Some cheerful news, at least

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We're expecting mid-single digit industry volume growth and low-single digit price increases for the sector. As a result, additional free cash flow generation should occur, creating greater financial flexibility for transportation companies.” –Bryant Bedwell, associate director, Fitch Ratings

Here’s a bit of good news as 2010 draws to a close: analysts at Fitch Ratings that a number of positive trends are coming together to favor the freight hauling business next year. And while we’re not talking about a truly rosy outlook here – worthy of popping champagne corks and the like – it’s definitely cheerful considering the rough patch the trucking industry has been slogging through.

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Fitch’s experts expect increased stability in the ratings for U.S. transportation companies in 2011, driven by modest volume growth, consistent core pricing improvements, strong liquidity, and steadily declining leverage metrics.

As U.S. freight haulers continue to benefit from what is believed to be a sustainable economic recovery, they further expect improved profitability and cash flow generation improvement, leading to an overall strengthening of the industry's credit profile. Now, although credit quality is improving, Fitch does not expect many positive rating actions in 2011 due to limited debt reduction, regulatory uncertainty and the expectation for increased discretionary spending.

Fitch’s analysts said market conditions in the trucking industry should continue to show improvement into 2011, with utilization and pricing improvements will remain the primary focus of the sector's largest competitors. Nonetheless, overcapacity continues to plague the industry and is likely to remain a headwind to yield increases in 2011, though Fitch expects companies will remain disciplined in their efforts to constrain capacity and improve the industry's operating leverage.

So, what’s behind the optimism? One piece of data comes from TransCore’s spot market freight volume, which, since August, has exceeded same-month levels for every year since 2005 – the peak year for truckload freight on the spot market. November was no exception, up 72% from a year ago, according to the firm’s North American Freight Index.

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On top of that, Fitch said the expected seasonal decline from October to November was just 2.3% – significantly less than the 16% average over the past five years, a further indication of spot market freight strength going into the holidays.

TransCore also reported improving spot market rates, confirming November’s robust volume, with national average line-haul rates for refrigerated and flatbed trucks alike rising by 0.7% on the spot market month-over-month, while van rates remained stable.

Again, does this mean it’s time to break out the brass bands and start throwing confetti about? No way. Many carriers – TL and LTL, larger and small alike – are still too busy just trying to survive. But at least the tide seems to be firmly turning here in favor of trucker, and that’s definitely something to be cheerful about.

What's Trucks at Work?

Trucks at Work: Sean Kilcarr comments on trends affecting the many different strata of the trucking industry.

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