Trucking Might Be Having Its Worst Year Since 2007, Says JPMorgan

JPMorgan has warned that the North American trucking industry might be having its worst year since 2007.

Analyst Brian Ossenbeck, who launched the coverage on the sector, said the truckload sector faces a broadly negative 2016 fundamental outlook and expects to drive the first contraction in realized revenue per loaded mile (ex-fuel) since 2007.

Tepid freight demand and lack of a "gasoline dividend" boost to consumer spending will likely disappoint expectations in a sector with 70 percent consumer and retail exposure.

"Supply-side pressure will also weigh on rates after effective capacity climbed substantially on near-record new tractor orders and should creep higher as carriers cut fleet growth but work existing assets harder," Ossenbeck wrote in a note to clients.

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Improving fleet utilization should reduce turnover and boost driver pay, but a weak outlook makes passing through multiple pay hikes without a significant dedicated presence difficult.

The analyst noted that continued used truck market weakness represents a significant headwind to earnings, cutting into gains on sales of tractors, which generated 7–25 percent of operating income on average since 2012.

"Although the stocks have declined 35 percent from the 2015 peak, we view the starting point as representing an atypical 'peak EPS on peak P/E' scenario for a cyclical group. We recommend caution on the stocks and forecast a deeper-than-expected 2016 EPS trough and slower 2017 recovery relative to consensus estimates," Ossenbeck added.

A Few Names

What follows is the analyst's take on various stocks in the sector: