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December 2014

Is It Time To Ride Rail Stocks?

According to a recent report, Morgan Stanley analysts believe 2015 and 2016 could be big years for U.S. rail companies.

Analysts see tight capacity, increasing truck pricing, and inflation as driving forces behind a projected doubling of rail core price growth in 2015.

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The squeeze 

As manufacturing activity increases in West Michigan, many companies are finding their warehouses stocked with ready-to-ship inventory.

The problem: There aren't enough truck drivers to move those products to customers - an issue that's having repercussions throughout the logistics industry.

"Going forward into 2015, truck drivers or the lack thereof will rise to the top problem for the entire economy," said Rosalyn Wilson.

While rail, air and maritime cargo are all seeing the benefits of increased freight activity, the trucking industry is running up against severe capacity constraints driven by a dearth of operators, sources said.

As fuel prices drop, trucking companies see opportunity to raise freight rates

The American Trucking Associations calculates that each 1-cent drop spurs industry wide annual fuel savings of $350 million. Diesel last week averaged $2.15 a gallon, down from $2.85 in the last 12 months. About 85 percent of the savings goes to shippers through lower fuel surcharges.

That may soften shippers' resistance to higher rates that trucking companies say they need to cover rising expenses for salaries, health care and new regulations that limit driving hours.

Unlike previous times when fuel prices fell, stronger economic growth is increasing demand for cargo space while drivers are scarce, which spurs higher rates.

"If the overall cost for the shipper, which is your rate plus your fuel charge, is going to go down, then they may be a little bit more willing to pay that increase," according to Eric Fuller.