In the past few blogs, we have focused on the current “freight recession” and economic downturn in North America and then looked at the projected 2008 rate increases in each of the major sectors of the freight industry (e.g. LTL, intermodal, ocean etc.). Rate increases represent an important indicator of the relative health of the industry since these additional revenues allow transport companies to invest in new plant and equipment, acquire new technology and hire additional employees. Rate decreases often result in employee layoffs, a lack of capital investment and in some cases, a decline in service (e.g. fewer schedules with more freight on each trailer). The experts on both sides of the border are predicting a gloomy economic picture for much of 2008, a shippers market for freight rate negotiations, a modest level of rate increases and even rate decreases in some sectors.

In this blog we will look back over the past year to assess the financial performance of specific companies in the transportation industry, specifically publicly traded transportation companies. For public companies, this process is facilitated by the requirement to publish financial results and by the market’s assessment of their performance as reflected in a number of key indicators. In the next blog, we will look at how to select the best performing transportation stocks in 2008.

One would expect to see a decline in the price of many transportation stocks during a “freight recession”. Some experts suggest that the current decline in freight volumes began during 2006 and continued throughout 2007 into 2008. Let’s have a look at how various companies’ stock prices performed during this period.

Transport Topics provides one grouping of companies and their financial results on a weekly basis. In their analysis, they include:

Less Than Truckload
Truckload
Package
Truck Leasing
Multimodal
Logistics
Canadian Companies

To complete the picture, I will add one more group, class 1 railroads. I have included the 52 week change as of February 1, 2008.

Comparing year end 2007 to year end 2006, the Dow Jones Industrial Average gained 9.2% while the Toronto Stock Exchange, Canada’s largest stock exchange increased in value by 19.9% in 2007. The trucking industry on both sides of the border did not perform this well. During this period the Dow Jones Transportation Average declined by 1.5%. As far as Canadian transportation stocks, all six of the stocks and Income Funds listed in the TT list were in the red for 2007.

Looked at on a sector by sector basis, here are the results sorted by percent increase or decrease in share price from year end 2006 to year end 2007. Those of you who follow the market know that January of 2008 has been an amazing “roller coaster ride”.

LTL

Con-way - 1.8%
Old Dominion Freight Line - 16.1%
Vitran Corp - 19.5%
Arkansas Best Corp - 39.4%
YRC Worldwide - 54.7%

Truckload

J.B. Hunt + 24.3%
Landstar System + 1.8%
Werner Enterprises - 5.1%
Heartland Express - 6.5%
Knight Transportation - 13.6%
USA Truck - 23.7%
P.A.M. Transportation Services - 40.5%
Covenant Transport - 40.6%
Celadon Group - 58.4%

Small Package

Dynamex Inc. + 20.1%
UPS Inc. - 6.6%
Fedex Corp. - 16.4%

Canadian

Mullen Group Income Fund - 7.8%
Trimac Income Fund - 10.0%
Contrans Income Fund - 24.3%
Livingston International Income
Fund - 30.6%
Transforce Income Fund - 32.7%
Clarke Inc. - 42.0%

Truck Leasing

Ryder System - 15.7%

Multimodal (Air/Rail/Truck)

Trailer Bridge + 46.7%
Forward Air Corp. + 4.8%
Pacer International - 52.3%

Logistics

C.H. Robinson Worldwide + 24.7%
Expediters International + 6.7%
Hub Group - 7.3%
Sirva Inc. - 95.7%

Rail

CSX Railway + 31.67%
Canadian Pacific Railways + 26.32%
Union Pacific Corporation + 24.97%
Canadian National Railway + 12.89%
Norfolk Southern Corp. + 10.63%
Burlington Northern Santa Fe + 8.45%

Please note that these lists are not inclusive of all publicly traded transportation stocks nor do they include all of the stocks in the TT list. For a more complete list of U.S. stocks, go to Yahoo Finance. Here is the link.

http://biz.yahoo.com/p/sum_conameu.html

Under the “Industry” tab, click on the industry segment of most interest to you. The transportation industry stocks are captured under various headings.

Air Delivery & Freight Services
Railroads
Trucking

To look at ocean freight services, click on “Trucking” and then click on “Shipping” under the “Related Industries” tab. The Yahoo site also provides you with a number of useful tools. The “Company Index” link provides you with a more complete list of trucking companies in alphabetical order. The “Leaders and Laggards” link shows which companies’ stock prices are performing better or worse that day than the others.

Canadian Transportation stocks and Income Trusts do not appear as a separate category in Yahoo Finance Canada. To track these stocks, go to this site and enter the transport company’s stock code.

http://ca.news.finance.yahoo.com/industry

Several things stand out from the above financial results. All of the rail stocks did very well last year in a down year. Looking at the projected rate increases in rail, as outlined in the last blog, it is likely that this trend will continue. This certainly explains why a highly respected investor such as Warren Buffet has invested in the most financially successful segment of the freight industry. With the exception of J.B. Hunt and Landstar, the LTL and truckload sectors had a difficult year. J.B. Hunt’s large investment in intermodal equipment appears to have paid off handsomely. The major Canadian players also had a challenging year.

Perhaps the positive news for investors is that as the “freight recession” comes to an end, there could be some good buying opportunities among some of the beaten down stocks and among the better performers that have good upside potential. In the next blog we will focus on how to find the gems.