Death of the weak only hope for U.S. truck companies?

By Nick Carey - Analysis

CHICAGO (Reuters) - For life to improve for America's battered truck sector, one of two things must happen: Either the U.S. economy needs to rebound or more companies need to fail for truck supply to shrink to meet demand.

But as the U.S. continues to languish in recession, few analysts see any relief for truckers before 2010.

"It's fair to say the trucking sector has excess capacity," said Art Hatfield, an analyst at Morgan Keegan. "Either the economy has to improve or more capacity will go away."

"The latter scenario looks more likely," he added.

Truck companies run low-margin operations on the front line of the world's largest economy.

The entire sector has suffered from weak freight volumes since the third quarter of 2006, hit by sagging retail and auto sales, the U.S. housing sector meltdown and the U.S. recession. Truckers have cut prices as too many firms have chased too little business.

Rather than getting better in late 2008 -- as many in the truck industry had hoped -- the downturn has only worsened.

U.S. truck tonnage in December fell 11 percent from November, the biggest monthly drop since April 1994, according to the American Trucking Associations (ATA).

"We are now over 27 months into a freight recession that is the worst I have seen during my 37 years in this industry," Arkansas Best Corp (ABFS.O) Chief Executive Robert Davidson said after the less-than-truckload (LTL) company posted a loss this week.

The company also said it had cut 1,100 jobs in the quarter. LTL operators consolidate small loads into a single truck. Another LTL carrier, Con-way Inc (CNW.N), said this week it was delaying buying new trucks to conserve cash.

The one thing that has kept many truck companies -- small, medium and large -- from going under has been the recent drop in diesel prices from record highs last summer.

"Many truck companies that were on the brink of business held on thanks to the drop in diesel prices," said Tavio Hedley, staff economist at the ATA. "That reprieve is over."

Analysts say that while the private companies are at the highest risk, all eyes are on the country's struggling No. 1 trucker, LTL carrier YRC Worldwide Inc (YRCW.O).

"STAY OF EXECUTION"

Oil was the truck killer in the first half of 2008. As prices rose to the July highs over $148 per barrel, the number of truckers filing for bankruptcy jumped.