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Stock Strategist Industry Reports

Trucking Firms Have Value in Tow

Trucking volume and rates still have ample room to recover.

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After falling off a cliff in 2009, truck tonnage still remains below healthy historical levels and freight rates still have room to recover. When the soft U.S. economy caused freight hauling demand to drop in late 2008, the industry's excess capacity compounded the damaging effect of lower volume, since truckers bid down rates to try to keep their heavy iron running. Near-term volume trends are still uncertain, even though demand has recovered off its 2009 nadir. We believe pricing is also poised for recovery, but the timing of material rate improvement is also uncertain. That said, in mid-October,  Landstar (LSTR) reported its third-quarter revenue per truck improved 14% year over year, and we're encouraged to see general rate increases announced at several large less-than-truckload carriers. We think this bodes well for a better 2011.

Market Volume Trends Up Year over Year, but Lately Sliding Sideways Sequentially
The American Trucking Association's seasonally-adjusted for-hire truck tonnage index declined sequentially in three of the past four months, including a 2.8% sequential decline in August, the most recently-reported month. Year over year, however, August improved 2.9%, and year to date, the seasonally-adjusted tonnage index improved 6.2% versus 2009. This is welcome news compared to last year. In December 2008, the seasonally-adjusted index plunged 7.8% sequentially and 12.5% year over year--the largest month-over-month decline since April 1994. Year-over-year declines remained in the 10%-13% range through the first half of 2009, but demand improved during the back half of the year. Based on the ATA data and carriers' reported results, we estimate that volumes bottomed around the end of the summer of 2009. In the final month of 2009, the index's 1.3% sequential increase (a 1.2% increase from December 2008 levels, and the first growth since September of 2008) kicked-off the recovery, but for full 2009, the index finished down 8.7% from 2008 levels.

Keith Schoonmaker does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.