Trucking Industry Prospects Dim - Cowen
Trucking companies are adopting a negative outlook after a strong start to the year as high inventory levels point to lower demand
Trucking executives are growing pessimistic about future demand. PHOTO: BLOOMBERG NEWS
The trucking industry is bracing for a downturn.
Private trucking and logistics executives said Tuesday during a quarterly private trucking conference call that they do not expect large contractual rate increases and that demand in the spot market has been soft this month, according to analysts at Cowen and Co., which hosted the call.
It was “a clear deterioration from the insight we gained as recently as a couple of weeks ago” they said in a report.
Economists have said that some of the earlier growth was due to inventory stockpiling in the second quarter as West Coast ports cleared backlogs of imports that had accumulated during a labor dispute. Retailers and manufacturers now appear to be paring down some of that buildup, which will result in softer demand. For retail companies, lower rates going into next year could lead to improve margins, Cowen said.The comments underscore a sharp change in outlook after trucking demand reached record highs earlier in the year.
“As we went into September, the ratio of inventories to final sales was the highest it had been in a long time,” said FedEx Corp. Chief Executive Fred Smith, speaking at the Journal of Commerce Inland Distribution Conference on Wednesday. “People over-ordered … when they weren’t sure if they would be able to get [goods] through the ports.”
Share prices for many trucking companies are down sharply this year, which likely reflects much of the gloom about the industry’s immediate prospects, Cowen said.
Swift Transportation Co., one of the largest U.S. trucking companies,already cut its profit forecast for the year last month. Knight Transportation Inc., another large truckload carrier, has historically been well-positioned in down times because of its strong reputation, Cowen said. Shares of Swift are down 43% this year, and Knight is down 25%.
