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Which Truckers Are In for the Long Haul?

Freight carriers face near-term pressure, but our favorite names stand out from the pack.

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Trucking has been called the "backbone of America." If this statement holds true, then the strain of a struggling U.S. economy is putting many industry players in danger of taking a trip to the emergency room. With weak demand resulting in sinking volumes, freight carriers have been struggling of late. In this article, we examine the three major obstacles trucking firms currently face: weak demand, excess capacity, and intense competition. Although we believe the slump will carry into the near term, we will highlight a few companies we think have the ability to deliver solid returns to investors over the long run.

Tonnage Improving, but Demand Remains Weak
Because U.S. truckers possess minimal geographic diversification, business ebbs and flows along with the general health of the domestic economy. Demand for freight hauling began to soften during the latter half of 2006, so it's safe to say U.S. truckers have felt the effects of an ill North American marketplace for some time now. During the end of 2008 and into the first quarter of 2009, tonnage took a nosedive as customers aggressively destocked inventories in response to lower consumer demand. The American Trucking Association's seasonally adjusted For-Hire Truck Tonnage Index plunged 7.8% on a sequential basis (12.5% year over year) during December 2008--the largest month-over-month decline since April 1994. Although the index posted a 4.5% gain from January to February, March's 4.5% decline effectively erased this gain. After April contracted another 2.2% sequentially, tonnage was 13.2% lower than the year-ago period.

Anthony Dayrit has a position in the following securities mentioned above: CNW, HTLD, JBHT, KNX, MRTN, ODFL, WERN. Find out about Morningstar’s editorial policies.