As fuel prices rise, truckload sector sags

After fuel prices surged to a record $2.29 per gallon in the first week of April, crude oil prices dropped to $52.10 per barrel and then bounced back to just above $53. This was roughly in line with Morgan Stanley's expectations of $49 to $52 per barrel in the first quarter. The equity research firm suggests a range of $47 to $57 per barrel for the remainder of the year and $45 to $55 per barrel for 2006. Truckload carriers aren't expected to recapture the full amount of the fuel price, leading Morgan Stanley to estimate truckload companies like Heartland Express, J.B. Hunt, Swift Transportation and Werner Enterprises could see a 1% to 4% drop in earnings per share for 2005 and 2006.

Meanwhile, Morgan Stanley's Truckload Index indicates new industry capacity and weaker demand have combined to push the index lower. This could indicate some weakening of carrier pricing should demand continue its slowdown.

Morgan Stanley looked at the supplyonly side of its Truckload Index and found new capacity being added. Examining the demand-only portion of dryvan truckload shipments yielded a slight weakening in demand in early April. Some of the capacity increase is a run up of demand ahead of new emissions requirements.

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