DC Velocity - January 2010

newsworthy

after nosedive, industrial real estate
giant is ready for recovery

At a December press gathering in New York City, executives of ProLogis pulled no punches when describing the industrial real estate developer’s near-death experience in 2008 and 2009. Using terms like “dire,” “plummet,” and “survival” to characterize the company’s ordeal, CEO Walt Rakowich and CFO Bill Sullivan recounted how the company sank into billions of dollars of debt before a new management team stepped in and pulled it out of its nosedive.

One purpose of the press conference was to detail the tactics the
developer’s new executive team has used since November 2008 to
relieve ProLogis of its near-fatal debt load. These included:
; Selling its China operations and property-fund interests in
Japan, and closing operations in the Middle East, India, and Brazil
; Selling some physical and financial assets, refinancing debt,
and amending and extending lines of credit
; Halting speculative building starts and terminating some land-
purchase agreements
; Renegotiating equity agreements with partners
; Aggressively concluding leases

; Reducing general and administrative expenses by 33 percent
Although some of their competitors expect warehouse demand to
remain weak in the coming year, Rakowich and Sullivan forecast
some improvement in 2010 for their own company and for the mar-
ket as a whole. The market for warehouses and distribution centers
is not overbuilt, they contended, noting that ProLogis’s U.S. proper-
ties saw a “modest increase” in occupancy rates in the third quarter.

“The supply of new [U.S. distribution facilities] is at its lowest
level in 25 years due to the lack of capital,” Rakowich said. “That is
going to open up.”
Many customers are looking at reconfiguring their logistics net-
works in response to rising transportation costs, although there is
no clear trend yet, he said.

—T.G.

LTL carriers still in rate battle

When FedEx Corp. released its fiscal second-quarter results Dec. 17, investors focused on numbers that were as good as, if not better than, what the company had forecast earlier in the month. They also drew a bead on FedEx’s conservative fiscal third-quarter guidance, which was well below Wall Street’s consensus. That news drove FedEx’s stock down more than $5 a share by the close of trading that day.

But the results coming from the company’s less-than-truckload (LTL) unit, FedEx Freight, may have a much bigger impact on who moves freight and at what price during 2010.

Year over year, FedEx Freight’s volumes rose by 3 percent. During the same period, however, yields declined by 12 percent. The rise in volumes and decline in yields indicate that FedEx is aggressively pricing its product in a bid to force rationalization of capacity in an LTL market plagued by continued weak demand and excess cargo space. In so doing, the company is looking to build what is known as “network density,” the key to any successful transportation strategy. It may also be looking to take market share from YRC Worldwide Inc. and make life even more difficult for the struggling trucker.

FedEx Freight isn’t the only carrier with a take-no-prisoners pricing posture. Con-way Inc. is following a similar tack, according to Charles W. Clowdis Jr., a long-time trucking executive who is now managing director, North America for consultancy IHS Global Insight’s global trade and transport division.

By contrast, Old Dominion, Estes Express Lines, Averitt Express, and AAA Cooper have been more conservative in their pricing, Clowdis says. He says FedEx and Con-way’s approach may be driven by the unique imperatives that come with being publicly traded companies.

FedEx Freight officials were unavailable for comment.

—M.S.

ground breakers

; Fast Lane Transportation Inc., which offers intermodal transportation and equipment services throughout California, has acquired an 80-acre intermodal cross-dock and equipment depot in Adelanto, Calif. Fast Lane will serve rail logistics providers, trucking companies, and equipment leasing companies from the site, which is located 100 miles northwest of the Los Angeles/Long Beach port complex.

; Exel Direct, which provides home and business deliveries of furniture and appliances, has opened two new facilities in Edison, N.J., and Hanover, Md.

; Ozburn-Hessey Logistics has leased a 325,000-square-foot distribution facility in Lebanon, Tenn. The warehouse, which was built in 2005, is located in the Rockdale Distribution Center.