In a world seemingly gone haywire, with macroeconomic conditions weakening, the Eurozone coming apart at the seams, U.S. sovereign debt being downgraded, and triple-digit gyrations in the equity markets becoming the norm, the transport unit of investment firm Stifel, Nicolaus & Co. said the transport marketplace is trying to keep its head.
In a report issued on August 12, the Baltimore-based firm said that while uncertainty has been ratcheted up due to recent political and economic turmoil, those in the trenches—namely shippers, privately held truckers, and third-party logistics companies—are not seeing anything that would make them anything more than cautious.
In interviews with dozens of companies, the firm concluded that while third-quarter volumes remain erratic and the feedback from truckers on shipping activity is somewhat mixed, most respondents chalked up the current softness to seasonal factors associated with the proverbial summer doldrums. Stifel, Nicolaus said it prefers to conduct interviews with private firms because they can often speak more openly than their publicly traded counterparts and don't need to "spin" their stories to satisfy analysts and outside investors.
A regional truckload carrier quoted in the report said, "Things are a little spotty, but that is normal for this time of year." A regional less-than-truckload (LTL) carrier added that it is "not seeing any slowness or unfavorable reaction" to Standard & Poor's Aug. 5 downgrade of U.S. government debt. The carrier said its August volumes are about in line with last year's and are a "step up" from July's results, which showed some softness due to seasonality. The firm said the LTL carrier's comments are representative of feedback from the carrier universe at large.
Carriers interviewed said pricing is holding firm with mid single-digit increases on a year-over-year basis. Stifel, Nicolaus analysts said shippers are loath to ask for rate reductions, and carrier yields continue to strengthen. "We believe this indicates that supply and demand fundamentals remain solid," the firm wrote.
Constraints on truck capacity due to a shortage of qualified drivers, higher equipment and financing costs, and the impact of government regulations like CSA 2010 (a safety measure designed to winnow out marginal drivers) will keep rates firm even if shipper demand weakens, the report said. As one truckload carrier put it, "We're not afraid to walk away from any business that doesn't give fair rates. We haven't sacrificed [one penny] in rates anywhere this year. No customer is asking for rate cuts."
The Stifel, Nicolaus analysts concluded that the current trends "are not signaling tougher times ahead" as they did in 2006 at the start of a four-year freight recession or in August 2008 as the financial crisis and recession flared up. As for the core pocketbook issue, the report's conclusion was clear: "Unanimously ... the responses indicate carrier pricing remains strong and continues to march higher into August."
