editorial at [email protected] and/or join the Maritime Executive ‘Linked In’ group by clicking HERE.