Bumpy ride ahead
According to economic experts speaking at a Bridgestone/Firestone dealer meeting last week in Washington, D.C., the trucking industry is poised for a good but not great year thanks to bumps in the fiscal road caused by sustained high fuel prices and the switch to more expensive ultra low sulfur diesel (ULSD) fuel later this year.
On the other hand, the arrival of EPA-’07 compliant heavy-duty trucks was presented as a more manageable issue in light of the continued capacity shortage as freight volumes keep rising.
“The economy as a whole looks good, though not great – and certainly not bad,” said Bob Costello, chief economist of the American Trucking Associations (ATA). “Things are going okay for the U.S. economy. We expect growth this year to range from 3% to 3.5% and though we expect some hiccups, it would take a lot to throw [the economy] into a recession.”
Costello characterized freight tonnage levels as good so far in 2006 and said revenue growth industry-wide remains solid as the domestic manufacturing sector strengthens due to higher exports.
In a separate presentation, Dr. Martin Regalia, chief economist for the U.S. Chamber of Commerce, said that while the economy is decelerating from the high growth rates of the past three years-- due to a slowdown in buying by U.S. consumers-- investment and rising exports from the manufacturing sector should take up some of the slack and ultimately increase freight.
“Investment by U.S. businesses is not faltering,” said Regalia. “We expect it to grow by 8% to 10% this year as industrial production remains strong and high corporate profits provide capital for expansion.”
Costello added that the continuing shortage of truck drivers is keeping trucking capacity in check – limiting capacity growth to 1% or 2% for the year. “I’ll tell you the driver shortage has become the top fleet issue of late,” he said. Large carriers only added 1.7% capacity in 2005, with smaller fleets adding less than half a percent, because drivers are so scarce.
Costello said the cost of fuel is a challenge for everyone in trucking now. He estimated that if diesel stays on its current price path, the industry will fork over some $94 billion for fuel this year -- or $7 billion more than last year.
But higher fuel costs are being mitigated to a degree by market conditions, Costello pointed out. “Fleets have all the tonnage they can handle right now,” he said. “We no longer see that correlation where a 10-cent rise in diesel prices translates into 1,000 carriers going out of business. Fuel cost doesn’t have anywhere close to the impact it used to because fuel surcharges are helping defray those costs tremendously.”
He added that owner-operators should be able to cope better as well given today’s need for truck capacity. “Carriers are willing to pay them more and pass on the entire fuel surcharge because the want capacity so bad. If you can’t make money in trucking under today’s conditions, then you can’t make money in trucking period.”
