The Upside Of Trucking

By Arthur Pinkasovitch | August 09, 2010 AAA

The trucking industry has been facing a recession for nearly four years, as freight volumes began to decrease in 2006 and persisted through the downturn of the overall market. As gas prices escalated when oil was trading at $140/barrel and transportation demand pulled back, many trucking companies were forced into bankruptcy. Even, YRC Worldwide (Nasdaq:YRCW) was on the verge of collapse in 2009.

Andy Ahern, of Ahern and Associates stated that he would be surprised if at least 2,500 trucking companies did not go bankrupt in 2010. In 2008 and 2009 5,500 and 2,200 truckers went bankrupt respectively.

IN PICTURES: 5 Investing Statements That Make You Sound Stupid

Trucking Opportunity
Despite this disappointing trend, an optimal opportunity may exist to invest in the trucking industry. Firstly, those remarks about bankruptcies were made in February when the economic outlook remained gloomy and volumes had not experienced a full rebound. the situation is slowly being reversed. In its latest quarterly report, Vitran Corporation (Nasdaq:VTNC) experienced a 293% increase in net income due to an increased number of shipments and total shipment weight. The railroads have experienced a similar trend as CSX Corporation (NYSE:CSX) reported an increase of 44% in metal shipping volumes and 63% in automotive. (Learn about the companies that aren't affected by market downturns, read 4 Characteristics Of Recession-Proof Companies.)

Railroad Correlation
A strong correlation exists between railroad shipping volumes and those associated with trucking; trains deliver goods to hubs, which are then transferred to their final destination via trucks. The Association of American Railroads recently reported that monthly freight volume is up 4.1% from 2009, but still down 14.6% compared to 2008 levels. Such data signals that there is still room for improvement in the transportation industry as industrial activity continues to resume. Trucking companies such as Con-way (NYSE:CNW) which experienced a volume surge to record levels, still have room to appreciate in value once the industry reverts to pre-recession levels.

Big Players
Most of the bankruptcies within the industry involved small private operators while the major players were able to avoid filing for Chapter 11 or Chapter 7. As a result, the larger trucking firms have been able to gain a larger customer base through asset purchases and consolidation. Furthermore, as has been observed in the railroads, the tough economic conditions forced the sector to modify their business operations to cut unnecessary costs and improve efficiency. J.B. Hunt Transportation Services (Nasdaq:JBHT) and Old Dominion Freight Line (Nasdaq:ODFL) are among the two largest transportation companies which have produced double-digit returns year to date while the overall market has remained fairly flat.

Bottom Line
The trucking industry serves a vital component of the economy, transporting consumer goods to their final selling destinations. A newly introduced government transportation regulation is indented to improve and ensure the sustainability of the industry. The FREIGHT Act of 2010 will create an official policy which aims to improve the security and efficiency of trucking. Such measures should play well for transportation investors. (Although the DJIA only includes 30 stocks, it can tell you a lot about the market as a whole. To learn more, see Why The Dow Matters.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

You May Also Like

Related Analysis
  1. Chart Advisor

    Profit From Holiday Spending With This ETF

  2. Chart Advisor

    How To Trade The Biggest U.S. Companies In 2015

  3. Chart Advisor

    'Tis The Season For Food And Beverage Stocks

  4. Chart Advisor

    Commodities Set Up For A Continued Move Lower

  5. Chart Advisor

    Are These Uptrending Stocks About To Move Higher?

Trading Center