Sector - Trucking

B.J. and the BearsWSJ, August 28, 2006

Trucking companies have been running at full throttle in recent years. But now they seem to be hitting a speed bump.

There aren't many better places to get a good read on the economy than the interstate truck stop. Since they haul everything from Barbie dolls to power generators, truckers are among the first to feel it when the economy shifts.

Oscar Sloterbeck, who runs the survey group at research firm ISI Group, says the trucking companies he polls on a weekly basis are seeing disappointing freight volume for this time of year. One factor is housing. The housing downturn means they're hauling less gypsum board and lumber than when construction was booming. Retail shipments more broadly also show signs of slowing.


None of this has been lost on investors, whose once optimistic view on trucking company shares has deteriorated sharply in the past few weeks. Since the end of June, the Dow Jones index of U.S. trucking shares has fallen 16%.

Production cuts in the auto industry will hurt truckers even more in the months to come. Two weeks ago, Ford announced plans to cut its fourth-quarter auto production by 21% from year-earlier levels. Last week DaimlerChrysler's Chrysler unit said it planned to cut fourth-quarter production as well. Rounding out the Big Three, auto analysts expect General Motors to announce fourth-quarter production cuts as early as this week. That is likely to add up to less work for truckers.

Jim Meil, chief economist with Eaton Corp., which supplies many truck manufacturers, estimates autos and auto parts account for 8% to 9% of total U.S. trucking freight.

A back-of-the-envelope calculation by Goldman Sachs economist Andrew Tilton suggests that Ford's cuts alone, if they were felt wholly in the fourth quarter and if there were no offsets (unlikely on both counts), would reduce the economy's growth rate -- as measured by gross domestic product -- by about two-thirds of a percentage point in the fourth quarter.

Mr. Meil says he sees signs of a slowdown in trucking, though it hasn't been alarming, as it was back in 2000 when a trucking slowdown preceded a recession. "My reading now is that trucking is OK," he says.

If businesses pull back sharply in response to the combination of automobile-production cuts, the drop in housing and a consumer slowdown, that assessment could change. That's why Mr. Meil says there's also good reason to be a little nervous right now.