Chungst

Why Watching Bankruptcies Can Help Stock Performance

to biggus --

A few points to consider:

I covered the railroads as a buy-side high grade analyst for 2+ years a few years back and all I hear on the conference calls were how the big 4 railroads (UNP, BNSI, NSC, and CSX) were taking business from trucking companies. A railroad may run at 30 mph but it can run almost 24 hours a day in theory, far more than an average truck driver that is limited to 10 hours of drive time on crowded highways. I specifically recall UNP telling listeners how if the product got on its system, it could deliver across the US from the west coast to the east coast in as little as 3 days, maybe 2 days. Think about it for a second, a truck (which is an expensive piece of capital) with a solo driver can't be driven, on average, 14 hours of every day -- which is a waste of capacity (airlines typically fly 8 to 10 hours a day as well). Trucks just can't compete with these types of economics. Look at Warren Buffett and his acquisitions in railroads of late.

Companies like WMT cherry pick the best drivers (i.e. great safety records over a number of years) and paid them accordingly. It is not an internal fleet per se, it is when the internal fleet is an integral part of operations that is important. Not all internal fleets are the same.

IMHO, the biggest problem with the trucking industry is the employees. The high turnover, low pay considering the standard doesn't allow for overtime at 1.5x pay like most normal jobs, poor working conditions, living in a cramp box for long-hual drivers, etc. Compare that to WMT's internal fleet of highly paid drivers that are also highly motivated to do a good job. It's so obvious why the trucking companies are having a hard time succeeding -- the industry needs to get modernized into the 21th.

Again, don't take my word for it -- listen to Buffett who historically liked trucking firms to railroad companies and now switched his mindset once he saw how efficient railroad companies were moving products across the US.

Cheers.