Drilling Down Demand: Opportunities for Same Day Growth
Messenger Courier World Magazine - Fall 2009
by Kristyn Brady

These days everyone has one topic in mind: the economic recovery. Seasonally adjusted truckloads and LTL tonnage are down 20.4 and 21.1 percent, respectively, for the first five months of 2009 vs. 2008. Advance retail sales data for the first half of 2009 show retail sales excluding food down 11 percent from the first half of 2008. The minutes of the Federal Reserve Board's June meeting, however, show that officials predict an upturn in economic activity as early as the second half of 2009. It is too early to point to any definitive conclusion regarding the economic future of our country, but the outlook for the $9.4 billion same day transportation segment may be a little less hazy.

This is not to say the same day segment is immune from the impact of falling GDP and rising unemployment. National unemployment has risen to 9.5 percent and full year Real GDP is expected to contract between one and two percent. Fewer employees translate into lesser need for interoffice mail and messenger services, further eroding the document business that was once the lifeblood of the segment. Legislative activity in the past ten years necessitated a paradigm shift for same day companies. With Check21, which allowed banks to transmit electronic copies of checks between branches rather than requiring physical transportation, and the E-sign Act, which recognized the validity of electronic signatures, same-day was forced to re-invent itself to survive the declining document volumes on which it once thrived. This change, while at the time was devastating, is now the silver lining for some carriers that have diversified into heavier freight and customized services.

The grim retail sales data reveal a more complex story for same-day in a less aggregated form. DisplaySearch, a flatscreen market research firm, reports that North American shipments of flatpanel televisions actually grew over 20 percent in the first quarter. Same day companies offering white glove delivery and installation of expensive items like televisions stand to benefit from continued conversion from cathode ray tube and rear projection to flatscreens.

Likewise, the retail data does not properly reflect trends in sales of pharmacies and drug stores. For March, April, and May, retail sales at these stores grew four, six, and two percent respectively. Prescription sales for drugstore chain Walgreen's most recent quarter grew 8.2 percent. While the economy may be faltering, time continues to march on and America continues to age. With an estimated 7.6 million Americans receiving home medical care and an additional 1.4 million in certified nursing facilities/nursing homes, the market for medical deliveries is not declining at the same rate as the overall economy.

This year, two of the largest automobile manufacturers were forced to file for bankruptcy and new car sales fell 28 percent in the first five months of 2009. Yet, same day players that have entered the service parts and aftermarket autoparts delivery business may actually be seeing growth. Americans are not buying cars like they once did. Instead they are keeping cars longer. This translates into more "do-it-yourself" and "do-it-for-me" maintenance. Historically, when sales of cars drop, sales of autoparts actually improve. Corresponding autoparts retail sales for the same five months referenced above grew a surprising one percent. Drivers may not trade in clunkers, but they will still replace a headlight.

May 2009 sales of new and existing homes were down 33 and 4 percent, respectively. The downstream effect is lower sales of home appliances. Major appliance retailers have cited declines in home appliance sales as contributing factors to weak financial performance in recent quarters. In addition, larger trucking companies have targeted last mile deliveries as an emergent vertical. Recent results of J.B. Hunt highlight expansion of the final mile delivery channel within its Dedicated Contract Services (DCS) division. Trucking companies have the ability to provide both last mile and long haul transportation for clients. Same day companies currently in the last mile and home delivery space must be prepared to defend their value proposition and focus on customer retention.

As with other transportation segments, expect consolidation within same-day as larger, financially sound companies seek to diversify service offerings or expand their geographic footprint via strategic acquisitions at reasonable multiples.

• Ace Expeditors acquired Express Courier in January 2008 and Network Express in March 2009 to develop a stronger presence in medical and pharmaceutical deliveries.
• Beavex acquired Xcelerated Xpress in May 2009 to expand its presence in the Western United States.
• Dynamex is also on the lookout for strategic acquisition opportunities and franchising prospects to expand its network.

The state of the economy at large is beyond the control of any one company. Strategic forays into relatively less cyclical, yet time-sensitive consumer verticals, such as automotive parts and pharmaceuticals may serve to insulate companies against declines in the core documents business and trucking substitution in home delivery.

Kristyn Brady is an analyst with SJ Consulting Group, Inc. based in Pittsburgh.