What J.B. Hunt Transportation’s 4Q14 numbers mean for investors (Part 8 of 9)
Overview of fiscal 2016 budget transportation plan
President Obama’s proposed fiscal 2016 budget, including a 2015 trucking plan, set apart a total of $478 billion for transportation in the US. It includes mandatory and discretionary fund the US road freight transportation market. The amount budgeted is expected to fuel the Department of Transportation’s Highway Trust Fund for the next six years.
The administration believes that if nothing changes in the highway infrastructure, that by 2040 the conditions of traffic congestion and road safety would worsen. With the continuing, rising demand for e-commerce, the infrastructure network needed to support product deliveries would require maintenance and improvement.
The budget transportation plan states that if changes are delayed, the increased truck and passenger vehicle traffic would increase peak-period congestion to 37% of the national highway system in 2040, a significant leap compared to the 11% level in 2007.
The US government proposes to end a 20-year dispute with cross-border Mexican carriers. The administration states this step would help improve the country’s relationship with its third largest trading partner. However, the government also revealed plans to cut the Harbor Maintenance Trust Fund from $1.93 billion to $915 million, which it states would adversely affect intercontinental freight transportation.
What does this plan mean for J.B. Hunt?
The US government’s fiscal year 2016 starts on October 1, 2015. If President Obama’s budget, including this transportation plan, is approved by an opposition Congress, and with fuel prices reaching their current lows, the market is expected to head in one of two directions. On one hand, if transportation costs decrease, it would lead to market growth. Otherwise, if the cost levels are maintained, this may expand profit margins.
The administration believes the proposed transportation plan would boost the market for long-term growth. With J.B. Hunt Transportation (JBHT) being one of the leading players in this space, the company is expected to benefit from this plan. The cut in the Harbor Maintenance Trust Fund could lead to decreased export revenue.
Trucking companies that could be impacted include J.B. Hunt, Celadon Group (CGI), Landstar System (LSTR), and Old Dominion (ODFL). Some of these companies are part of the iShares Transportation Average ETF (IYT).
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