ATA’s Hodges, Navistar’s Hebe Differ on Trucking’s Future

This story appears in the Feb. 15 print edition of Transport Topics.

TAMPA, Fla. — A major truck-making executive and the chairman of American Trucking Associations offered differing views on the future of trucking, but both agreed that federal regulation of business is generating unwelcome distortions of how firms can operate.

James Hebe, Navistar Inc.’s senior vice president of North American sales, said the industry consolidation that started during the recession will continue as the economy begins to grow again.

Mergers will occur both in truck making and among carriers, Hebe predicted, saying there would be fewer manufacturers making a wider variety of trucking equipment and fewer, larger carriers. He said only the strongest motor carriers will have access to capital to buy trucks that are growing more costly because of federal demands for emissions devices and other operating systems on trucks.

Hebe said the proportion of trucks purchased by the largest carriers has been growing over the past 10 years, and he expects the trend to continue.

ATA’s Tommy Hodges countered that “dead on arrival” predictions have been made countless times before, but the industry’s entrepreneurs always have “learned to adapt because we’re problem solvers.”

“I have seen these cycles before. The end of owner-operators, for instance, has been predicted for 25 years,” said Hodges, adding that while independent drivers who are poor businessmen have gone under, there is still a large supply of capable owner-operators.

Hodges and Hebe spoke Feb. 9 at ATA’s Technology & Maintenance Council annual meeting here.

“Ours is a complicated industry that is multiply influenced. Ignoring the changing environment of your customers is the kiss of death,” Hebe warned.

Hebe, a 39-year veteran of the industry, said the gap between the cost of a new tractor and its value as a used vehicle has grown at an alarming rate over the past 10 years, causing serious consequences for his fleet customers.

A standard new tractor, he said, costs about $118,000 and will lose $33,000 in value during the first year.

“Finance companies will probably want that upfront,” he said, as banks and other lenders think the most dangerous possibility for an equipment loan are borrower defaults during the first 12 months.

Emissions controls have boosted the cost of a new tractor substantially, he said, “but the industry hasn’t been able to recover a dime on emissions technology through used truck sales.”

In a wide-ranging address, Hebe also said that increasingly costly diesel fuel and trucks will make truckload transportation more expensive, driving more traffic to truck-rail intermodal.

He said fleets would keep their trucks longer because new ones cost more, last longer and run up fewer miles because of the growing trend toward more regional hauling.

Hodges, who spoke later the same day, said Hebe overstated the case for banks retrenching and trucking consolidation. “Banks make money by lending it, and once they are secure about their own balance sheets, they will begin to lend again,” Hodges said.

As for the trend to increased use of intermodal transportation, Hodges said that it is growing, but from a low base, whereas a strong majority of truck freight never rides on rails.

Hodges also said Hebe’s worries about used truck prices result from obsessing on the present.

“That is the current picture, but it is not the case going forward. New truck sales the last two years have been below replacement levels and soon the demand for good quality used vehicles will exceed supply,” Hodges said.

While motor carriers can endure the ups and downs of the marketplace, Hodges said he is very concerned about the policies of the Obama administration and its allies in Congress.

“Over the last two years, I’ve testified three times before Congress, and those folks just don’t understand business. And the sad part is, sometimes I think they don’t want to understand,” he said.

Hodges characterized the administration as being in favor of organized labor and the regulation of business, confident in the abilities of government relative to the private sector and indifferent to government’s effects on business.

“These are professional politicians, not businessmen,” he said, expressing concern that the president has not looked to the business community for advisers.

Hodges, who praised TMC members for their contributions to trucking through their persistence in attacking mechanical and technical problems, said he is especially worried about the card check legislation the Teamsters union supports. He said it is currently dormant but could come back as a regulation if not as legislation.

He also mentioned the driver hours-of-service rule, which he said could be rewritten without a 34-hour restart provision and with up to two fewer hours of driving availability; a potentially very expensive health-care proposal, although that is now on the shelf; and the new CSA 2010 program, or Comprehensive Safety Analysis, which ATA officials have said could cause difficulty in implementation (click here for previous story).