Fleets Expected to Report Better 4th-Qtr. Results

This story appears in the Jan. 25 print edition of Transport Topics.

Stronger freight demand in the waning days of 2009 is fueling expectations that publicly traded carriers will report better performance when they begin disclosing fourth-quarter results this week, industry analysts said.

At least eight are scheduled to announce earnings in the coming days, and some truckload fleets, such as Landstar System Inc. and J.B. Hunt Transport Services Inc., are expected to top their third-quarter performance.

“Truckload demand remains stable with encouraging activity in our spot truck demand indicator,” said Jon Langenfeld of Robert W. Baird & Co. in a Jan. 18 report that highlighted improving demand because of lean inventories.

The Labor Department announced that the inventories-to-sales ratio was 1.28 in November, the lowest reading in 16 months. That ratio was about 15% better than in early 2009, when bloated inventories depressed trucking demand.

“Inventories are no longer a drag on truck freight volumes,” said an American Trucking Associations’ report on Jan. 15.

Morgan Stanley analyst William Greene said there was “little sign of a seasonable post-holiday downturn” in truckload markets during January.

Those indicators have raised expectations that most fleets will report favorable performance such as improved utilization and miles per truck, he said.

Wolfe Research analyst Ed Wolfe said he expects improving demand to lead to significantly better less-than-truckload tonnage and truckload utilization relative to recent quarters.

Truck utilization is continuing to grow this month after picking up in December because of inventory replenishment and a combination of fleet cuts and carrier failures, Deutsche Bank analyst Justin Yagerman said.

Art Hatfield, an analyst for Morgan Keegan & Co., noted that some carriers are reporting higher tonnage levels as stronger carriers take market share from weaker rivals.

Two other Labor Department reports last week were seen as favorable, including a producer price index increase of 0.2% that showed inflation was tamed.

The other report said building permits issued last month rose 11% to the highest level in a year, signaling a pickup in housing starts.

During December, new housing starts were 4% lower than in November because of bad weather, an IHS Global Insight economist told Bloomberg News.

“When it’s cold and rainy, you can’t pour concrete and lay foundations, but you can get a permit,” said Patrick Newport. “Overall, this is a really good report,” he said, adding that the housing recovery “has legs.”

Still another upbeat sign was December volume at the Port of Los Angeles and Port of Long Beach, Calif., which increased for the first time during 2009 on a year-over-year basis.

Leaders at both ports said on Jan. 14 they were “cautiously optimistic” that depressed ocean shipping trades will recover in 2010. They also linked last month’s growth to the restocking of depleted inventories and increased exports.

“These numbers are far better than expected, and may very well be the first signs of an economic recovery,” said Port of Long Beach Executive Director Richard Steinke.

The port reports are good news for trucking, said Deutsche Bank’s Yagerman, because historical trends show a strong correlation between container traffic growth and increased truck shipments.

“We continue to be optimistic about truck tonnage prospects for 2010 and beyond,” he wrote in a Jan. 20 note.

However, not everyone was as optimistic.

“Freight demand continues to modestly strengthen, but sustainability remains in doubt,” said Stifel, Nicolaus & Co. analyst John Larkin.

He cautioned that recent gains may not be sustainable because they were fueled by one-time factors such as inventory restocking and holiday buying.

“The shape of economic recovery remains uncertain,” Larkin said.

While demand is picking up, rates remain weak, which Langenfeld attributed to overcapacity in the less-than-truckload sector. He did note that LTL rates finally are reaching a bottom and he expects truckload rates to rise later this year.

Morgan Stanley’s Greene said truckload pricing measured in revenue per loaded mile may not move into positive territory in the first or second quarter, though rates should improve by as much as 5% in the second half of 2010.