Market Spotlight: Trucking

The most recent trucker to fall victim was privately held Delanco, N.J.-based Jevic Transportation Inc., which shut down in late May after 27 years. The less-than-truckload carrier had about 1,500 employees and a fleet of 1,000 trucks.

Stephens Inc. analyst Thom Albrecht predicts an additional four to six less-than-truckload carriers are currently at risk of going out of business. But Albrecht said in a recent note to clients that truckload carriers are even more exposed to soaring fuel costs and shaky credit markets, which will likely lead to more closures. Overcapacity is also a more significant issue for the truckload segment, he said.

Less-than-truckload carriers fill their trucks with freight from a variety of sources and might re-sort and redistribute it at a company terminal along their route, while truckload carriers generally dedicate an entire trailer to one customer and move the freight directly from the shipper to the receiver.

Industry reports suggest that twice the number of carriers went bankrupt in the first quarter of 2008 as compared with the same quarter a year earlier, and Wachovia Capital Markets analyst Justin B. Yagerman said that number will likely accelerate in the second quarter as fuel costs continue to rise. So far this year, bankruptcies have increased 143 percent over last year.

This consolidation will help supply and demand come back into balance across the sector by handing off more freight to surviving companies, Yagerman said.

As more carriers shut their doors, the outlook will brighten for the market as truckers are able to raise prices and regain a more competitive edge, he predicts.

But he urged investors to hold off on investing in the industry, noting that many stocks rose well ahead of the broader market earlier this year when investors held on to hope for an early rebound in demand.

So far this year, Yagerman noted the average share price across the truckload segment--which includes names like Werner Enterprises Inc., Universal Truckload Services Inc. and Knight Transportation Inc.--is up about 13 percent. The average stock among less-than-truckload carriers, including YRC Worldwide Inc., Saia Inc. and Arkansas Best Corp., has leaped nearly 27 percent in the same period.

The S&P 500 added about 6 percent in the first five months of this year.