The uncertainty surrounding future fuel prices and the potential cost of new safety regulations top the list of concerns among transportation CFOs surveyed by finance giant GE Capital Americas.
When asked in GE Capital’s most recent survey how concerned they were about the impact of regulations on their business, almost half (47%) of transportation CFOs indicated that they were most concerned about safety regulations, noted Dan Clark president and gm of GE Capital’s transportation finance division – replacing environmental regulations as the top area of concern noted in the same survey conducted in January this year.
“That caught me a little by surprise; that the cost of safety and fuel cost would now rank at the top of their list of cost concerns,” Clark told Fleet Owner. “It also shows that they are focusing more on expenses – the costs pressures on the bottom line – versus trying to find ways to generate revenues.”
When asked how concerned they were about the impact of a list of factors on their business, their top two concerns were “safety/truck accidents” at 74%, and “fuel price volatility” at 66%, he said.
GE Capital surveyed 530 CFOs across seven industries – including manufacturing, retail, food & beverage, and technology – with 50 of them from the transportation sector. Those transportation CFOs represent companies that have been operating for some 36 years and have average annualized revenue of $12.1 million.
The transportation industry, along with all the other industries in GE Capital’s survey – except health care – ranked the U.S. budget deficit as its biggest concern for the U.S. economy in 2010; however, unlike other industries, which cited credit market liquidity as the second-greatest issue, transportation CFOs identified oil prices and health-care reform as their second greatest concern.
Clark noted that 36% of the transportation CFOs surveyed cited health-care costs as a “major” concern, with 45% labeling it a “moderate” worry. “Again, it’s a bottom line ‘dollars and cents’ issue here – these CFOs are looking at every penny of their expenses now,” he said.
Overall, GE Capital found transportation industry CFOs were the second-most pessimistic about their outlook for their own industry, with a mean response of 4.2 compared to the survey’s average of 5.2 across all industries (on a scale of 1 to 10, with one being the weakest and 10 the strongest).
Yet transportation CFOs were also slightly more positive about their own industry compared to their sentiment toward the overall strength of the U.S. and global economies; an improvement over the last survey in January, when they were slightly more negative about their own industry when compared to the global economy.
Transport CFOs also reported a significant increase in expectations for revenue growth over the next six months, with 77% expecting revenue growth for the rest of 2010, compared to 56% in the January survey. In keeping with those revenue growth expectations, the transportation industry ranks first in the category of expected profitability and near the top for capital expenditures (cap-ex) in 2010, GE Capital discerned.
“Transportation CFOs have come through a very rough time over the last few years,” John Conkin, senior vp of sales for GE Capital’s transportation finance, told Fleet Owner. “In our last survey in January they’d experienced a lot of ‘false starts’ in terms of freight volume and freight rate improvements. But since the March-April timeframe, freight’s been growing and rates have been up. So now to this point they’ve had six months of sustained rate increases – that’s what’s helping make them more bullish we think.”
Some 60% of the transportation CFOs surveyed expect their credit needs to remain the same in 2010 as compared with 2009; an increase from 54% in January, when more respondents thought their needs would decrease. In addition, the transportation industry had the highest percentage of respondents indicating that their company’s financing needs will increase during the rest of 2010 (33.3%).
Significantly fewer transportation CFOs (36% vs. 54% in January) expect the cost of capital to grow in 2010, with transportation’s expectations of a “low capital cost” environment remaining ahead of expectations from CFOs representing all other industries.
Finally, 57% of transportation CFOs said they’ve seen credit availability remain the same over the past 12 months, compared to 40% in the January survey, with 48% of them expecting credit availability to remain the same during their next round of financing, down from 51% in the January survey; both metrics ranking at the very bottom compared to the other industries, GE Capital noted.
