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U.S. trucking companies face an uphill climb, S&P reports
NEW YORK — Weak tonnage volumes, industry overcapacity, rapidly rising fuel costs, and pricing pressure have taken a toll on the U.S. trucking industry and will continue to cloud the sector until at least 2009, according to a report published Tuesday by Standard & Poor’s Ratings Services. Compounding these industry-specific problems are macroeconomic variables such as weak domestic spending levels, and the housing slowdown in the U.S.
Standard & Poor’s expects consumer spending to rise only 1.5 percent this year, down from 2.9 percent in 2007. Given that a significant portion of consumer discretionary goods are transported via truck, this sector ties closely with domestic GDP and consumer spending levels, according to the report.
The report, “An Uphill Climb For U.S. Trucking Companies,†notes that these weak economic conditions and escalating commodity prices in the U.S. have translated into depressed consumer spending levels and soft tonnage levels for truckers.
“We expect the slow U.S. economy and the rapidly rising cost of fuel to result in weak earnings and limited free cash flow for the trucking sector in 2008,†said Standard & Poor’s credit analyst Anita Ogbara.
Assuming fuel prices do not moderate, S&P expects capacity reduction, over time,to address the supply-and-demand imbalance, providing better equilibrium. A sustained improvement in the tonnage trend and better freight volumes should also support meaningful recovery.
“Given this combination of factors, we believe a turnaround is unlikely until some time in 2009,†the analyst noted.