Baird analysts see domestic freight, rates up

The latest monthly truck, intermodal and rail trends report prepared by analysts at Robert W. Baird & Co. Inc. spells some good news for trucking in terms of both freight volumes and rates

The latest monthly truck, intermodal and rail trends report prepared by analysts at Robert W. Baird & Co. Inc. spells some good news for trucking in terms of both freight volumes and rates. Spot market demand indicators are modestly above normal seasonal trend line for both spot market truckload and rail demand,” stated the report’s authors, Jon A. Langenfeld and Benjamin J. Hartford.

Lean inventories are prompting more expedited shipping activity, which can be seen in November’s truckload spot market activity, domestic express parcel, and international airfreight,” the analysts continued.

Domestic freight overall was seen as “less worse,” on easing comparisons, firming freight environment, and increased freight demand due to lean inventories. As a result, the authors said the Baird Freight Index was pegged at -4.6% in November-- an improvement from the -7.7% recorded in October.

Truck freight remained “stable” but with “signs of month-end spot activity.” More specifically, truckload demand showed “seasonal build in October and November as inventory destocking stopped, auto production demand continued and seasonal imports increased.”

Langenfeld and Hartford noted that industry anecdotes reflect stronger spot market activity to end the month, which they said was a function of lean inventories. In addition, they “look for trends to turn sustainably positive yoy [year over year] in 1Q 2010.”

As to rates, the analysts found that truckload freight rates bottomed and are “stable” while LTL freight rates “remain challenged.” Regarding truckload, they said they “continue to view 3Q as the bottom in TL pricing.” They pointed out that “firming freight rates in this weak environment allows investors to begin appreciating the extent to which capacity has exited the market (through lack of new truck buying), which should lead to more bullish expectations for pricing once economic demand improves.”

The authors said LTL rates remain under pressure thanks to “competitor efforts to strain the competitive environment as YRCW continues its fight for survival.” They said trucking is “looking for more clarity on YRCW prospects with the Dec-15 debt tender expiration, but we do not expect such clarity from this event” Given the unsustainable low rates, they added that to “expect pricing to bottom beyond 1Q regardless of the YRCW outcome.”

Langenfeld and Hartford also pointed out that diesel prices have “rebounded roughly 36% since their May/April lows and have turned meaningfully positive on a yoy basis.” They said the current December price of $2.748 is approximately 15% above 2008 on a yoy basis. “with weaker comparisons continuing into early 2010.”

A listing of all companies covered by Baird U.S. Equity Research and applicable research disclosures can be accessed here.

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