What’s left to fuel the trucking industry? Not the teamsters…
Today's Financial News - Posted June 18, 2009
While many economist say they see green shoots sprouting, nobody from the trucking industry is ready to admit to any growth. Surging fuel prices, high labor costs and dwindling demand are making business tough. Yet we still managed gains of over 105%.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): I don’t know why, but I have always quietly wanted to be a long-haul truck driver. The freedom of the open road, the big motors and the chance to see the country are enough to get any red-blooded, patriotic American to drop his pen, kick over the cubicle wall and go get his CDL.
But after studying the industry over the past few years, I think I’ll stay right where I am. Even with so-called “green shoots” beginning to pop up across the country, they have yet to find the strength to muscle their way through the concrete and asphalt highways.
The right-hand lane is not a fun place to be these days.
No other company does a better job of exemplifying the industry’s woes than YRC Worldwide (NYSE:YRCW).
Sure, we made played the company’s volatile action for gains of over 105% in the run-up to releasing TFN Strategic Trader and are currently working on putting sizeable profits together on a covered call strategy, but YRCW must be approached with caution.
Not only is it dealing with the double-decker pain of soaring fuel costs and a drop in demand, it also must contend with a pesky little organization known as the Teamsters.
More tolls ahead?
In case you don’t fuel up with diesel, let me tell you the surge in the less-refined fuel’s prices have nearly mirrored gasoline’s recent rise. In just the last month, prices have jumped by more than 14%, to average $2.61 per gallon.
Even scarier, prices have risen while diesel demand has dropped. The country is calling for 17% less diesel, yet the markets continue to add to the price.
Soaring prices would not be so bad if demand was rising and companies could make up the hit to their margins, but demand is far from what it was just a year ago. In fact, according to the American Trucking Association, trucking demand has dropped by about 13% from this time last year.
Rising costs and less revenues is a textbook recipe for disaster.
Toss in the pain from union-created pensions and the situation is bleak.
YRCW is part of a multi-employer pension fund known as the Central States Fund. As so many of us know, pensions need to be fed even during an economic calamity like this one.
With business crawling along in first gear and a recent acquisition still putting pressure on the company’s books, YRCW’s cash position is getting pretty tight. So when it came time to make another multi-million payment to the pension fund, company executives were forced to find options.
Run and hide?
Although the Street has anticipated the move for several months, the company announced earlier today it has finalized an agreement with Central States to defer an $83 million payment by collateralizing some of its real estate.
Now it can make the payments over three years starting in January of next year. The company is making similar headway with other Teamster-based pensions.
While it is certainly not the kind of news a company wants to be making, the concessions allow YRCW to keep its head above water.
Thanks to these moves and YRCW’s recent strategic consolidation efforts, I have high hopes for the company. It will remain a leader in its industry.
Today’s investors have little to be smiling about but that will eventually change. The industry will regain some of its old momentum, one gear at a time.
As I mentioned, at TFN Strategic Trader we are playing the situation through a unique covered call strategy that has protected our profits even during the recent downturn. To find out about how we did it, continue reading here.
We are in a unique market situation where economic laws as basic and fundamental as supply and demand are uncoordinated. It is making it terribly difficult for the market to accurately price many assets.
As the markets correct their mistakes, prices will move. In the case of YRCW, prices will move higher.
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