Trucking company Ryder cites weak market for profit.
Ryder System Inc (R) cut its profit forecast on Monday saying that softness in the U.S. economy has spread beyond the housing sector, sending the truck leasing and logistics company’s shares down more than 6 percent. “Economic conditions have softened considerably in more industries beyond those related to housing and construction,” Ryder said in a statement.
Ryder cited less-than-expected demand in its commercial rental product lines and lower prices for used vehicles. Ryder’s commercial rental business fluctuates with market demand and is more directly affected by a soft market than Ryder’s long-term rental operations.
The U.S. trucking sector has been hit by weak volumes since the third quarter of 2006, with some analysts describing this slowdown as a “freight recession.”
The Ryder announcement affected other trucking companies as well. J.B. Hunt (JBHT), YRC Worldwide (YRCW), Con-Way (CNW), and iShares Dow Jones Transportation Average (IYT) all look vulnerable.
The housing recession has now spawned off a “freight recession“. It can’t be too much longer before prefixes like “freight” and “housing” are removed from the R word to be replaced by the dreaded “consumer-led” prefix.
Earlier this month, in an effort to boost consumer demand, Wal-Mart started Toy Wars.
The holiday toy wars started earlier than ever this year, with Wal-Mart Stores Inc. announcing Monday that it was slashing prices by 10 percent to 50 percent on popular toys such as the Razor Ripstik skateboard and the board version of the TV game show “Are You Smarter Than a 5th Grader.”
In 2006, Wal-Mart, the world’s biggest retailer, cut prices in mid-October in an effort to grab parents’ holiday dollars early. This year, it opened its toy offensive two weeks earlier to woo consumers slammed by higher gasoline prices, and it’s beginning to look like a very competitive Christmas.
Toys “R” Us Inc. plans to defend its turf as the toy authority, the place parents go to find toys that are sold out elsewhere, and to get advice and answers.
Back in July Wal-Mart slashed prices on 16,000 items for the back-to-school season. Earlier this month Wal-Mart started Toy Wars 17 days early.
Wal-Mart did not lower prices on back-to-school items out of the goodness of their hearts. Nor is Wal-Mart lowering prices on toys now out of the goodness of their hearts.
Wal-Mart is facing three problems
- Consumers are strapped for cash.
- Wal-Mart, Target, and retail stores in general have over-expanded.
- Rising costs of raw materials are going to pressure margins.
It makes no difference if input costs to produce those toys are rising. It makes no difference if rising fuel prices are affecting shipping costs. Prices of goods and services can only rise if peoples’ ability and willingness to pay higher prices increases.
The fact that Wal-Mart is slashing prices 17 days earlier than last year is yet another warning sign that consumer psychology has changed.
Key Changes in Psychology
- There is reduced demand for junk
- There is reduced need to transport junk
- There is no need to build more stores that sell junk
The third point above is extremely important. Once Wal-Mart (WMT) , Lowe’s (LOW) , Target (TGT) , Home Depot (HD) , Starbucks (SBUX), and Best Buy (BBY), as well as restaurants like Applebee’s (APPB) and Pizza Hut (YUM), etc., stop store expansion because of over capacity and falling demand, there is going to be no driver for jobs.
Without jobs, consumer discretionary spending is going to take a big hit, and foreclosures are destined to rise yet again.
Mike Shedlock / Mish/