Fleets Grow as Freight Falls
Analysts Say Pre-buy Is Causing Excess Capacity
By Howard S. Abramson, Editorial Director
This story appears in the May 14 print edition of Transport Topics. Click here to subscribe today.
NEW YORK — The decline in freight volume this year and the number of heavy-duty trucks purchased last year during the “pre-buy” were both markedly bigger than analysts thought, leading to too many trucks chasing too little business, according to a host of speakers at a transport forum here last week.
“Right now, we are in a freight recession,” which has been exacerbated by the fact that “fleets overbought” as many as 110,000 tractors last year, said Eric Starks, president of FTR Associates, a freight forecasting company.
But most speakers at the Bear, Stearns & Co. Global Transportation Conference predicted freight levels would rise as 2007 wore on.
“There are 120,000 trucks too many right now” on the road, said James Meil, Eaton Corp.’s chief economist. He said about 7% of the U.S. and Canadian fleet is currently underutilized.
Speakers said virtually the only new heavy-duty trucks being delivered so far this year have been ’07 models with ’06 engines in them, which were ordered last year during the pre-buy fleets employed to avoid the new engines mandated by a change in U.S. emission laws.
That change has caused the pre-buy to spill into this year and has led to far more deliveries of trucks with ’06 engines in the first quarter than expected. That situation, in turn, means fewer ’07 models will be delivered in the second and third quarters, said FTR’s Starks.
And, he warned that if the slow freight market leads fleets to delay purchasing new trucks later this year and early in 2008, there will be “a capacity crunch” in 2009, when truckers look to stock up on existing models before the next mandated change in engine technology occurs in 2010.
Truck makers “won’t be able to meet demand in ’09 if ’08 is slow,” Starks said.
Peter Nesvold, a transportation analyst for Bear Stearns, who moderated several of the panels last week, said, “There’s no doubt that ’09 is going to be a massive year” for truck sales, as the biggest pre-buy occurs as fleets seek to avoid the early models of the engines that will hit the market in 2010.
Rusty Rush, chief executive officer of truck dealer Rush Enterprises, agreed that the excess of trucks and low freight demand are “going to push . . . [the sales recovery] out into ’08 and probably condense ’09. It’ll be interesting to see, as we push that pre-buy . . . how much it compresses into ’09 and what capacity there will be in the industry.”
The only bright spots for North America’s truck and engine makers have been in export sales, several speakers said.
“Exports are pulling the industry’s fat out of the fire,” said Kenny Veith, a partner at A.C.T. Research Co. He said exports to Mexico last year are “more than double” the rate of 2006, and foreign orders are 75% ahead of 2006 overall, fired in part by the weakening U.S. dollar.
Veith said a change in emission rules in Australia is helping spur exports of U.S.-produced models there.
This business growth has led many analysts to increase their North American sales predictions for 2007, with Veith now expecting them to reach as high as 225,000; Meil forecast sales of up to 220,000; Starks said they could reach 237,000.
Last year, North American Class 8 truck sales reached a record of about 323,000.
Meanwhile, trailer sales also have been plummeting, several speakers said at the conference.
Richard Giromini, CEO of trailer maker Wabash National, said he expects total trailer sales to be 12% to 13% below the levels of last year.
“Quote activity remains very strong,” he said, but buying “has been slow.”
A number of fleet executives reported that freight levels were improving in March and April, after slow times in the first two months of the year.
Steve Russell, CEO of truckload carrier truckload carrier Celadon Group, said freight levels were down 0.6% in the first quarter against 2006 but rose 3% higher than year-ago levels in March and 4% in April. USA Truck’s CEO, Jerry Orler, said first-quarter revenue was 2% below year-ago levels.
“We’ve had some improvement in April,” Orler said. “So far, this month feels better, but I’m not ready to declare the war over.”
On the less-than-truckload side, Robert Davidson, CEO of Arkansas Best Corp., and William Zollars, CEO of YRC Worldwide, said March was better than January and February and that April was comparable to March.
Most fleet executives said that, despite the drop in freight volume and the excess capacity, rates are not falling. But they acknowledged that rate increases are slowing and that there is push-back from some customers on fuel surcharges.
Staff reporters Sean McNally and Daniel P. Bearth contributed to this story from New York.
This story appears in the May 14 print edition of Transport Topics. Click here to subscribe today.
NEW YORK — The decline in freight volume this year and the number of heavy-duty trucks purchased last year during the “pre-buy” were both markedly bigger than analysts thought, leading to too many trucks chasing too little business, according to a host of speakers at a transport forum here last week.
“Right now, we are in a freight recession,” which has been exacerbated by the fact that “fleets overbought” as many as 110,000 tractors last year, said Eric Starks, president of FTR Associates, a freight forecasting company.
But most speakers at the Bear, Stearns & Co. Global Transportation Conference predicted freight levels would rise as 2007 wore on.
“There are 120,000 trucks too many right now” on the road, said James Meil, Eaton Corp.’s chief economist. He said about 7% of the U.S. and Canadian fleet is currently underutilized.
Speakers said virtually the only new heavy-duty trucks being delivered so far this year have been ’07 models with ’06 engines in them, which were ordered last year during the pre-buy fleets employed to avoid the new engines mandated by a change in U.S. emission laws.
That change has caused the pre-buy to spill into this year and has led to far more deliveries of trucks with ’06 engines in the first quarter than expected. That situation, in turn, means fewer ’07 models will be delivered in the second and third quarters, said FTR’s Starks.
And, he warned that if the slow freight market leads fleets to delay purchasing new trucks later this year and early in 2008, there will be “a capacity crunch” in 2009, when truckers look to stock up on existing models before the next mandated change in engine technology occurs in 2010.
Truck makers “won’t be able to meet demand in ’09 if ’08 is slow,” Starks said.
Peter Nesvold, a transportation analyst for Bear Stearns, who moderated several of the panels last week, said, “There’s no doubt that ’09 is going to be a massive year” for truck sales, as the biggest pre-buy occurs as fleets seek to avoid the early models of the engines that will hit the market in 2010.
Rusty Rush, chief executive officer of truck dealer Rush Enterprises, agreed that the excess of trucks and low freight demand are “going to push . . . [the sales recovery] out into ’08 and probably condense ’09. It’ll be interesting to see, as we push that pre-buy . . . how much it compresses into ’09 and what capacity there will be in the industry.”
The only bright spots for North America’s truck and engine makers have been in export sales, several speakers said.
“Exports are pulling the industry’s fat out of the fire,” said Kenny Veith, a partner at A.C.T. Research Co. He said exports to Mexico last year are “more than double” the rate of 2006, and foreign orders are 75% ahead of 2006 overall, fired in part by the weakening U.S. dollar.
Veith said a change in emission rules in Australia is helping spur exports of U.S.-produced models there.
This business growth has led many analysts to increase their North American sales predictions for 2007, with Veith now expecting them to reach as high as 225,000; Meil forecast sales of up to 220,000; Starks said they could reach 237,000.
Last year, North American Class 8 truck sales reached a record of about 323,000.
Meanwhile, trailer sales also have been plummeting, several speakers said at the conference.
Richard Giromini, CEO of trailer maker Wabash National, said he expects total trailer sales to be 12% to 13% below the levels of last year.
“Quote activity remains very strong,” he said, but buying “has been slow.”
A number of fleet executives reported that freight levels were improving in March and April, after slow times in the first two months of the year.
Steve Russell, CEO of truckload carrier truckload carrier Celadon Group, said freight levels were down 0.6% in the first quarter against 2006 but rose 3% higher than year-ago levels in March and 4% in April. USA Truck’s CEO, Jerry Orler, said first-quarter revenue was 2% below year-ago levels.
“We’ve had some improvement in April,” Orler said. “So far, this month feels better, but I’m not ready to declare the war over.”
On the less-than-truckload side, Robert Davidson, CEO of Arkansas Best Corp., and William Zollars, CEO of YRC Worldwide, said March was better than January and February and that April was comparable to March.
Most fleet executives said that, despite the drop in freight volume and the excess capacity, rates are not falling. But they acknowledged that rate increases are slowing and that there is push-back from some customers on fuel surcharges.
Staff reporters Sean McNally and Daniel P. Bearth contributed to this story from New York.
