Rolling Down The Highway
Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.
Trucking names, as measured by the DJ Total Market Trucking Index, have been hot, hot, hot for the last 18 months, returning in excess of 55%. The group has benefited from a combination of rising demand and decreasing capacity, the latter caused by the disappearance of a number of companies that did not survive the 2001-2002 recession, the subsequent demand recovery, and a serious scarcity of drivers. According to a small company I follow in the refrigerated transport sector (where capacity is even tighter than for standard freight), truckers have been able to pretty much auction off services to the highest bidder. Freight rates rose about 10% in 2004, and as much as 15% in some sub-sectors. Similar increases are expected for 2005.
The question is whether the good times can keep on rolling. The search for drivers appears to have erupted in an all out bidding war. A major national carrier is running a barrage of radio ads touting the highest salary and benefit packages in its history (still trying to verify rumors that as part of an organized hedgies revenge, hundreds of the poor (pun intended) souls are being spotted rumbling down the highways squashing critters of their choice - Hear me Hoofy?). And on my roundtrip to Indiana for Thanksgiving (which with two kids strapped to the back seat is also a 100% effective form of birth control) I-70 looked littered with billboards one-upping each other offers for willing drivers.
For now shippers are eating the rate increases (which are in addition to the standard fuel overcharges) but one has to wonder how long they can bear that type of price pressures. Meanwhile, most EPS estimates seem to assume a best case scenario for the companies.
At least some analysts suggest that the truckers' happy days are going to stick around for a while, because this time is different. However, those are scary words fit for critters with flat wet-noses, pink skins and curly tails, and definitely not worthy of the 'Ville.
And, of course, none of the above has any broader inflationary implications for the economy because . . . the Fed says so.
Minyan Fil Zucchi
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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