The American trucking industry has been one of the hardest-hit and slowest to recover from the recession. The dearth of business and consumer activity caused volumes of goods shipped to plummet and led to significant overcapacity in the industry. In a crowed and fragmented industry with intense competition, this overcapacity led to lower pricing, cutting into whatever profits the shippers were making.
Even more daunting is the significant operating leverage that companies in this industry are forced to take on. The fixed costs to run a trucking fleet are extremely large because of the massive investments in trucks, trucking equipment, tractors, and shipping terminals for the goods.
One of the largest companies in the industry YRC Worldwide
It is important for investors to keep an eye on how trucking companies are fairing because the industry is an important economic bellwether of our economy. The trucking industry represents 68% of all tonnage freight shipments domestically. This includes consumer retail goods as well as manufacturing goods.
Measuring the slowdown
The trucking industry growth is measured by the American Trucking Association Tonnage Index, which is a survey of a wide variety of trucking and shipping companies. Some companies included in the index are Ryder
The tonnage index and the trucking companies have seen significant improvements in shipping tonnage since April of 2009, as the global economy began its recovery. However the index has begun to turn down again, and August's 2.7% drop from July represents the largest monthly decrease since the upturn began in early 2009. Bob Costello, the chief economist at the ATA, suggests that this is not a good sign. Costello said, "We fully anticipate sluggish economic growth for the remainder of this year, and the latest tonnage numbers are reflecting that slowdown."
While the decline is certainly notable, the year-to-date tonnage gain this year is still 6.2% higher than through the same period last year.
A pick for the sector
It is not easy to get behind a company with more than $417 million in long-term debt and only $7 million in cash, but as I mentioned, that's what you get in a highly leveraged industry. J.B. Hunt
J.B. Hunt has diversified its business to the point where intermodal transport now is close to 50% of the company's revenues. The company has partnered with rail transportation companies Burlington Northern Santa Fe and Norfolk Southern
The Foolish bottom line
While the economy seems to be recovering from the recent downturn, the most recent tonnage survey hints that the trucking industry still has a long way to go, especially as overcapacity in the industry remains. In looking for investments, companies such as J.B. Hunt who have diversified shipping revenues will fare the best if the economy falters.
Do you think the ATA survey is a sign of things to come in the trucking sector and the economy? Let us know in the comment box below.
Andrew Bond owns no shares in the companies listed. FedEx is a Motley Fool Stock Advisor choice. United Parcel Service is a Motley Fool Income Investor recommendation. The Fool owns shares of FedEx and United Parcel Service. Try any of our Foolish newsletter services free for 30 days. 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.