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Why Watching Bankruptcies Can Help Stock Performance

to fishlake99

My comments was about average "solo" driver (the guy that lives in the truck) limited to 10 hours a day. I understand trucking firms also use teams -- but the majority of long hual-trucks are driven by an individual driver.

Companies like FDX and UPS (or WMT) are separate from the tradition trucking companies. I think you will agree my comments are geared toward the trucking pure plays.

Also, my general comments are about the trucking industry as opposed to specific trucking companies. I can make a general comment that trucking pay is poor, but anyone who works in the industry knows how much WMT or UPS will pay (yes, a truck driver can make over 6 figures annually at UPS!).

Lastly, as for my 21st century comment, just recall the average class 8 truck is using an engine technology developed in the 19th century. Separately, the cost of diesel costs over $5 a gallon in some parts of the US -- what will happen when diesel reaches $6 or $8 a gallon? My point is the trucking (like the airline) industry was built on cheap fuel. If you do the math of an average truck going 150,000 miles a year at 6 mpg, it will require 25,000 gallons (ignoring idling, etc). When diesel was under $3 a gallon, the system was still profitable, but at $5 a gallon, the system is breaking. In the 21th century, the price of diesel will not be as cheap as what we had in the 20th century.

Cheers.

Why Watching Bankruptcies Can Help Stock Performance

Correction - a solo driver, on average, can't drive more than 10 hours a day so that truck is limited to 10 hours of use. The 14 hours is work time. I'm ignoring exceptions like the agriculture industry that run their drivers more than 10 hours.

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.

Why Watching Bankruptcies Can Help Stock Performance

matt: Companies like WMT have a huge in-house trucking fleet. Perhaps it's not the truck per se, it's the trucking companies that is the issue.

By the way, I forecasted AHI (Allied Holdings, Inc) going into bankruptcy a year before the company filed -- it was obvious AHI was on life support by it's bankers. AHI was the largest independent car/SUV hauler in the country. AHI's bankruptcy didn't materially change the car/SUV hauling industry -- it has crappy economics. Buyers of new cars/SUV's have to pay about $700 for shipping costs, which means there is a general limit on how much the hualers can charge.

Remember, my contention is: it's the industry (dynamics), silly."

Cheers.

Why Watching Bankruptcies Can Help Stock Performance

"Pricing power will return to the remaining trucking firms, and after a time, the stocks will rebound."

That is a fallacy. There is a difference between a broken company business model and a broken industry business model.

Remember the typewriter industry? When a marginal players went, it was a matter of time before the rest went. Do you still remember "Smith Corona"?

The trucking companies need more than just pricing power to fix the industry. There are a lot of structural problems with the trucking industy besides pricing.

Cheers.