Transports' exposure to home building
Weakening home building trends. The most obvious sign of slowing freight demand has been in residential home building. Primary Forest products vols. moved by the rails (a good leading indicator for housing builds) were down 5% during 1Q:06, 14% during 2Q and are tracking down 17% QTD in 3Q. This note displays our estimates for direct and in-direct exposure to the U.S. residential housing market by the transports.
Generally Rails and Trucks have most exposure. On average the large cap rails and trucks derive about 9% and 7% of their total rev. from home building and related business. Within truck, Truckload derives an estimated 8%, LTL about 6.5% and R an estimated 4-5%. The express providers derive only about 1%-2% from home building and related businesses while the non-asset/asset light providers derive about 4%.
Rails have mostly direct housing exposure. Generally the rails have the most direct exposure as they ship both primary forest products (cut trees) and lumber and wood (processed). While flatbed truckers also move trees and lumber, most of the public TL carriers do limited flatbed movements. LSTR and UACL move freight on flatbed but mostly for non-residential building, which remains solid.
Indirect exposure somewhat greater for truckers and logistics providers. Transports also have indirect exposure to retailers that stock home products or manufacturers that build appliances or home components (see estimates below). In addition for TL, where smaller moms and pops generally move lumber, an indirect negative impact could be increased small fleet TL capacity.
GWR, RRA, CNI and JBHT have the most overall exposure. Exhibit 1 below demonstrates that GWR with about 21% has the most total exposure as a percent of rev. to housing followed by RRA at 16%, CNI at 17% and JBHT at 15%. On the other extreme FDX, TNT and UPS, we estimate have less than 2% exposure to housing.
