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The U.S. economy and freight market are showing signs of bottoming out, and there will be clear winners and losers once the nation exits the recession.

That’s the message Stifel Nicolaus Co. Inc. analyst John Larkin delivered to the National Shippers Strategic Transportation Council during an April 28 presentation he detailed in a research note issued yesterday. There are a few signs that point to an apparent bottoming, Larkin said.

Although retail sales have “fallen off a cliff,” the comparisons “have not really gotten worse” in the past three months. Also, the contraction in the Institute for Supply Management Index, which saw “great growth” in 2004-2005, was severe at 2008’s end but “has sort of moved sideways to slightly up in the past few months,” Larkin said. Housing starts can’t seem to find a bottom, he noted, a situation that began in early 2006. The inventory-to-sales ratio has taken a beating the last six months, with February being the first month showing improvement since June 2008. Rail carload volumes don’t seem to be improving, with declines in coal, grains and goods not considered economically sensitive, Larkin said.

On the capacity side, a good chunk of “real capacity” has come out of the truckload segment through company failures, owner-operator repossessions, company downsizing and more, Larkin said, adding that he estimates there’s been an 18 percent short-term reduction and 15 percent long-term reduction in capacity. The less-than-truckload segment also has lost capacity, with Larkin estimating an 8 percent short-term reduction and a 6 percent long-term reduction — due, in part, to some larger players going out of business. There’s been a 15 percent short-term reduction in rail capacity and no long-term capacity reduction, Larkin said, noting that “railroads have parked a lot of locomotives and rail cars, but those will come right back on stream” when needed.

As demand begins to rebound, it’ll eventually exceed supply, similar to what occurred in 2004-2005, Larkin said. In that scenario, the rate power shifts to the carriers, he noted. Although it’s difficult to predict when this will occur, “it is very possible that supply and demand will actually come into balance in the transportation industry before the U.S. economy is fully out of the woods,” Larkin said. This will depend in part on how much capacity is taken out, and much more capacity would be exiting if banks weren’t being so lenient to troubled carriers, he said.

As for post-recession winners and losers: Carriers that survive will have scale, allowing them to be efficient, minimize “empty miles” and maximize utilization, Larkin said. Other winning characteristics include a strong balance sheet, a competitive cost structure and pricing discipline. The losers will be carriers that have been relying on banks that are lenient with lease payments.

One other note from Larkin: Although the peak season for freight movements used to occur toward the end of the year, that no longer appears to be the case. Thanks to gift-giving patterns and the types of gifts given during the holidays — smaller electronics are more popular than the larger gifts of the past — May and June are emerging as busy periods, he said. Larger purchases are occurring in the second quarter as consumers buy lawn mowers, lawn furniture and other items in preparation for the outdoor summer months.
  
— By Desiree J. Hanford. A Chicago-based free-lance writer, Hanford covered the equities market, including transportation, for Dow Jones & Co. for 10 years.