Freight Volumes Weaken Further

“The recent credit paralysis has created a further weakening of an already weak freight market,” says a report by Stifel Nicolaus.  The analyst firm says volumes could show strong year-over-year declines in the fourth quarter of 2008 and first quarter of 2009.

The analysts reduced near-term earnings estimates based on the volume decline were offset somewhat by declining energy prices.  But the continued deterioration in volumes made it “prudent to further reduce near-term earnings per share estimates for most companies.”

Longer term, the 2010 earnings estimates remain largely unchanged due to shifting transportation capacity and a coordinated global fiscal and monetary policy stimulus programs that were still being unveiled. 

The American Trucking Associations released its October tonnage numbers, indicating a 3% decline for the month or a 1.8% drop year-on-year from October 2007.
At the same time, US Class 1 railroads experienced a 4.6% drop in year-over-year carloadings and a 3.5% drop in intermodal loadings. 
Falling fuel prices have been beneficial for carriers (truck and rail) in part because shippers are still paying fuel surcharges based on a 45- to 60-day lag in surcharge mechanisms.

Longer term, the volume declines will accelerate the rate at which marginal capacity exits the market.  In the second half of 2009, this should tighten capacity as demand starts to recover and the pricing power could begin to shift from shippers back to carriers.