Down to the bedrock

March 15, 2010
“ indicates that a lot of the worst in behind us; we’re getting down to the bedrock now.” –Ed Castagna, president of Nassau Asset Management Some good news from, of all places, data on repossession and liquidation of trucking equipment. According to ...
“[The data] indicates that a lot of the worst in behind us; we’re getting down to the bedrock now.” –Ed Castagna, president of Nassau Asset Management

Some good news from, of all places, data on repossession and liquidation of trucking equipment. According to Nassau Asset Management's NasTrac Quarterly Index (NQI), liquidation and repossession of trucking equipment plummeted 55% in the fourth quarter of 2009 from comparable activity in the same period of 2008.

Further, this marks the second quarter in a row where the NQI took a sharp drop; indicating to Ed Castagna, Nassau’s president, that a lot of the excess capacity within the trucking sector is being “soaked up.”

“This isn’t to say that we’re in a good economy; we’re still in the mode of waiting for a recovery to happen,” Castagna told me by phone. “But it’s another indication that the worst is behind us.”

This severe reduction liquidation/repossession in activity seems to indicate that the trucking sector has positioned itself for a turnaround that -- unfortunately -- has yet to begin, he added.

Data from the U.S. Department of Transportation's Bureau of Transportation Statistics supports this trend, Nassua noted, with the agency's Freight Transportation Services Index (TSI) measuring the month-to-month changes in freight shipments in ton-miles reaminingunchanged in December from its November level.

Meanwhile, although the index recorded a 4.1% decline for all of 2009, it increased by 2.9% during the last seven months of the year. Even with its recent surge, the Freight TSI is down 14.8% from its historic peak, which occurred in May 2006, Nassau noted.

Castagna's opinion is that whatever carriers managed to survive to this point have all the tools in place to benefit from a recovery. “They are the ones that saved money, made the difficult and tough decisions early on. They are the real players in this sector, but even some of them – the good ones, the ones that did everything right – didn’t make it. They could not hold on long enough.”

Noël Perry, principal of research firm Transport Fundamentals and senior consultant with FTR Associates, noted recently that even the impact of so-called “Zombie Truckers” – carriers that aren’t making their monthly equipment payments and thus should be bankrupt or shut down, yet remain in operation because the banks do not want to repossess their equipment as its value remains minimal – is starting to recede.

“The effect of these guys on price should be waning because the market is roughly in equilibrium now after nine months of gradual freight expansion,” Perry told me by email. That said, he thinks more trucking bankruptcies are in the offing as the last of the “Zombies” get removed from the market.

“No one know how many there are, and keep in mind that recessions are times of strong positive cash flow because of reduced receivables, so some of these guys are benefiting from that,” Perry said. But bankruptcies are going to go up as the market expands, as an expansion requires more cash from carriers. “I expect 2010 to be a big year for bankruptcies,” he noted.

Either way, Nassau’s Castagna stressed that fleets should not expect a bounty of freight to be in the offing. “The economy is not going to come screaming back, in my opinion,” he said. “This is a ‘reset’ to something new. We’re not going to go back to the economic growth rates of the past – we’re going to experience lower rates of growth. People just have to accept that.”

About the Author

Sean Kilcarr 1 | Senior Editor

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