Transportation companies are facing their 'most difficult outlook' since 2009

Last year was pretty ugly for trucking, railroads, and air freight companies.

And the analysts at RBC Capital Markets aren't exactly feeling optimistic about them this year.

"In looking forward to 2016, we admit this may be the most difficult outlook report we've written since the one for 2009," writes a RBC Capital Markets team led by John Barnes.

"We believe the US economy is reflecting a slow growth environment and despite the Fed's rhetoric about an interest rate liftoff, the data points suggest a decelerating freight environment."

In the report, the team detailed some of the specific concerns they had about different transportation sectors:

1. They're worried that US Class 1 railroads will experience another year of poor carload performance.
2. Regarding truckload (TL) freight, they are concerned about load growth, capacity growth, utilization, and pricing.
3. Less than truckload (LTL) freight - shipments larger than small packages but smaller than a full truckload - is looking at three big challenges: "1) a continuing decline in weight/shipment, 2) a concern about pricing power in a softer freight environment and 3) no benefit from increasing fuel surcharges without an increase in diesel fuel prices."
4. The outlook for intermodal freight - freight transported by some combination of land, sea, and air - is "unclear and there are mixed messages."
5. And they're uncertain whether M&A activity can keep up with 2015's pace this year.

"When compared to other industrial sectors, any growth may make the freight transportation sector the outlier. We've repeatedly heard the cliché 'nice house in a bad neighborhood' recently to describe this outlook. However, the industrial sector is broadly speaking currently more like a slum, so any house may be nice," they added, grimly.

Notably, some of the negativity regarding freight companies is due to last year's unfavorable trends: The Dow Transportation average fell 17.8% in 2015, and the individual sectors didn't look so great, either. (You can see the numbers broken out by sector to the right.)

Some of this weakness has been attributed (unsurprisingly) to lower oil and the stronger dollar.

Additionally, some executives and research reports pointed a finger at the American consumer.

Still, the RBC analysts wrote that they were the "most concerned" about the recent ISM reading and the inventory-to-sales ratio.

December's ISM declined for the sixth month to 48.2, the lowest reading since June 2009. Furthermore, the new orders component remained in contractionary territory, an ominous sign for the freight companies that would move those new orders around.

As for the second point, the inventory-to-sales ratio measures how many months it would take businesses to sell down their current stash of stuff. So that means if the ratio is up, businesses in the US are accumulating a stockpile of goods.

That can hurt transportation companies because it means businesses aren't moving those stockpiles somewhere else.

And the analysts emphasized multiple times in their report that this ratio is "trending in the wrong direction," adding that "as long as inventories remain high, the likelihood is that freight volumes will remain lackluster."

In short, as RBC put it: "2015 was brutal and is likely going to leave some permanent scars."

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