Steady movers: transportation offers a good ride in a sluggish market.

Transportation is a bellwether sector. Not only does it reflect the overall performance of the economy, but the activities of railroads, trucking companies and freight forwarders can signal future trends. Lately, those signals have been encouraging.

"Railroads and trucking are looking better," says Stanley Nabi, managing director on the value team at Credit Suisse Asset Management in New-York, "partly because the economy has stabilized."

Nabi believes that both trucking and railroads have been forced to improve their efficiencies by pricing weakness. He adds that railroads rid themselves of the costly working practices that used to be part of union contracts. These practices, known as featherbedding, included the assignment of firemen to diesel locomotives where they shoveled coal. Currently, the railroad industry's labor costs are lower than those of the airline industry.

The ability of railroads to attack costs was bolstered by the creation of mega-carriers as a result of consolidation. Analysts agree that there is now little scope for further railroad amalgamation. "I would be surprised if over the next 10 years we have more than one significant merger," says Nabi.

Credit Suisse Asset Management has made a policy decision not to hold transportation stocks. Nabi says the reason for this has been the negative effect of deregulation in these industries. Deregulation, which began in the 1970s, did particular damage to the trucking sector.

RAILROADS MOVE PRODUCTION

Rick Paterson (****), an analyst with UBS Warburg, believes that an upturn in railroad haulage activity can point to a recovery one or two quarters ahead in the rest of the economy, noting the importance of railroads in moving …