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The Logistics of Transport

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I recently discussed the difficulties of the trucking industry in an economy that's still a long way from a full recovery.

While the American Trucking Association's recent tonnage index indicated its largest decline since the economic recovery began in early 2009, there has also been positive data showing that some segments of the industry are not deteriorating. The most recently reported durable-goods orders, excluding transportation equipment orders like aircraft, showed an increase of 2% -- much larger than economists were expecting. Durable-goods orders are important for truckers, because they show that consumers are spending more on "white goods," which include large household purchases like refrigerators and washer/dryers.

While the improvement in durable goods is a boon, overcapacity and overleveraging still plagues operators. Look no further than industry poster child YRC Worldwide (Nasdaq: YRCWD  ) , which just engineered a reverse stock split. YRC will be able to remain on the Nasdaq, but without the penny-stock-chasing crowd to buoy YRC's shares, investors may be more apt to focus on how the company is cleaning up its balance sheet and turning around its business. Unfortunately for YRC, both those efforts remain works in progress.

While some companies may have to unwind their significant debt loads though bankruptcy, several important players in the trucking industry do enjoy pristine balance sheets.

Get logistical
Shipping logistics companies and third-party logistics (3PL) parties have made it through the economic downturn relatively unscathed. Perhaps the best of these companies is C.H. Robinson (Nasdaq: CHRW  ) . The 3PL company provides logistics solutions and trucking services to close to 35,000 customers. Most notably, the company does not own any transportation equipment; it simply uses its expertise to match customers with fleets. This allows C.H. Robinson to maintain a spotless balance sheet with a net cash position.

The intermodal segment has become an important business unit for trucking companies looking to diversify. For J.B. Hunt (Nasdaq: JBHT  ) , intermodal is the company's largest segment, making up 55% of its revenue. It has partnered with rail transportation companies like Norfolk Southern (NYSE: NSC  ) to transport products between customers and rail stations. Railway shipping is a less expensive option for clients, so with oil prices on the rise again, intermodal volumes should increase. A trucker that can tap into that market has a competitive advantage -- and a buffer, if high oil prices deter truck-based shipping.

Not to be left out, 3PL companies, with their low debt loads, give investors a way to benefit from increasing intermodal volumes without worrying about leverage. While C.H. Robinson is best in breed, logistics companies Expeditors International of Washington (Nasdaq: EXPD  ) and Hub Group (Nasdaq: HUBG  ) , have sparkling balance sheets, while Pacer International (Nasdaq: PACR  ) has a debt-to-equity ratio of just 21%.

Wait for the turn
Although many strong players with diversified businesses can offer investors exposure to the trucking industry, it makes sense to hold off on asset-heavy truckers that are relying on improved demand to maximize fleet efficiency. Fools should put on the brakes here, at least until we begin to see greater improvement and clarity in key economic indicators.

Andrew Bond owns no shares in the companies listed. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.

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