| Show t BUSINESS and the STOCK MARKET by bv BABSON'S REPORTS I Co Copyright mil Trucking Industry By Babson's Reports Incorporated Incorporated Incorporated r Wellesley Hills Mass May 7 1970 In recent years the motor carrier industry has experienced excellent revenue growth Although this trend may be resumed after the current labor dislocations the 1970 earnings outlook is less impressive Trucking is caught in a profit prom squeeze Increased equipment cost higher operating op op- op crating expenses and rising taxes have narrowed profit margins GIVEN reasonably early labor peace trucking reve reve- revenues revenues I in 1970 should rise 6 a percent 7 percent over 1 levels but the industry's expenses expenses ex ex- expenses will increase at an even swifter pace Adding to the problem ups tie-ups are still t in progress and seem destined to constrict profit margins further Although freight rate boosts granted last year may partially offset these higher costs the truckers are going to have to seek additional rate hikes in line with contract contract con con- tract settlements However rate relief notoriously lags behind behind be be- hind cost increases on an in in in- t. t wide basis Although 1970 1510 prospects for forthe forthe lackluster lackluster lackluster lack lack- the trucking firms are luster the industry's longer- longer 1 term growth outlook remains z favorable In the future the motor carriers should be able to acquire an increasing ever-increasing share of the transportation dollar The American Trucking Trucking Truck Truck- ing Association in fact predicts predicts pre pre- that by 1980 truckers will account for 61 percent of freight revenues with railroads commanding only 29 percent of the total THE TRUCKING industry is changing The existing profit prof prof- it squeeze is forcing many marginal carriers either to go out of business or to merge Better management computerized computerized computerized operations and streamlined streamlined streamlined stream stream- stream stream- lined technology should create a viable trucking industry for forthe forthe forthe the future In 1945 there were truckers today there are less than companies There is little doubt that this trend will continue many in fact believe that there could be avery a avery avery t E very substantial reduction in motor carriers in just the next few years As more truckers follow the merger or acquisition route they willbe will willbe willbe be in better shape to achi achieve ve major operating economies TERMS OF the year 3 labor contract when finally accepted are going to be exceedingly costly It looks at this writing writing writing writ writ- ing as though the Teamsters will end up with an agreement agreement agree agree- ment providing a raise of an hour over 36 months as opposed to an earlier settlement settlement settlement set set- of for 39 months Currently at least large sections sections sections sec sec- of the Teamsters Union are ready to hold out for the top-package top figure Ratification of such a pact will ma make ke it more certain than ever that companies will seek new rate freight increases However However However How How- ever there is a lag factor between rate-boost rate requests from the and time of ap ap- Thus relief may not show up in profits until late 1970 In the trucking industry la labor labor la la- bor is an outstanding expense accounting for 65 percent of total operating costs So the upcoming raises and benefits will be a heavy burden for trucking The year 3 contract which expired at the end of March increased wages 5 percent percent percent per per- cent a year But final provisions provisions pro pro- visions when they are ratified may be slightly better tha than 9 percent annually for the year 3 span including wage lifts and fringes MOST TRUCKING stocks have fallen badly in the current current current cur cur- rent w weak e a k market owing largely to the industry's near- near term prospects which are still clouded by labor 1 However most of the truckers' truckers problems appear to have already been discounted by the stock market We recommend recommend recommend rec rec- retention of common stocks of the leading truckers at their present levels because of their term long growth po po- po Indeed many issues look very tempting at this point We feel it best to postpone postpone postpone post post- pone buying temporarily until untila a clearer picture of the settlement settlement settle settle- ment pattern emerges Investors Investors tors may then have an even more golden opportunity to go bargain hunting in this sector of the stock market |
