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GE Capital: “Goldilocks” freight conditions should continue

Feb. 6, 2015

Analysts with GE Capital expect that the “Goldilocks” freight conditions currently being experienced by the trucking industry – characterized by strengthening freight volumes, pricing leverage due to tight capacity, and declining diesel prices – should continue well into 2015.

However, GE Capital’s experts stressed in the firm’s quarterly Industry Research Updates and Monitors that trucking is not entirely absent of challenges, especially with driver turnover at historically high levels in the long-haul market.

Other concerns facing motor carriers cited in the company’s report include: operating inefficiencies related to regulatory mandates, driver shortages, and associated upward pressure on driver pay and benefits.

GE Capital went on to describe what it called the “primary freight trends” that will influence trucking for the remainder of 2015:

  • GE’s economists remain optimistic that the domestic economy overall will continue improving gradually, with real U.S. gross domestic product [GDP] growth accelerating from 2.2% in 2014 to 2.8% in 2015.
  • New construction activity, light vehicle sales and consumer retail activity will continue to be the primary drivers of freight tonnage. Demand in all of these segments should benefit from expectations of a modest acceleration in domestic GDP growth during 2015.
  • The lone emerging headwind could be transport related to energy production, given the sharp decline in crude oil prices that started during the second half of 2014.
  • That being said, GE Capital feels the benefits to trucking from lower oil crude prices – namely in the form of lower diesel prices – significantly outweigh any drag on tonnage for all but those carriers with a highly concentrated exposure to energy transport.

The firm stressed that an “upward bias” in interest rates due to the growing likelihood of Federal Reserve tightening is not necessarily a significant threat to the primary drivers of tonnage for 2015 – so long as any increases are gradual and likewise reflective of and absorbed by a steadily growing and generally healthy economy. 

However, GE Capital’s analysts warned that any significant spike in the volatility of interest rates or other macro influencers would present a greater challenge to the “sustainability of economic growth” and likewise tonnage trends, particularly as it relates to construction and consumer retail sales.

In terms of commercial vehicles sales, GE Capital believes demand for new medium- and heavy-duty trucks should remain positive, albeit slower, during 2015. 

“Barring a severe economic downturn, future production cycles are expected to be less volatile from peak to trough than in the past due to better forecasting, improved communications systems that provide better visibility of channel inventory and lessons learned from the past,” the firm noted in its report.

While the financial incentive to acquire modernized equipment for greater fuel efficiency has been dampened by falling diesel prices, the current cycle will still be supported by the need to alleviate capacity constraints and stem near-record driver turnover amid a severe drive shortage, GE Capital said.

Following 20% growth and multi-year truck sales highs in 2014, heavy-duty sales in the U.S. are projected to grow in the low double digits – around 10% to 15% – for 2015. “That being said, the portion of replacement demand related to improved fuel efficiency is undoubtedly at risk in an environment of multi-year low diesel prices,” GE Capital noted.

Finally, the firm thinks the gains in freight rates witnessed during 2014 will likely moderate in 2015 as last year’s strong truck orders begin to at least partially relieve industry capacity constraints.

However, GE Capital stressed that the “stiffening regulatory environment” combined with driver shortages that are particularly acute in the long-haul market, liability risk and insurance costs, plus higher prices for new and used equipment will help keep rates elevated throughout the year.

“Additionally, upward pressure on driver wages will help justify higher freight rates despite downward pressure on fuel surcharges,” the firm noted.

About the Author

Fleet Owner Staff

Our Editorial Team

Kevin Jones, Editorial Director, Commercial Vehicle Group

Cristina Commendatore, Executive Editor

Scott Achelpohl, Managing Editor 

Josh Fisher, Senior Editor

Catharine Conway, Digital Editor

Eric Van Egeren, Art Director

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