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ANALYSIS * USA - Trucking Stocks Find Profits a Haul
It may take until 2011 for carriers to see improved pricing power and its payoff
(Picture from mylifechangesnow)New York,NY,USA -Business Week, by David Bogoslaw -24 Jan 2010: ... While the broader economy has shown signs of improvement, the recession for freight haulers isn't over. In fact, some people think it's entering its fifth year, says John Larkin, an analyst who covers transportation stocks at Stifel Nicolaus in Baltimore. Trucking companies are entirely dependent on the domestic economy, which isn't expected to recover as quickly as the global economy... Without a major reduction in capacity, the return to a constrained supply-and-demand balance that would drive stronger pricing could take longer than many investors are now discounting in freight transportation and logistics stocks, the note said
* How much capacity does the trucking industry need to shed?
(Picture from mylifechangesnow) Little has been taken out in the past 12 months, as banks and leasing companies are reluctant to put trucking firms into receivership or bankruptcy because they don't want to own a lot of devalued truck assets they can't sell, says Larkin. With freight volumes down 22% from their peak in 2005 and rebounding slowly, he doesn't project a tighter supply/demand balance until at least mid-2010 and maybe not until 2011... Some companies with fairly large fleets of trucks have folded in recent months and more will fail in the first quarter, especially as diesel fuel prices keep rising, equity analyst Todd Fowler told Bloomberg BusinessWeek in an interview. That does more than just reduce excess capacity. It causes a lot of freight to gravitate toward more stable trucking operators—mostly publicly traded—as the more savvy manufacturers and retailers try to avoid having freight tied up with financially unstable carriers, says Fowler... Jon Langenfeld, an analyst at Robert W. Baird & Co., is more sanguine about excess capacity. In a Jan. 15 research note, he said that firming freight rates in this weaker environment highlight show how much capacity has exited the market through a lack of new truck buying in the past three years. Improved discipline among carriers and tight credit will also temper additional new capacity and support
* What a YRC bankruptcy would mean
(Picture from mylifechangesnow) For the less-than-truckload carriers, which generally carry cargo from multiple shippers, each weighing 1,000 pounds on average, a lot of hope is riding on the eventual demise of beleaguered YRC Worldwide, the biggest carrier in this part of the industry... YRC's debt-for-equity swap makes it unlikely the company will have to file for bankruptcy before April, Fowler wrote in Keybanc's Jan. 11 research note... And it could get a tax refund of several hundred million dollars if Congress passes legislation designed to help keep struggling businesses afloat by returning any cash taxes they paid in the past five years. The refund would allow YRC to operate for five to six more months, he says... A YRC bankruptcy could allow less-than-truckload freight rates to rise 5% in the first year after the bankruptcy filing, as carriers negotiate higher rates for portions of their books each quarter. It would also result in market share gains and more efficient use of the network by competitors... But Larkin at Stifel Nicolaus believes it's dangerous to bet too much on YRC disappearing. In past downturns, a company that's had all the trouble YRC has would have failed... Over the longer term, the "new normal" level of demand is likely to be higher than the current level but still depressed relative to the demand boom in 2004 and 2005, according to the Keybanc note. Rising fuel prices, tougher safety, security, and environmental regulations, and inadequate funding for infrastructure or development of an integrated nationwide freight transportation plan will likely increase transport and logistics costs over the next decade, the note said...
Labels: trucking industry analysis USA
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