Sunday, October 25, 2009

YRC Worldwide sector is 18% over capacity

YRC Worldwide Inc.’s sector of the trucking industry remains about 18 percent over capacity because carriers have not been going out of business as quickly as expected and are scrambling to get freight, analysts said.

Overcapacity in the less-than-truckload (LTL) sector, which hauls consolidated small shipments, means fierce price competition and probably lackluster third-quarter earnings, St. Louis-based Stifel Nicolaus & Co. Inc. said in a note Tuesday.

“Unless YRC shuts down or other carriers exit, we believe pricing should remain difficult through at least (the first quarter),” the note said.

YRC is in a mandated quiet period before earnings and declined comment. The trucking giant reports third-quarter earnings Oct. 30.

YRC continues to lose market share and sales employees, but the company still is operating, keeping price competition strong and margins low, the Stifel note said. However, publicly traded competitors keep taking market share from YRC, which Stifel has given a sell rating.

The future of some of those companies may be partly hitched to YRC’s fate, Dahlman Rose & Co. LLC said in a Thursday note. Arkansas Best Corp. based in Fort Smith, Ark., on Wednesday reported a loss of $5.57 million and a 22 percent drop in revenue to nearly $370 million. Freight industry volumes seem to be stabilizing, with drops slowing down steadily during the last few months, the note said, but Dahlman Rose has a sell rating on Arkansas Best shares because of YRC’s persistence, and a hold rating on YRC shares.

“While we believe ABFS to be a well-run company, its fate continues to be linked to both the economy and the survival of long-haul competitor YRC Worldwide,” the note said. “Given our belief that a strong recovery in the trucking industry is unlikely in the foreseeable future and that YRCW could survive longer than most believe, we continue to maintain our sell rating on the (Arkansas Best’s) shares.”

All the price competition is good news for shippers — for now. In a Monday note, Longbow Research analyst Lee Klaskow said about a third of the shippers he surveyed were most worried about higher transportation pricing, including the effect a potential YRC bankruptcy might have on rates.

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