Mr. Fowler: The group has actually performed very well. It is probably one of the better performing sectors within the overall market. Just looking at the Dow Jones Transportation Index, it is probably up 9% or 10% year to date versus an S&P that has been down 14%. So certainly based on share performance the group has done very well.
TWST: Why is that? It seems counterintuitive in a slowing economy and with
higher fuel prices that it would do well.
Mr. Fowler: I would agree with that. I think some of the drivers behind the
group might be a little surprising to investors who looked at the group maybe
seven or eight months ago. At the start of the year we were seeing an easing in
monetary policy, given the Fed had started to cut rates in September of last
year, and the thought process was that as that economic stimulus worked its way
through the economy, it would be a good demand catalyst for the transportation
companies.
In reality, the real driver of the group has been the fact that as diesel prices
continued to move up during the first half of the year and as freight demand
remained relatively soft, a lot of capacity was rationalized, especially in the
full truckload market. So a lot of the marginal players, the small mom and pop
trucking fleets that might have five or fewer trucks, either ended up filing for
bankruptcy or parking their trucks because it just wasn't profitable to drive in
that environment. The amount of capacity that came out of the market helped the
surviving players as there was a flight to quality, to the more financially
stable carriers within the space. In addition, there was a shift of freight from
the carriers that were no longer in business to the surviving trucking
companies.
Tickers included in this excerpt: ACLI, CNI, CNW, CP, HUBG, JBHT, LSTR, ODFL, PACR, R, UNP, YRCW
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