The New Shipping & Transportation ‘Make or Break’ Detail

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April 19, 2010

The New Shipping & Transportation ‘Make or Break’ Detail

While total shipping volumes year-to-date are not yet back up to 2008’s (and prior) levels, they are well above 2009’s volumes at this point in the year. That’s true of trucking, rail, marine, and air fright - it’s all on the mend. For instance, total train car shipments in the U.S. for March of 2010 was 9.3% better than March of 2009. It was the third year-over year gain in a row - the best run since 2007.

So it’s time to buy railroad stocks? No, not necessarily. Trucking stocks then? No, not necessarily them either, or any other particular industry. See, it’s not one transportation industry that’s poised to outperform the others. It’s the kind of cargo container – and whether or not a shipper can handle it – that will make or break transportation companies in the foreseeable future.

Interwhat?: It’s called intermodal transportation, and it’s quickly becoming the preferred way to ship goods when a choice is available.

Where a tractor trailer or train car may require unloading and redistribution of its contents between ships, trains, trucks, and planes (each of which requires manpower. and poses risk of loss or damage), intermodal containers - giant cargo boxes that can fit on train cars, or on ships, or on flat bed trucks – can be transferred ‘as is’ from one transportation mode to another simply by picking up the crate and placing it on its next carrier.

The ‘so what’ is simple…. intermodal transportation needs are growing at a faster rate than alternatives, like direct trucking, or train box cars (which generally require partial trick-shipping anyway). In March, as an example, intermodal rail shipping in the U.S increased by 12.4%, and is actually close to reclaiming 2008’s usage levels. Regular carloads are still well under 2008’s norms.

Picks of the litter: While most shipping companies are able to handle intermodal shipments one way or another, some are surprisingly better equipped to handle it than others. And, that disparity is starting to become evident in the numbers, for better or worse.

J.B. Hunt (NASDAQ:JBHT), for instance, generated a 20% increase in intermodal income last quarter, but only a 15% bump in straight trucking income.

Hub Group (NASDAQ:HUBG) has yet to report last quarter’s earnings, but the intermodal shipping company recently purchased 2000 more cargo containers; there had to be a reason for the decision. Pacer International (NASDAQ:PACR) is another high-quality intermodal trucking company.

That said, don’t assume all great intermodal stocks are going to fall into the ‘trucking category’. Railroad company Union Pacific (NYSE:UNP) was upgraded by Standard & Poor’s on Monday, largely due to recent growth in its intermodal business.

Bottom line: Recovery or not, shippers are looking for ways top save money in perpetuity; intermodal transportation does that…. and even more so as diesel prices rise (like they are now). The migration to intermodal shipping isn’t apt to be a fad either…. it’s a paradigm that won’t boost all transportation stocks equally.

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