Trucking Stocks Tumble on Downgrade, Pricing Outlook

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The Wall Street Journal  /  April 7, 2016

Analysts say that plentiful capacity in the truckload sector has shipping customers pressing carriers to cut prices

Share prices in truckload freight carriers dipped sharply on Thursday after analysts at Stifel Inc. downgraded several operators, saying that pricing for long-haul trucking services is expected to remain weak for the rest of the year.

Truckload carriers fill their trailers with products from one individual shipper and typically carry them from a port or a warehouse to a distribution center. The four companies Stifel targeted for downgrades Thursday morning were USA Truck Inc., Hub Group Inc., Marten Transport Ltd. and Universal Truckload Services Inc.

Shares of USA Truck, which received the most severe downgrade—from “hold” to “sell”—fell 11.2% on the Nasdaq Stock Market on Thursday. The other three, all downgraded from “buy” to “hold,” fell between 4% and 6% each. Shares in other companies in the sector, including Werner Enterprises Inc., Knight Transportation Inc., Heartland Express Inc., Covenant Transportation Group Inc. and Celadon Group Inc., also were dragged down, with each falling from just under 2% to 5% by midday.

Stifel last week released a report targeting the entire truckload industry, writing that “pricing pressure is rampant in the generic freight market,” which includes most types of trucking services, while railroad carload pricing and freight rates among parcel carriers are on the rise.

“Many shippers have effectively elected to toss to the wayside any talk of partnerships, relationships, cooperation, collaboration, etc.,” the report read. “Shippers are under enormous pressure to cut transportation costs and seem not to be satisfied with the massive fuel surcharge reductions racked up over the past year and a half.”

John Larkin, a Stifel managing director and the report’s lead author, declined to comment.

Shares of most trucking companies have been rising since mid-January, when retailer s showed signs that they had resumed restocking after the holiday shopping season and some manufacturing measures began turning upward. But several trucking industry research groups have said capacity in the market remains relatively plentiful, giving shipping customers more leverage.

The downgrades wiped out the 8% year-to-date gain that USA Truck achieved in late March. Universal Truckload’s shares settled at $14.98, down 5.2% on the day, but still up about 6% since Jan. 1.

Marten, which specializes in hauling refrigerated shipments, had seen its shares rise as high as $18.72 at the end of last month, by Thursday afternoon had ventured into the red on the year, with its stock price falling 6.1% to $17.15. Hub Group, which in February hired bankers to help it identify companies it could acquire to diversify operations, is still up by more than 13% since Jan. 1, although its share price fell 4.6% on Thursday.

“It’s bid season, and the contract bids that are coming in are not looking that good,” said Jason Seidl, an analyst with Cowen & Co. who has downgraded two of the largest truckload carrier stocks, Knight and Landstar System Inc., in the last three weeks. “We’ve gotten slightly more negative on the trucking in the last month…. The pendulum has swung in the favor of the shippers, and they’re clawing back some of the rates.”

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Fleets racing to align with shipper needs

Fleet Owner  /  April 7, 2016

Data demands, regulatory compliance driving battle for freight business.

Many trucking companies are speeding up technology deployment efforts and regulatory compliance initiatives as they discover shippers are making such moves mandatory prerequisites for keeping current freight business and earning more down the line.

For example, Louisville, KY-based Mercer Transportation recently noted that its 2,500 owner-operators will need to install and use electronic logging devices (ELDs) by July of this year – well ahead of the mandated mid-December 2017 deadline – as well as download the carrier’s smart phone mobile app by July as well in order to provide critical shipment transit data to customers.

“What is important for us is to get more freight,” explained Dale Corum, Mercer’s operations manager during the carrier’s annual drivers meeting ahead of the 2016 Mid America Trucking Show last week.

“We’re in the digital age now; many don’t like it but it’s where we are at,” he said. “Our customers tell us we have very few problems and very few claims, so we’d be getting more business if our [data] reporting was better.”

Corum added 1,600 of Mercer’s 2,500 current drivers have already downloaded the carrier’s mobile app, but only 1,200 of them use it consistently. He emphasized that ELDs will need to be used in conjunction with the company’s mobile app in order to document to shippers compliant time and location transit information regarding their cargoes.

He also stressed that Mercer drivers who don’t install ELDs or the app simply won’t be matched to that often-lucrative freight. “We don’t want them knocked out of that opportunity,” Corum emphasized.

John Larkin, managing director and head of transportation capital markets research at Stifel Financial Corp., noted that some shippers have decided that it is too risky to wait until the middle of December 2017 to see if core carriers have sufficiently progressed in installing ELDs as those carriers who have not completed installation would be considered non-compliant. 

“Most shippers have little interest in using non-compliant carriers,” he noted in a presentation at the 2016 Truckload Carriers Association (TCA) annual meeting in Las Vegas last month.

“We mention this fairly widespread trend to suggest that the impact associated with ELD implementation may be felt a little earlier than some had projected,” Larkin said.

Data demands from key Mercer customers are also at the heart of this technology-adoption push, noted Joel Franklin, Mercer’s general manager of sales.

“Better information determines the [freight] sale and ultimately whether we get the load,” he explained. “A lot of our biggest customers are telling us that if we want to keep their business, as well as get more of it, we’ve got to give them more data.”

Franklin noted those customers represent a quarter of Mercer’s overall freight volume: 57,487 loads in 2015, worth $102.4 million in gross revenue.

“Three years ago, they were telling us they’d like to know where their loads were in transit. Then two years ago they said they really needed to know,” he added. “Last year, that turned into a demand to know.”

Franklin said Mercer’s core shippers want automatic arrival/departure times, plus 15 minute load transit updates. “They’re not asking for the world: they want real-time visibility of their loads and they want to be able to go online and see it,” he pointed out.

Yet Stifel’s Larkin believes companies able to deliver on such demands will be the winners in the freight business going forward.

“Carriers and logistics companies will have to be responsive to the changing demand profile of market,” he explained.

“But those that can be responsive should have ample opportunities to take outsized price increases and gain market share either through organic or acquisition-driven growth.”