Stifel Reassesses Trucking Industry
On Thursday afternoon, David G. Ross, a transportation equities analyst at Stifel Financial Corp., announced the firm’s renewed focus on tracking the trucking industry. He provided insights on several companies including HUB Group, Marten, Knight-Swift, and Daseke, along with a broader analysis and forecast for 2018.
Current Industry Landscape
The report outlines a situation familiar to many in the industry: substantial freight volumes are driving demand for trucks, while an increasingly tough regulatory environment is gradually constricting supply. Coupled with low unemployment rates and demographic trends, the shortage of drivers is likely to worsen, with LTL and intermodal sectors benefiting from a highly competitive trucking market.
Pricing Dynamics
Ross remarked that just as consumers fill up their cars despite rising fuel prices, shippers will similarly pay what they must for truckload capacity, even if costs rise. He anticipates truckload rates will average a 12% increase year-over-year in 2018.
Investment Thesis
Stifel’s comprehensive investment perspective highlights that 2018 will see higher goods movement than in 2017, but with fewer drivers. This imbalance is expected to elevate shipping costs and, consequently, boost revenue and earnings for trucking companies that manage to staff their trucks with skilled drivers. Ross notes that trucking stock valuations are peaking and emphasizes the need for careful execution and stock selection in this sector.
Top Investment Picks
Ross suggests investors focus on well-managed companies for the best returns in 2018. His top recommendations include growth-oriented Daseke (DSKE), underappreciated TFI International (TFII), the turnaround potential of USA Truck (USAK), and quality operator Werner (WERN).
Market Dynamics Explained
Ross cautions that many investors misinterpret revenue per loaded mile as being purely about pricing. Many factors contribute, such as the distance traveled and freight selection. In the current market, carriers can improve yields significantly by strategically adjusting their capacity assignment or leveraging the spot market without increasing contract rates.
Driver Shortage and Amazon’s Role
Stifel points out that rising pay for drivers is exacerbating turnover rates without adequately increasing the driver pool. Even major private fleets like Walmart face challenges in recruiting drivers, despite offering higher wages. Additionally, Ross speculates on Amazon’s potential future in trucking, noting that while consolidation of shipping may lead them to eventually create a private fleet, they are currently likely to continue relying on existing carriers to maintain cash flow.
