Weekly Transports Recap: The Montgomery Edition – Uncertainty, Hyperbole, and Vo

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Weekly Transports Recap: The Montgomery Edition – Uncertainty, Hyperbole, and Vo

you consider volume share and revenue, the industry is already

highly consolidated with compliant actors.

• What about TL capacity? After an initial (and predictable) selloff

in broker stocks, CHRW and LSTR ended down only 2-4%,

respectively, yesterday. However, the TL stocks under our

coverage were up 7-14% and LTLs were up 4-6.5%. The TL

narrative is that non-compliant and unsafe trucking capacity will be

removed from the market in droves as the long tail of brokers that

did business with these carriers can no longer tap that capacity,

rendering it unemployable. The numbers we heard second-hand

from investors (that they heard from “industry sources” was 30-

50% of industry capacity is at risk). Those types of numbers would

bring on the bull market of all bull markets. But are they reasonable

estimates? We don’t think so. We’ve performed a sensitivity

analysis examining the potential capacity drain from both non-

compliant drivers and non-compliant brokers (see Figure 1 below

for all the inputs/outputs). We estimate there are roughly 500,000

long-haul truck drivers in the U.S. Based on prior FMCSA ratings

(which is only performed on 3-5% of carriers each year),

unsatisfactory ratings were applied to 3% of those assigned ratings

last year. We will juice that figure to assume higher safety issues

for those that avoid ratings, and we use a Base Case of 6% of the

total driver count as unsatisfactory (with a Bear Case of 4% and a

Bull Case of 10%). From the broker’s side, we take the 31.5% of

brokers outside of the top 12 and assume 10% of those will leave

the market given higher costs and vetting requirements. In both

outcomes, we arrive at estimated driver or driver-equivalent non-