Optimism grows for national trucking sector, USA Truck

National trucking economist Bob Costello is beginning to replace his cautious optimism with simple optimism. For a trucking sector that has been in a freight funk since October 2006, that’s a huge distinction.

And the new optimism may bode well for Van Buren-based USA Truck Inc.

The American Trucking Associations’ reported Wednesday (Feb. 24) that its Truck Tonnage Index jumped 3.1% in January following a downwardly revised 1.3% increase in December. The latest gain boosted the SA index from 107 (2000=100) in December to 110.4 in December, its highest level since September 2008.
 
Compared with January 2009, truck tonnage surged 5.7%, the best year-over-year reading since January 2005 and the second consecutive increase. For all of 2009, the tonnage index was down 8.7% (slightly larger than the previously reported 8.3% drop), which was the largest annual decrease since a 12.3% plunge in 1982.

“While I don’t expect tonnage to continue growing as robustly as it did in January, the industry is finally moving in the right direction. Although there are still risks that could throw the rebound off track, the likelihood of that happening continues to diminish,” Costello, chief economist for the ATA, said in a statement.

The ATA recently reported that in 2009 “the motor carrier industry has potentially endured the most severe drop in volumes ever.” Lane Kidd, director of the Arkansas Trucking Association, agreed, saying that Arkansas-based trucking companies still operating were “significantly” damaged in 2009.

SECOND OPTIMISTIC OPINION
Costello’s optimism mirrors that of Jack Waldo, a transportation sector analyst for Little Rock-based Stephens Inc.

“We are on the cusp of we what we believe will be the end of the longest freight recession since deregulation as early signs of improving demand and, more importantly, the diffusion of the largest truckload ‘bankruptcy bubble’ we have seen should have a favorable impact on TL (truck load) supply/demand dynamics,” Waldo noted in a Jan. 11 note to investors.

Waldo said this freight recession has produced fewer trucking company failures because diesel fuel prices fell and remained low, companies were able to extend fleet replacement cycles, cut costs (cutting employee counts, reducing driver pay, etc.) and banks were hesitant to foreclose on carriers.

“To be sure, some of the aforementioned factors have longer-lasting impacts than others. But for the most part, we believe the vast majority of the life lines have run their
course and expect to see trucking failures accelerate again beginning 2010,” Waldo said.

The truck failures will be good in that they will remove unnecessary capacity from the truck load sector, Waldo explained. There were an estimated 1,305 trucking company failures in 2006; 1,955 in 2007; 3,065 in 2008 and 1,855 in 2009, according to FTR Associates and Avondale Partners. During the 2000-2001 recession, there were 3,670 trucking company failures in 2000 and 3,990 in 2001.

Waldo also noted in the report that “consistent improvement in trucking trends since 2Q09 looks more to us like the beginning of a cyclical upturn than another ‘head fake.’ This improving demand, coupled with the defusing of the ‘bankruptcy bubble,’ leaves us optimistic for rate improvements (3%-5%) as we get further along into 2010 and especially in 2011.”

USA TRUCK OPTIMISM
One of the trucking companies Waldo thinks will survive the bankruptcy bubble and have a better 2010 is USA Truck. Waldo said the company’s strategic plan — cutting costs, reducing insurance and claims expense, diversifying income by adding intermodal service — implemented in 2009 could pay off in 2010.

“We think the stage is set for USAK to have one of the most instrumental years in its history now that its transformation in in the execution phase,” Waldo wrote. “The Company is poised to prosper in 2010 with the changes implemented over the last year and the mounting pressure on the ‘bankruptcy bubble’ that we think will help supply/demand dynamics improve in the latter half of 2010.”

An improved 2010 will be welcome news. USA Truck reported a 2009 net income loss of $7.177 million compared to a gain of $3.14 million in 2008. The company posted 2009 revenue of $382.36 million, down 28.6% compared to the $535.62 million in 2008.

Shares of USA Truck (NASDAQ: USAK) closed Wednesday at $13.03, up 38 cents. For the past 52 weeks the share price has ranged from a $16.09 high to a $10.78 low.

According to the ATA, trucking serves as a barometer of the U.S. economy, representing nearly 69 percent of tonnage carried in 2008 by all modes of domestic freight transportation, including manufactured and retail goods.

The trucking sector is important to the Arkansas economy. Arkansas and Nebraska are tops in the country in in terms of percentage of total state employment being in the trucking sector, according to the ATA trends. In Arkansas, 3.7% of all people employed in the private sector worked for a trucking company, with 3.6% for Nebraska. California and Texas have the most people working in the trucking industry in terms of total numbers.