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LTL hard-hit by recession

Jan. 15, 2009
The freight market will not recover until the end of the year at the earliest, with LTL carriers in the most dire straits because of overcapacity and weaker demand, according to Longbow Research analyst Lee Klaskow

The freight market will not recover until the end of the year at the earliest, with LTL carriers in the most dire straits because of overcapacity and weaker demand, according to Longbow Research analyst Lee Klaskow.

“We don’t expect the freight market to come back until the fourth quarter of 2009,” Klaskow told FleetOwner. “The numbers are horrible right now. Whether we’ve reached the bottom point is anybody’s guess, but the first half of 2009 is going to be ugly. But it won’t be quite as bad in the third quarter, and then we expect it will be flat in the fourth quarter.”

Klaskow said that while diesel prices have fallen 51.4% from their July 14 peak of $4.764 per gallon, “it would be indicative of some good things happening” if fuel comes back say 10 to 15%. “The problem is we’re in a recession and people are tightening their belts, and they’re putting money in the bank instead of spending it on goods,” he explained.

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However, Klaskow said that transportation companies are often able to increase profitability during times of falling prices, as surcharges typically fall at a slower rate than actual fuel costs for fleets.

“Large companies will be less impacted because they don’t need to get credit,” Klaskow said. “Truckload guys are in a better position than LTL because of operational leverage. A lot of big truckload carriers don’t have any debt on their balance sheets. “

The best case for the industry is the hope that consumers have learned their lesson and come back spending responsibility. Carriers also should be helped by the capacity that has left the market. That factor could lead trucking to recover before the economy comes back, Klaskow said.

However, it’s also possible the economy will get mired in a deep recession until late 2010 if expected federal stimulus plans aren’t enough or are too little, too late. Klaskow said that while Longbow expects GDP to be down 2 to 3% in 2009, if it’s any lower, it would delay recovery.

According to Longbow’s survey of LTL carriers, industry fundamentals continued to deteriorate during December as freight levels declined further due to the recession. Available capacity remained abundant because of weaker demand for LTL freight services, negatively impacting equipment utilization rates and weakening operating margins for asset-intensive LTL carriers.

The survey also found that respondents had a generally pessimistic outlook for LTL industry fundamentals over the next three to six months, Longbow said, noting that softer demand and more aggressive pricing will limit revenue growth and earnings upside for these carriers.

Longbow said it has lowered its 2008 4th quarter, 2009 and 2010 earnings per share (EPS) for Con-way Freight, as well as its 2008 4th quarter estimate for YRC Worldwide. However, the benefits from the Teamsters’ wage givebacks led Longbow to increase its 2009 and 2010 EPS estimates for YRC.

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