Industry turnaround on pause: Analysts

TORONTO — Managers of some of Canada’s largest truck freight carriers say they aren’t optimistic that the industry will rebound until late 2008, early 2009 at the earliest.

Despite the negative economic forecast, there are still
some margins in ‘higher barriers to entry’ segments.

The current exchange rate of the Canadian dollar relative to the U.S. greenback, excess transportation capacity, and the secular shift to rail transportation are key factors in the slow turnaround, fleet executives suggested at RBC’s recent Annual Transportation Conference.

“This further reinforces our investment thesis that investors overweight rails at the expense of trucks due to a number of challenges facing the trucking companies, including (in addition to exchange rate): adverse regulatory trends; labor shortage; soaring fuel prices; highway congestion and lower barriers to entry, which in turn result in a weak pricing environment,” says RBC in a follow up-report. (Click the Related Stories link below for more on RBC’s take on the dollar parity issue).

Despite the negative outlook, RBC says there are some opportunities in the trucking industry as a result of efficient execution, specialized services, as well as higher barriers to entry in certain niche segments.

“In general, we suggest that investors place particular attention to organic growth and operating margin strength when analyzing the transportation sector, as those companies that can withstand the current near-trough environment are also likely to outperform during the other end of the business cycle.”