Monday, July 06, 2009

If YRC fails, what happens to US truck sector?

The fortunes of a particular corner of the U.S. trucking industry in the next year are as tied to whether one company, YRC Worldwide Inc, survives as they are to a recovery in the recession-bound U.S. economy.

If YRC fails it could provide competitors with just the reduction in industry capacity they need to jack up pricing for the first time since late 2006.

While that would be good news for the less-than-truckload (LTL) market -- which refers to truckers who consolidate smaller loads into a single truck -- it will hurt customers already facing the pinch in a down economy.

YRC, based in Overland Park, Kansas, nearly quadrupled its revenue from $2.6 billion in 2002 to a peak of $9.9 billion in 2006 thanks largely to two major acquisitions, and is important because it controls some 20 percent of the LTL market.

"One of two things has to happen: either we have to lose capacity or demand has to come back," said Morgan Keegan analyst Art Hatfield. "The rate at which YRC's business is deteriorating makes it more likely that it will be them to go out of business rather than someone else."

He said a YRC failure "would have a positive effect on the market, as it would help restore the balance between supply and demand. It would also help stop the bleeding on pricing."

LTL shippers account for around 13.6 percent of America's trucking sector, with the rest dominated by the highly fragmented truckload -- or long-haul -- market. Full Story.......

No comments: