Transportation stocks for shipping companies such as Horizon Lines (NYSE: HRZ), Sino American Global (NASDAQ: SINO) and TBS International (NASDAQ: TBSI) and trucking companies such as YRC Worldwide (NASDAQ: YRCW) and Express 1 Expedited Solutions (NASDAQ: XPO) are useful indicators for insight into how the economy is performing, beyond the numbers released.

From one meeting on Capitol Hill, as an example, an executive with Norfolk Southern (NYSE: NSC) let those in attendance know how dire things were in the economy when he disclosed that his company had exhausted all of its storage facilities for empty rail cars.  As a result, empty rail cars were being attached to trains carrying freight as there was no available storage area.  In Montana, the state legislature introduced a bill against Burlington Northern Sante Fe Railway for parking hundreds of empty cars along the scenic Missouri River between Helena and Great Falls.  At one time, Union Pacific (NYSE: UNP) has 48,000 empty rail cars, a record amount.

The trucking industry has fared just as poorly in The Great Recession.  YRCW is close to bankruptcy.  In 2008, 3000 trucking companies folded due to a lack of goods to be transported.  Higher fuel prices and less consumer demand for goods to be shipped have all taken a fearsome toll on truck stocks.

Shipping companies are also sinking.  During the economic boom, shippers overbuilt on hopes that global growth would continue.  When growth fell and oil prices rose, stock prices naturally fell as rates could not be raised due to the intense competition from the glut of new ships.  Exacerbating the financial woes of the companies was the massive debt burden that had been assumed to build the new ships.  That combined with the high dividend payment that is standard for the sector puts a tremendous drain on the cash flow of these entities.

Transportation companies normally see shipments increase in number and weight about a year before the overall economy recovers, as retailers restock and manufacturers increase production.  In the recession of 2001, for example, freight shipments picked up a full year before the economy.  It is often stated that The Market is six months ahead of the economy, which would mean that the strong spring portends a recovery later this year.  The real economy that the transportation industry represents, where the actual goods produced are delivered from wholesale to retail, should be followed by small cap investors for direction.