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Trucks, jet planes and snow cones

KUAF

This week Michael Tilley from Talk Business & Politics discusses updates from ArcBest, a military training program in limbo and provides a quick glance at the news outlet's State of the State report.

Kyle Kellams: We will start off with one of our favorite conversationalists Michael Tilley who's with Talk Business & Politics. Michael welcome back to Ozarks Large.

Michael Tilley: Thanks for having me. I've never been called the conversationalist, and I hope that's a good thing and not just somebody who talks too much.

Trucking Updates

KK: Well, being a conversationalist, we are going to look at the positive implications of that term. Plenty of sort of trucking news in the past seven days, both with ArcBest and with Yellow Trucking and they could be connected.

MT: Yes, well I'm sure the ArcBest and ABF folks hope it's connected, and it seems like it will be. Late last week, Fort Smith based ArcBest—which is the parent company of ABF freight, one of the nation's largest less-than-truckload carriers—reported a pretty dismal second quarter number. Now, I say dismal, they had a stellar year, it was a record setting financial year last year in 2022, so they're up against some tough comparisons this year. They posted second quarter net income of a little over $40 million. That was down over 60% compared to the same quarter last year. The total revenue was a little over $1.1 billion, that was down just under 17% compared to last year. Their net income for the first half of the year—I mean, they're not going to go broke by any stretch—but net income in the first half of the fiscal year totaled just under $112 million that's down from $172 million in the first half of last year so, it's been a tough quarter.

What we're seeing a lot in the trucking industry—both with logistics and less-than-truckload long haul carriers—during and after COVID, and we've talked about this. It's just that all of those trucking companies were making money hand over fist as that supply chain unwound, so to speak. Well, all of that demand for trucks, all that demand for logistics is kind of moving back to a more normal level, so that's why ArcBest had a record year last year. But that demand is not there now this year. ArcBest is talking about how they're going to struggle, like if they laid off some corporate employees, but they're not saying how many. Then shortly after that, Yellow, which is a which is a competitor, they've been financial trouble for a long time. They filed for bankruptcy. We talked to the same analysts and got their notes, Jack Atkins and grant Smith, two analysts with Stephens, Inc. out of Little Rock. Their take is pretty much that the Yellow bankruptcy will help ABF quite a bit. Something to keep in mind is Yellow had about 22,000 unionized workers, primarily drivers and dock workers. ABF has 8,600, so that gives you an idea of the capacity and demand that is shifting out of Yellow, so that demand’s got to filter elsewhere.

Let's keep it simple. Let's say Kyle Kellams, you are one of four snow cone sellers on the block, and one of the guys can't afford electricity to make ice, and so now you're down to three. Your business is going to get a little better, assuming demand does not waver, you're going to sell a few more snow cones. So that's what we're seeing. We hope that's the case, obviously if you're an ArcBest share shareholder, you hope that's the case, and that the back half of the year kind of recovers a little bit for ArcBest.

Politics Could Delay Pilot Training Center

KK: If you are connected to the foreign military pilot training center that's going to be in Fort Smith, you're hoping that about $173 million comes your way from appropriations from the House and Senate. But, all the T’s haven't been crossed yet have they?

No, they haven't and I've talked to a lot of folks involved in this. This is Ebbing Air National Guard Base here which is home to the 188th wing Fort Smith co-located with the Fort Smith Regional Airport. They were selected to be the long-term pilot training center for these F-16 F-35 fighter planes for Singapore, Switzerland, Poland, Germany, Finland, and there are other countries that participate in what's called the foreign military sales program. They have to have a place to train these men and women on these advanced planes, especially the F35, and so the Air Force decided to consolidate all of that and they picked Fort Smith. But that takes money, it takes a lot of money. It's been estimated anywhere from $700 million to $800 million. I don't know about the Kellams household, but that's a hell of a lot of money and would be in my household.

KK: I'm going to have to sell a lot of snow cones is what that means.

MT: Just sell two for 450 million apiece. Sen. Bozeman's office and Congressman Womack’s office have been fighting to get money into the appropriations bills. There's roughly $20 million that was that Sen. Bozeman was able to obtain in the last fiscal year to help get this pilot training center off the ground, but they're going to need money and they're going to need it fast, because some of these people are going to be arriving late next year and that's not a lot of time to get a facility set up. The problem is though that they were hoping to have a lot of this set up and the funding secured and in place by Sept. 30, that's the end of the fiscal year for the federal government. But we've seen these politics emerge, the Senate version of what's called the National Defense Authorization Act, it’s pretty much a clean bill. It’s an $886 billion bill that states who gets what, but the House of Representatives version passed a bill that has language for example it prohibits critical race theory teaching in the military, it seeks to end diversity inclusion and equity efforts in the military, prohibits drag shows in the military, blocks any attempt to institute a military green new deal, just a lot of social politics type stuff. I've talked to some lobbyists and some staffers they say these type of issues have never been in a National Defense Authorization bill.

So, the problem is you have two different bills; how are they going to process? They go to conference committee, and have get talked out, and something eventually has to get approved, and a lot of the social conservatives in the house have said, “We're not going to budge.” On the Senate side, you have Sen. Tommy Tubberville from Alabama saying he's not going to budge on some spending and some other things on appointments until he gets some abortion provisions he wants. A lot of this is threatening to bottleneck the funding, as you said about $173 million, so it's something we're going to keep watching. The people I’ve talked to, they're concerned about it but it's not a high level of concern, but I suspect that as it drags out closer to September, my concern may increase.

Fort Smith Building Permits Up and Down

KK: if we take the temperature of building permits in Fort Smith it's up and down. Comparisons from Year-to-Date to last year are up 30%, but July was down.

MT: It was down considerably in July. Fort Smith, Greenwood and Van Buren, which we measure, $26.5 million, that was down about 70% from July 2022. And, it was down more than 70% compared to June, so quite a breather. I don't see it as a trend, you can't look at one month as a trend. The key thing though is to remember last year was a record year by far for the metro in terms of building permits. This year year-to-date permit numbers are up, as you said, they are up 30%, so a hefty jump.

Fort Smith is a lot of that, Fort Smith permits through July are almost 350 million, up over 56%. Van Buren numbers are down 71% from last year, but last year was the big Simmons food plant that was being permitted, 100 million plus facility and that's no longer in the works, I think that plan’s mostly finished. Greenwood numbers are up about 3.5%. Other than the tick in Van Buren, the numbers are up, it's just again a healthy increase. And as we talked about it, considering what interest rates have been doing, where they've been moved higher, if you would have told me that in July our permit numbers would be up 30% compared to a record in 2022, I would think maybe the heat had gotten to you. It's good to see. We're still seeing broad based residential and commercial construction, and as we always do, we keep watching to see if that continues to be here.

State of the State Mid-Year Report

KK: Finally, I want to point folks to: it's the middle of the year, so it's time for something that happens twice a year at Talk Business & Politics, that's the State of the State Report. You look at different industries, so far I know trucking and transportation has been updated, what else are we going to see at the state of the state report series?

MT: One of the things we learned is that we get a lot of positive feedback, because we try to take critical economic sectors and Arkansas and provide a good quick snapshot of where they are. We do that at the beginning of the year, we try to around the mid-year in July or August. We look at healthcare, we look at manufacturing sector, we look at the overall economy, we look at tourism industry, energy sector, retail and trucking. We get a lot of good feedback on it because, again, we seek out folks in the industry and they tell us what's going on. And if you have any interest in the world around you and want a good quick snapshot of what's going on in the Arkansas economy and in the different sectors, I would point you to our State of the State coverage. I'm proud of all of our coverage, obviously, but I think our reporters do just a hell of a job encapsulating the economy and where those different sectors are. I encourage you to go look at it.

KK: You can find it at TalkBusiness.net along with details about everything we've talked about and so much more. Michael Tilly is with Talk Business & Politics. Michael, thank you, as always, for your time.

MT: You're welcome, sir.

This transcript has been edited and condensed for clarity.

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Kyle Kellams is KUAF's news director and host of Ozarks at Large.
Michael Tilley is the executive editor of Talk Business & Politics.
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