Freight transportation supply and demand have become more balanced as the U.S. economy begins to recover, allowing the trucking industry to take some sizable price increases over the past 18 months, but recent federal regulations may further tighten supply capacity offsetting this balance, says John G. Larkin, CFA, Managing Director at Stifel, Nicolaus & Co., Inc.
“Provided the economy continues to grow anemically, 1.5% to 2%, which has been the average over the last couple of years, that should allow carriers to continue to take price, especially if the Federal Motor Carrier Safety Administration, FMCSA, changes the hours of service rules effective at the end of this December, which has recently been announced,” he said.
Larkin likes Con-way Inc. (CNW), which is a mostly nonunion, western truckload carrier. CNW also has a nonunion truckload subsidiary that has exposure into and out of Mexico as well as a standalone asset-light logistics company called Menlo Logistics, which is one of the leading logistics companies in the industry, he said.
“We like Con-way because of the operating leverage inherent in the income statement and think that if pricing continues to move in a positive direction, that they are going to be able to grow earnings faster than some of the other companies in the industry,” Larkin said.
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