NEW YORK. Trucking and the companies that supply its tractors and trailer are “on the happy side of the cycle,” according to Kenny Vieth, president of ACT Research. “Trucker are making money and have freight to haul” and North America manufacturers will produce 300,000 Class 8 trucks this year, he said at the 2012 Truck Summit sponsored by the financial services provider Jefferies and Co.
Opening the summit with a look at freight volumes, Bob Costello, chief economist for the American Trucking Assns. (ATA) told the financial analysts gathered at Jefferies New York headquarters that demand and supply in the truckload (TL) sector appears to be balanced, with tightening capacity in a few sectors such as flatbed. With TL freight rates increasing more than 5% in 2011, indications are carriers will maintain 3 to 5% rate growth this year as well, according to the ATA economist.
On the less-than-truckload (LTL) side, tonnage growth outpaced the TL sector in 2011 and continues that faster growth pattern, he said. However, LTL rates dropped 2.4% in January compared to the same month in 2011, but Costello said it was too early to draw any conclusions from that drop.
Overall, the forecast is that truck capacity will not grow due to constraining factors that include a continuing shortage of drivers, an aging fleet, higher new equipment costs and government regulations raising barriers to entry, Costello pointed out.
Echoing Costello’s analysis, Vieth said the freight supply and demand equilibrium was beginning to tilt in the trucking industry’s favor as the economy enters a sustained period of 2 to 2.5% growth in gross domestic product (GDP). He put the shortfall in truck capacity for available freight at 3%, forecasting that it could hit 4 to 5.5% by the end of the year and “continue to get worse until 2015.”
With an aging fleet and better access to credit as profitability returns to trucking, Costello said he expects North American manufacturers to build 300,000 Class 8 trucks this year and 307,000 in 2013. Given projected GDP growth and barriers to carrier expansion, he said this upward buying pattern “will be longer than traditional cycles with no spike caused by capacity buying,” and predicted no dip in Class 8 sales until 2016.
The positive outlook for freight and fleet profitability will also boost the trailer market, according to Bruce Ewald, sr. VP of sales and marketing for Wabash National (NYSE:WNC). Drawing on ATA’s freight numbers and ACT’s analysis of fleet purchasing, Ewald told the analysts that trailer orders were improving “to the point that I feel we have a good long run ahead of us.”
In particular, flatbed orders are particularly strong right now and the growing average age of fleet dry vans means replacement buying should be sustained for some time, Ewald said. Not only are maintenance costs high for older trailers, but recent increases in tractor weights has put pressure on fleets to reduce trailer weights with new materials and construction techniques, he said.