5 Trucking Stocks That Could Boom

The top 10 trucking companies in the United States account for 12% of capacity. In this clip from Motley Fool Live, recorded on Dec. 14, Motley Fool contributor Lou Whiteman discusses the challenges of the trucking industry and reveals the three keys to making it work.

Lou Whiteman: Fools, I don't know if it's on your radar screen, but we had over the weekend, Central Freight Lines in Waco shutting down after 96 years. This was decided on Sunday. Nobody is coming to work on Monday. [It's] a tragic thing. But, I think we need to talk about it because there are stocks in the Fool universe that should be impacted maybe for the better. You hate to say good news, but this is the largest trucking company failure since 2019 when Celadon went down. Celadon was a bigger company so that was probably a bigger thing but this is a big deal. They provide coverage to 14 states, partial to another three, mostly in the Sunbelt. This is a company that had years of operating losses. They apparently tried to find a buyer but no luck. More than 2,000 laid off, and hopefully though, good news on that story is "large operators" looking to hire many or all of their drivers. Maybe hopefully we can minimize.

Why are we talking about this? There's a lot to look at here, and it fits into the bigger supply chain issue, but it's just how these things work. Trucking is a brutal industry. Yes, rates are up, demand is strong, but fuel costs, driver pay, all of these things are up too. In a good year, this is a 3% margin business. In a good year, they make 3% on average. Some do much better than that because scale is crucial. You have to have a lot of assets to throw around to make the inefficiencies work. But often, achieving scale means levering up, buying equipment, dramatically increasing your driver pool. All of these things Central tried to do and which got them in trouble. This was just a terribly weighed-down debt story. The problem with this industry is there's always someone undercutting you. The top 10 trucking companies in the United States account for 12% of capacity. I'll say that again. The top 10 is 12%. A huge number of them are one or two truck family owned businesses. There is no way to get pricing power. The thing you do is, you get scale, you get big corporate accounts. But again, that requires leverage, that requires money, and good luck.

Driving is a tough life. Truck driving is not on the top of the list for most people, and there is this weird, tough incentive where, in the times when you need more drivers, when the economy is strong, those are also the times the drivers tend to have a lot more options that don't require them to leave their families. This has always been a tough business even in the good times. CFC is just the latest, they're not the last.

The way you make this work and where it fits into the Fool universe because we have companies like Old Dominion (ODFL -11.04%) and XPO (XPO -2.78%) that are in this scale. The only way to lever up and also the only way to get the big accounts, relationship with your drivers. This is why Old Dominion has been such a great company over the years, just the way they work with their drivers and capital market access. Central's owners had put hundreds of millions, they claim, prior to the shutdown to keep them afloat. This was not a public company. They were not healthy enough to go public. It could've been a different story if they could've tapped markets right here.

Why should we care other than it's sad to see all these people out of work? But truth is, this is bullish for a lot of their big rivals. There are a lot of publicly traded LTL. This is the most complex part of trucking, where instead of just taking a full shipment from one Walmart (NYSE:WMT) warehouse to another, you are doing a truck full of goods for different customers going to different locations. It's just a lot more complex. It's less than truckload LTL. We already, as I said, had strong pricing power going into 2022. We just took a top 20 player out of the system overnight. Old Dominion, which is a Fool pick, XPO, which is a Fool pick. TFI (TFII -4.68%), I think is in the Fool universe. ArcBest (ARCB -6.13%), the artist formerly known as Arkansas Best. SAIA (SAIA -3.38%). This should benefit all of them because there is suddenly demand that just has nowhere to go in a really tight season. I was already bullish on trucking heading into 2022 just looking at the world. I wasn't factoring in a massive consolidation moment like this but it should help their pricing power.