Trucking stocks are getting whacked and its a signal the industry is facing a big slowdown ahead, analyst says
Trucking stocks have been under pressure in recent months, tumbling by more than 20% since September.
Lower demand and a drop in oil prices are starting to “take their toll on trucking-industry pricing power,” according to Nicholas Colas, co-founder of DataTrek Research.
“It’s become more obvious that freight-demand and pricing gains will slow meaningfully in 2019,” Matthew Young, an equity analyst at Morningstar told Business Insider.
Trucking stocks have been under pressure in recent months, signaling the industry is facing a big slowdown ahead, an analyst says.
America’s trucking giants have seen their stocks slide by more than 20% since their September peaks, while the S&P 500 has slumped 13.31%. Here’s the scoreboard through Monday, December 17:
“Market valuations for most trucking and logistics stocks have been correcting,” Matthew Young, an equity analyst at Morningstar, told Business Insider. “It’s become more obvious that freight demand and pricing gains will slow meaningfully in 2019.”
Trucking stocks saw their valuations soar over the past few years, largely due to a favorable pricing backdrop brought on by unusually tight capacity, Young said.
“It’s a tough market out there and we’re all in need of drivers,” said Ellen Behrhorst, a trucker recruiter at Liberty Tire Recycling.
The truck-driver shortage in the US and massive demand from retail giants such as Amazon have added to the difficulty of finding trucks and drivers, giving the industry pricing power.
But the demand for trucking has seen a slight slowdown in the second half of this year amid the ongoing trade war between the US and China, according to Federal Reserve’s Beige Book published in November.
Data from the US Department of Transportation show the growth rate of the US truck tonnage shipped slowed to 5.4% in year-on-year July, down from 10.1% in June, after President Donald Trump’s first round of tariffs took effect. The growth rate bottomed at 5.2% in August and has recovered a bit, an unusual seasonal pattern that the Beige Book says is happening as firms try to import goods before additional tariffs on Chinese goods take effect next year.
And Nicholas Colas, co-founder of DataTrek Research, agrees that the trucking industry has already reached a cyclical top, due to the cooling of trucking demand and falling oil prices.
“Lower levels of demand combined with declining oil/fuel prices are beginning to take their toll on trucking industry pricing power,” said Nicholas Colas, co-founder of DataTrek Research.
Oil prices have been under pressure recently, with West Texas Intermediate crude oil down 36.76% from its four-year high of $76.90 a barrel set on October 3. And trucking companies are worried.
“The oil industry in the US is now a significant portion of our economy and we do have customers that are in the oil-field and oil-service industry,” said John Wilbur, CEO of Roadmaster Group, an Arizona-based specialized transportation company, adding that falling oil prices are reducing his company’s customer base in the oil-related industry.
While cheaper oil has helped transportation companies lower their costs, tonnage demand also slows, which may be a bigger problem in the long term, he concluded.