The beleaguered LTL sector of the trucking industry looked like it was coming out of a two-year slump in February—then came March.

The first quarter, traditionally the slowest period for all trucking companies, endured a typically slow January before an uptick in February caused some optimism that the long-awaited freight recovery was coming to an end.

Then, in March, the monthly truck tonnage index compiled by the American Trucking Associations dropped 3.3 percent—the largest one-month contraction since August 2006 when this freight recession began.

The news of the drop quickly caused analysts and LTL executives to think that 2009 may be the year the recovery begins—instead of the second half of this year as was projected at the beginning of 2008.

According to market watchdogs, the LTL problem is two-fold: lower rates and higher costs. As the accompanying chart illustrates, including rapidly rising fuel surcharges, freight revenue for the 10 largest LTL carriers actually increased by 3.1 percent from the first quarter of 2007 to the corresponding period this year. With fuel surcharges, rates rose 2.3 percent—but costs rose more steeply than that due to the surge in diesel prices.

That has caused pain among even the best-run LTL carriers. Chuck Hammel, president of Northeast-regional carrier Pitt Ohio Express, says geographic expansion into the Midwest last year resulted in a 14 percent rise in revenue. But Pitt Ohio's bottom-line profits actually dropped because of sharply higher costs.

Certainly Wall Street has been fooled. Since trucking is viewed as an early barometer of overall economic activity, investors look to the sector for any first signs of recovery. For LTL carriers, that has often meant a surge in stock prices ahead of the actual recovery.

This year that is just what happened to Arkansas Best, parent of ABF Freight System, the nation's fifth-largest LTL carrier. Its stock surged 34 percent in a three-month span early this year in anticipation of the freight recovery that most carrier executives say has not arrived yet.

Doug Stotlar, CEO of Con-way Inc., said it's a year for battening down the hatches, even for the most profitable LTL companies. “In our freight businesses, even with weak demand and unprecedented fuel costs, we're anticipating a nominal degree of tonnage improvement year-over-year, probably in the low single digits,” he says. “The economy just isn't sending any upbeat signals right now, so it's prudent to be a little cautious.”

The word from most LTL executives for this year is diversification. The core LTL sector has remained flat with about $34.3 billion revenue last year. Because that sector is not growing, many LTLs are expanding into other niches they hope are more profitable and less cyclical. Some, like Con-way, which purchased Contract Freighters Inc. last year for $750 million, have made forays into the truckload arena. That is helping the carrier develop a diversified service portfolio to increase the top line at a time when everybody's bottom line is stagnant.