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Demand for Trucks Surges on Strong Freight Transport: 4 Picks

Nalak Das
As the U.S. economy continues to grow, demand for carriage is also increasing and this momentum is expected to sustain in the rest of 2018.

Demand for Trucks Surges on Strong Freight Transport: 4 Picks

As the U.S. economy continues to grow, demand for carriage is also increasing and this momentum is expected to sustain in the rest of 2018.

U.S. trucking industry has been witnessing significant demand in recent months. The trucking industry is the lifeblood of the economy as it moves more than 70% of the country’s freight by volume. Truck transport is a “derived demand” industry, which means requirement for truckers depends on the demand for the products that trucks haul. Consequently, trucking serves as a barometer of the U.S. economy.

As the U.S. economy continues to grow, demand for carriage is also increasing and this momentum is expected to sustain in the rest of 2018. At this stage, investment in trucking stocks with a favorable Zacks Rank will be a prudent move.

Robust Demand for Truckers

Trucking industry is currently benefiting from two factors. Firstly, the U.S. economy is on solid footing. In its 2017-2018 Freight Transportation Forecast, the American Trucking Association (“ATA”) has predicted continuous growth for truckers driven by manufacturing, consumer spending and international trade over the next 12 years.

Secondly, the trucking industry is currently facing capacity crunch. A healthy labor market with unemployment rate at its lowest in nearly 18 years has resulted in severe shortage of drivers. This has raised the price for truckers. According to the ATA, the United States is currently facing truck driver shortage of approximately 50,000.

Moreover, trucking industry has discovered a new avenue of growth as the demand for online shopping is booming in the United States. Large e-commerce companies are booking truckling space to deliver their products. The ATA estimates that the country will need 898,000 more drivers over the next decade to keep up with growth and demand.

Strong Trucking Volume and Rates

The latest report of the ATA forecasted that truck transportation volume will rise 4.2% in the United States in 2018. Notably, total truck tonnage, including for-hire and private carrier operations was 10.8 billion tons in 2017.

With shipping demand high, truckers are able to charge higher for their services. Notably, freight rates have been rising since 2017. Currently these rates are soaring, with ELD (Electronic Logging Devices) mandates in place since December 2017.

Per the latest DAT RateView, in October 2018, Van trucking rates, Flatbed trucking rates and Reefer trucking rates increased 3.5%, 6% and 4.7%, respectively, year over year. As the holiday season approaches quickly, industry watchers expect increased demand, lower capacity and better freight rates for the U.S. truckers.

Growth Induced Policies

The two pro-growth policies of President Trump, namely, significant cut in corporate taxes and deregulation are major catalysts for trucking. The corporate tax rate was lowered from 35% to 21%. Incidentally, a large section of truckers book much of their revenues in the homeland. Consequently, a significant reduction in corporate tax rate borne by truckers would be immediately accretive to cash flow.

Our Top Picks

A robust U.S. economy, healthy consumer and business confidence, massive tax haul and business friendly policies of the government are anticipated to fuel trucking industry’s growth. We have narrowed down our search to four stocks carrying either Zacks Rank #1 (Strong Buy) or 2 (Buy) with strong growth potential.

The chart below depicts price performance of our four picks year to date.

ArcBest Corp. ARCB provides freight transportation services and integrated logistics solutions worldwide. It operates through three segments: Asset-Based, ArcBest, and FleetNet. It sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank  stocks here. The company has expected earnings growth of 173.7% for current year. The Zacks Consensus Estimate for the current year has improved by 11.7% over the last 30 days.

Old Dominion Freight Line Inc. ODFL is a leading, LTL (less-than-truckload), union-free company providing super-regional and national LTL service. It carries a Zacks Rank #2. The company has expected earnings growth of 64.5% for current year. The Zacks Consensus Estimate for the current year has improved by 2.9% over the last 30 days.

Covenant Transportation Group Inc. CVTI is a truckload carrier that offers just-in-time and other premium transportation service for customers throughout the United States. It carries a Zacks Rank #2. The company has expected earnings growth of 161.9% for current year. The Zacks Consensus Estimate for the current year has improved by 3.8% over the last 30 days.

USA Truck Inc. USAK is engaged in the transportation of general commodity freight in North America. It has a Zacks Rank #2. The company has expected earnings growth of 351.8% for current year. The Zacks Consensus Estimate for the current year has improved by 0.7% over the last 30 days.

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ArcBest Corporation (ARCB) : Free Stock Analysis Report
 
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Old Dominion Freight Line, Inc. (ODFL) : Free Stock Analysis Report
 
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