Truckers, analysts say peak season is not peaking
Signs point to more consolidation in trucking industry
By Dave Hannon -- Purchasing, 10/2/2008 10:04:00 AM
At a time when trucking firms are usually struggling to keep up with demand for their services, the current economic slowdown has most U.S. truckers scaling back on capacity and looking for ways to reduce operating costs due to a continued slump in demand.
The American Trucking Association's truck tonnage index declined 1.6% in August. ATA Chief Economist Bob Costello said, “We are forecasting a mild recession later this year and early next year. Make no mistake about it, freight volumes are weakening.”
“To date, the traditional peak seasonal uptick in demand has been muted so we expect the challenging business environment to continue through the 2008 fourth quarter," said Con-way CEO Doug Stotlar this week.
Stifel Nicolaus analyst David Ross said the decline in ISM's manufacturing index generally correlates with less-than-truckload carrier tonnage, which could mean that volume could remain sluggish in the sector through the pre-holiday period.
YRC Worldwide, parent company of Yellow and Roadway, recently announced a plan to integrate the sales teams at the two companies in an effort to reduce overall costs in the current down market. YRC’s CEO Bill Zollars said "We do not see signs of the economy improving in the near term, but as we merge Yellow and Roadway, we expect operating results to show meaningful improvement."
Most market watchers felt YRC’s integration will present challenges. In a recent research note, Ed Wolfe of Wolfe Research, says “History is filled with LTL mergers that lead to losses in customers and integration problems and none that we can think of that went off flawlessly. A flawless or near flawless network merger in the current LTL environment, given YRCW’s tonnage losses, multiple prior restructuring attempts and recent likely concerns of employees (because of headcount reductions and pension changes) seems like an extremely tall order.”
On top of lower volumes, some trucking firms are feeling the effects of tight credit markets directly. A Michigan television station reports that trucking firm Gainey Transportation recently defaulted on a $238 million loan with Wachovia Bank, which led Wachovia, which is in the midst of a sellout to Citigroup, to sue Gainey.
“Everybody works on credit,” said trucker Rand Fulmer in the television station’s report. “You know, if your credit is even marginal then people are hesitant about giving you the money you need for that freight that you want, or perhaps for you to get that freight shipped out."
And the slumping demand and tight credit markets also mean truckers are planning dramatic decreases in equipment spending. In a recent conference call, tranpsortation market analsyt FTR Associates said trucking firms have lost value on their assets and are forced to market down their value, which impacts their ability to raise new equity.
"The owner operators and small and medium-sized fleets are already having difficulty getting funding and this will likely start moving up the ladder over the next several quarters," said Erik Starks, president of FTR. "With credit tightening it will be more difficult to finance that additional piece of equipment. I don't see anything recovering until 2010."
See also: Trucking market continues to go soft
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