Trucking Stocks Hit Reverse

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Wall Street Journal / October 27, 2015

A warning of ‘aggressive pricing activity’ raises new alarms amid signs of weaker freight demand in the less-than-truckload sector

Trucking company stocks tumbled Tuesday after several firms gave bleak outlooks for freight demand, raising fears that the industry may soon need to cut shipping rates.

United Parcel Service Inc. reported a drop in volumes in its UPS Freight less-than-truckload unit, where loads from multiple shippers are packed on each vehicle. The report came after Roadrunner Transportation Systems Inc., which operates a midsize LTL fleet, cut its guidance for future profits and revenue on Monday, citing weak demand and “aggressive pricing activity,” indicating lower rates offered by its competitors.

Swift Transportation Co. , the largest truckload carrier in the U.S., also said Tuesday that it would stop expanding its fleet in an effort to hold the line on prices.

The trucking industry had largely avoided talk of lowering rates until this week, with companies banking on a rebound fueled by stronger U.S. economic growth toward the end of the year. However, September activity is coming in below expectations at many companies, and some large manufacturers are now predicting the industrial sector will contract in the final months of 2015.

A prolonged downturn would likely result in a surplus of available trucks, forcing carriers to cut prices as they compete for fewer loads, analysts say, a battle for business that would weigh on profitability.

“At this point you have to start worrying about pricing on the LTL front,” said Jason Seidl of Cowen & Co.

On Tuesday, Roadrunner’s stock plunged over 40% to an all-time low of $9.51 while shares of YRC Worldwide Inc., a major LTL carrier, dropped 16% to $13.80. Shares of XPO Logistics Inc., which is finishing up its acquisition of Con-way Inc., one of the largest LTL carriers, were down 14% at $24.14.

Roadrunner is a small trucking company and its warning of lower prices hasn’t been echoed by larger competitors, said David Ross, an analyst with Stifel. LTL firms didn’t cut prices during the last period of soft demand early in the year, but Roadrunner’s comments may suggest their resolve is cracking, analysts say. Roadrunner didn't return a call seeking comment.

UPS said in its earnings statement that its revenue per LTL shipping unit, a measure of pricing, rose slightly in the third quarter. But the company also carried 5.2% fewer shipments compared with last year’s third quarter, a decline of 148,000 shipments. Demand also deteriorated from the second quarter to the third quarter and prices slipped from the June to September.

The weaker results from UPS make it harder for investors to ignore the darkening outlook for the sector, Mr. Ross said. UPS reported an 8.6% drop in revenue in its freight division in the third quarter from a year earlier, attributing the decline to lower fuel surcharges and declining LTL tonnage.

“Those kind of numbers on top of what Roadrunner said had people nervous,” he said.