The U.S. trucking sector will look this week for signs of a recovery in shipments following the traditional 14-day slowdown that accompanies the Chinese new year holiday.
Imports have driven the U.S. freight sector - road and rail - over the past three years, with the trucking sector benefiting most from "inter-modal" shipments that combine the two means of transportation. Rail companies have been able to fall back on rising export business to counter the impact of weak housing and manufacturing, but truckers have been left to rely on what the U.S. consumer does next.
If consumer appetite for Chinese-made consumer goods fails to spark in the coming weeks, the problems that have plagued the trucks that ferry them to stores may not have receded.
While some analysts suggest that both demand and capacity issues may be bottoming out for the truckers, others believe shares in the sector have run ahead of the data.
"There's a lot of inconsistency out there (in the data), but things are still pretty darn weak," said Eric Starks, president of FTR Associates, an Indianapolis-based freight consultant. While tonnage levels have increased in recent weeks, the average size of loads in the less-than-truckload segment - in which smaller shipments are consolidated - has declined, and more trucks are running at below capacity.
Some of the largest operators, such as J.B. Hunt Transport Services Inc. (NASDAQ-NMS:JBHT) ( JBHT), have bumped 52-week highs in recent sessions. The stock was up 6.7% to $ 32.76 amid a broad sector rally Monday afternoon, despite uncertainty over volumes and the impact of lingering overcapacity on pricing.
Other operators such as Con-Way Inc. (NYSE:CNW) (CNW) and Old Dominion Freight Line Inc. (NASDAQ-NMS:ODFL) (ODFL) were also trading near all-time peaks on Monday.
YRC Worldwide Inc. (NASDAQ-NMS:YRCW) (YRCW), the industry leader by sales, surged 13% to $14.68 Monday after last week reaching its lowest level since 1998. YRC has warned repeatedly about the impact of weak economic conditions, but it also has had its own operational problems. Shares are down 14% year-to-date.
Trucking stocks have received little pep from trucking-industry executives, who expressed little optimism about the short-term outlook last week at a conference hosted by JPMorganChase (JPM).
Moreover, the weak operating environment led Edward Wolfe, sector analyst at Bear Sterns, to predict in a note that many in the sector would miss their first-quarter earnings' targets. Some, like Werner Enterprises Inc. (NASDAQ-NMS:WERN) (WERN), have already guided to the lower end of forecasts.
Truckers are already battling the impact of higher fuel prices, with diesel costs rising faster than that of gasoline. While costs are partly mitigated by fuel surcharges, industry observers still expect a shakeout of some smaller operators faced with the annual renewal of truck plates and licenses over the next few weeks.
Any bankruptcies could help alleviate the overcapacity that has plagued the industry over the past two years, a legacy of new emissions rules introduced in 2007 that pushed many operators to pre-buy compliant trucks ahead of time and push them into service.
Larger operators have also been helped by the problems faced by YRC. The Kansas City-based company has struggled to integrate acquisitions, and operational problems have seen it lose market share.
The most positive noises in conference presentations last week, from Bill Zollars, YRC's CEO, reflected improved pricing in recent contract renewals.
Much of the optimism that remains priced into the sector reflects the absence of "destructive" pricing, despite the lingering overcapacity. "There is still some pricing discipline out there," said Steve Brown, director of corporate finance at Fitch Ratings in Chicago.
-By Doug Cameron, Dow Jones Newswires; 312-750-4135; doug.cameron@dowjones.com
(END) Dow Jones Newswires 03-24-08 1523 Copyright (c) 2008 Dow Jones & Company, Inc.
