biggus

Why Watching Bankruptcies Can Help Stock Performance

What structural problems do you see that will cause the independent trucking industry to fail? Car haulers are one example, but they are tied very closely to just one industry and have highly specialized, expensive equipment. The independents (JBHT for example) serve multiple industries, and regardless of how bad you think the economy will get, not ALL of the industries in the US will fail.

Chungst's argument is that internal fleets that are a subsidiary of a larger company (i.e. Ford having its own trucking fleet) are more efficient at transportation than companies that specialize in trucking. This would be like saying that Ford should also operate its own airline to transport its employees, its own shipping line to import materials from overseas, etc. While I agree that there are some companies that operate their own internal fleets more efficiently than an outside trucking company would be able to, by and large efficiency in the logistics industry, especially the trucking industry, is driven by lane density. If you only have one company, you are limited in the freight that you can source and deliver. If its concentrated and predicatable, then an internal fleet may well be the best option. However, if you have multiple production and delivery points in multiple locations, you will be able to develop lanes that minimize empty miles and out of route miles. You will be able to reduce those empty and out of route miles to a greater extent than the internal company fleet, which means that you will be able to charge a lower price. If you can charge a lower price, companies are more likely to decide that they want to stick to their core strengths rather than get involved in handling DOT audits, inspections, unionization efforts, volatile fuel prices, etc.

If anything, internal fleets are the ones that will suffer in the future: they are very similar to the car haulers, as the internals depend upon their mother company for their freight. Any variation in that demand, and you will get load imbalances in different regions of the country where you will have too many or too few tractors.

What's Really Wrong With The Airline Industry - And Can It Be Fixed?

One topic that hasn't been raised fully yet is how the US domestic market is off-limits to foreign airlines. If a foreign airline is able to operate more efficiently than the US legacy carriers or even the low cost carriers, they should be allowed to do so in the US. Currently, a reputable foreign airline cannot purchase a majority stake in a US-based carrier, nor can it operate routes between US airports. This is a restriction of free trade, and the result has been that we have propped up inferior companies, such as Delta Airlines, American and United, that are incapable of consistently producing a profit. If these US airlines were truly world-class, then right now their only problem would be fuel prices. Instead, we have poor customer service, maintenance problems, and massive delays, just to name a few problems facing the industry.

A little international competition might weed out the inefficient operators and actually help get US airlines back on their feet, assuming that such American companies are still able to compete. In the long run, it will lead to a more efficient domestic air travel market.

Treat Yourself to Tootsie Roll Industries

Only comment I have regards the timing of international investment: now is really not the best time to take those USD and convert them to foreign currency. TR may have boxed itself into a corner regarding overseas growth opportunities for the next 18 to 24 months. WACC of 8.5% seems low though: no real debt in capital structure, and given small size vs major competitors and the exposure to commodity price pressure I would expect a Rue in the double digits, if not mid-teens. What would a Rue of 13% do to your valuation?