Sunday, October 23, 2005

That's Good

HURRICANE IMPACT: Truckload surprisingly good
Despite the massive economic shock of hurricanes Katrina and Rita, which most notably led to a severe spike in diesel fuel prices, the initial spate of earnings reports from truckload carriers indicate the segment isn’t suffering financially in the third quarter.

The big fleets are collecting fuel surcharges that are keeping problems at bay for now. As shippers adapt to the new pricing environment freight flows will shift, taking many profitable loads off the market. Witness Intermodal reaching record levels even as rail traffic falls. The shift to shorter hauls (and thus lower utilization) and other realignments will pinch margins in the medium term. Of course small fleets and owner operators who do not have the leverage to pass on fuel costs will be leaving the industry involuntarily as the brutal economics of today's trucking industry catch up with them. Intermodal can't grow without more rail infrastructure and rail cannot generate sufficient ROI to attract capital. Long term the drop in competition will probably improve the profitability of the carriers left standing.

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