Chance of profits

Direction depends upon which report you listen

It seems that wherever you turn these days, someone has an opinion on the economy. It’s good, it’s bad, it’s muddling along. Forecasting the impact it has on trucking is no exception. A mix of recent news implies that caution may be the proper path going forward, even as sunlight peaks through the clouds.

According to results from GE Capital’s fifth U.S. Mid-Market CFO Survey, financial executives are in a decidedly positive mode. The poll of 500 executives chosen from seven distinct industries, including transportation, found that 67% expect higher revenues in 2012; 74% plan to hire; and 81% see stable or improving profits. All of those numbers are up at least 5 percentage points from the previous survey.

When the responses of transportation executives were culled from the survey, even more positive signs of improvement emerged. Of those surveyed, 47% of transportation CFOs predicted an increase in their company’s profit margins, outpacing the most optimistic among their peers across all industries. Also, 54% reported moderate businessspecific growth expectations, again tops of all industries.

WHAT LIES AHEAD

The greatest transportation business opportunities noted were acquiring new customers and increasing average revenue per loaded mile (59% each) with increasing tonnage volume from existing customers cited by 57%. With those expected increases, most transportation CFOs—80%, in fact—expect to hire in the next 12 months, increasing the workforce by 9% on average.

Transportation CFOs remain concerned about fuel price volatility, with emissions 32 I vehicle graphics 44 I first person 58 I safety 411 60 I private fleets 62 I closing the deal 64 managemenT 67% citing that as their biggest concern. An additional 59% were concerned about the impact of safety and truck accidents.

“When you go through the survey results, you find 90% of the trucking CFOs expect the industry will continue to grow [this year],” GE Capital’s Dan Clark told Fleet Owner. “However, even as their revenues go up and tonnage stays solid, we won’t see them adding trucks—so they will be looking at profits as they continue to come out of the downturn.”

Clark’s observance is being backed up by the latest Class 8 sales figures as net orders for Class 8 trucks fell in April, according to both ACT Research and FTR Associates.

“Orders continued to come in below the level ultimately needed to sustain current rates of build,” said Kenny Vieth, ACT’s president & senior analyst. “Conditions that contributed to the soft patch that started in March were still in play in April, including higher diesel and newtruck prices.”

FALLING TRUCK ORDERS

FTR Associates’ preliminary April data showed an even lower number than ACT’s expected figure for North American Class 8 truck total net orders in April. FTR pegged the order level for April at just 16,877 units—below the 17,200 figure of ACT—and stressed that it is “the lowest number since September 2010 and 55% below the same month a year ago.”

As FTR sees it, the April numbers “continue the downward trend” in Class 8 orders for this year, with annualized units for the past three months now standing at 234,600 units.

“A four-month trend is certainly significant and it is causing many in the industry to question their assumptions of growth for 2012,” said FTR president Eric Starks. “Now that we are through the typical ordering season, we expect orders to remain in the sub-20k level through the summer months. If the truck OEMs don’t scale back their build plans for the second half of the year, then we are likely to see a more significant payback once we get into 2013.”

But trucking analyst Chris Brady, president of Commercial Motor Vehicle Consulting, contends that truck orders have slipped because they “got ahead of themselves.” In his view, that trend started thanks to tax elements of the federal stimulus package that fleets took advantage of last year.

“Some 2012 truck sales were ‘pulled forward’ into 2011 by accelerated depreciation and write-off provisions of the stimulus package that benefitted fleets and so stimulated truck orders,” Brady told Fleet Owner. “Then [coming into this year] truck orders were too strong in relation to the economic recovery. On top of that, truck dealers have increased their inventories—with 39,000 units on dealer lots as of the end of March—and now are only ordering to sales.”

As for what’s driving truck sales, Brady points to both ‘normal’ and pentup replacement demand. “Truck sales [in 2012] will be above the normal replacement demand of 181,600 [Class 8] units because of the pent-up demand of those fleets that held onto equipment longer [during the recession and on into the recovery]. Profits for fleets are going back up, so they can now afford to move back to more normal equipment replacement cycles.”

Freight tonnage is also inching up, albeit slowly. The American Trucking Assns. (ATA) reported its seasonally adjusted (SA) For-Hire Truck Tonnage Index edged up 0.2% in March. That comes after increasing 0.5% in February. The SA index stood at 119.5 (where 2000=100), up from 119.3 in February. Compared with March a year ago, the SA index was up 2.7%, marking the smallest year-overyear increase since December 2009.

ATA also noted that the not seasonally adjusted index (which represents the change in tonnage actually hauled by the fleets before any seasonal adjustment) equaled 123.2 in March, up 9.1% above the previous month.

“March tonnage, and the first quarter overall, was reflective of an economy that is growing, but growing moderately,” said ATA chief economist Bob Costello. “The pace of freight definitely slowed from the torrid pace in late 2011.”

“Most economic indicators still look good, which will continue to support tonnage going forward,” he added.

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