CINCINNATI. “The sharing of best practices has helped to foster world-class distribution companies,” Kenny Vieth, president and senior analyst for ACT Research Company, LLC, told the audience of private fleet executives, managers and their supplier partners at the annual National Private Truck Council Education Management Conference and Exhibition held here this week.
Vieth was the keynote speaker at the closing general session of this year’s conference and he offered attendees solid reasons for optimism about the long-term future for private fleets paired with equally bracing advice about the industry’s on-going challenges. “If you weren’t better, somebody else would already be doing your job,” he said, citing private fleets’ reputations for high service, greater utilization of technology, superior safety records and lower driver turnover as proof positive of the advantages private fleets can bring to the companies they serve as compared to for-hire carriers.
Private fleets are well-positioned for continued success within the overall market, he noted, although the economy as a whole is presenting both opportunities and obstacles. Vieth said he expects to see slow growth in 2013, followed by more strength in 2014, observing that economic growth is now more broadly based. He cited increased domestic oil production, the return of manufacturing to the U.S., increased investment in residential and commercial building and continued low inflation rates as examples.
Nothing about the world economy comes without caveats anymore and Vieth was careful to remind his audience of the issues that could upset current trends, including domestic and international politics, European voters (“What if German voters get fed up with supporting the EEU?”), and political instability/unrest abroad.
On the reasons for optimism side of the ledger, however, the list was equally long, including rising wealth and falling debt, freeing up discretionary income for householders; and a domestic housing market with plenty of pent-up demand.
Looking at freight supply and truck demand, Vieth observed that they are currently “in balance,” although the advantage is expected to tip toward truckers as the economy recovers. In the for-hire segment of the industry, profitability is still keeping fleets at “replacement levels” for equipment.
When it comes to the used truck market, Vieth said that used truck valuations are still high, hovering in the $50,000 range on average, but there are so many old trucks in the nation’s fleet right now that those levels may not hold. The average mileage for a truck at trade-in is about 575,000 miles. He predicts a fall-off in trades come 2014-2016.
“If there is a reason to go out and buy new trucks, this is it ---improved fuel economy,” Vieth told the audience. Trucks have jumped from delivering about 6 mpg to 8 mpg and that is huge, he noted. For a truck that operates over 100,000 miles per year, it can mean an annual fuel savings of 4,200 gallons.
Private fleet productivity has continued to improve, Vieth also observed. One measurement of that is the reduction of empty backhaul miles-- down from 28% to 22%, effectively creating additional freight capacity for carriers without adding additional equipment. Tonnage per load has also improved about 11% since 2003.
Concerning the perpetual driver shortage issue, Vieth noted that “The freight will get delivered. Freight determines driver demand, not the reverse.”
The industry has a driver retention problem, not a driver shortage problem, he explained, and drivers would rather work for private fleets than make about 35 to 36 cents per mile at for-hire operations. The result for private fleets is lower driver turnover and improved safety, both considerable competitive advantages.
There is actually a positive correlation between profitability and a driver shortage among for-hire carriers, Vieth noted. When capacity is tight due to not enough drivers, rates go up.
Looking ahead at new equipment demand, something Vieth does regularly for the manufacturing sector of the industry, he said that equipment order cancellation rates are the lowest they have been in two and a half years, something that can perhaps be considered as a sign of growing confidence in the marketplace. The truck order backlog has also stretched out to about four months.
Natural gas vehicles are a hot topic and Vieth said he sees potential there, especially for private fleets, but that the key to successful conversions from diesel to natural gas is still payback. Natural gas as a commercial vehicle fuel has pluses he noted. It is plentiful, inexpensive, environmentally friendlier than diesel or gasoline and has a low-sensitivity to commodity cost changes. Plus higher horsepower natural gas engines are becoming available that can make natural gas a more viable option for heavy-duty, longer-haul trucks.
That said there are still issues to be addressed, including fuel availability and the purchase price differential between natural gas vehicles and conventionally powered trucks. If the purchase price penalty is $30,000, Vieth said, the payback comes at about 156,000 miles. If the up-charge is $75,000, it takes 450,000 to reach payback.
Interestingly, Vieth noted that for-hire carriers are being pressured by their shippers to adopt natural gas trucks and then share the reduced fuel cost benefits, while private fleets can keep those cost savings for themselves.
Vieth also saw a competitive advantage for private fleets going forward due to their earlier adoption of advanced technologies and their higher wage scale for drivers. “For-hire costs are likely to rise faster as they play catch-up on driver wages and technologies,” he said. Private fleets have a “head start.”
Still, there is no resting for private fleets, who will continue to be challenged to justify their contribution to the parent organization, Vieth cautioned. “Look for more competition as for-hire carriers roll out more dedicated service products,” he said.