Outlook Positive for Trucking, Manufacturers on Inventory Rebuilding, Economists Say

COLUMBUS, Ind. — Growth in North American sales will lead the global truck-making industry this year, as U.S. fleets are prospering along with their shipper customers in the manufacturing sector, economists said.

Speaking here as part of the ACT Research Co. seminar on March 20, three economists said there are far more reasons for optimism in U.S. trucking and truck making than there are reasons for worry.

They said the notion of a double-dip recession is dead and that transportation-sector prosperity will last at least through the end of next year.

“The recovery of freight is for real, with manufacturing rebounding and inventories being rebuilt,” said Jim Meil, chief economist of Eaton Corp.

“What we’re seeing now is like 2004 and 2005, in that we’ve got one decent year behind us, with better times yet to come,” said Meil, whose company is a major supplier to trucking of transmissions, clutches and drivetrains.

“There was general agreement that we’re on the front end of an expansion cycle with a number of years to go. Barring a severe, unexpected shock, the industry will be healthy for several years,” ACT President Kenny Vieth said.

There was a great deal of economic uncertainty for the first two-thirds of last year, Meil said, but since late August and early September news changed generally for the better. Among his favorite indicators, Meil noted improvements in the U.S. and Brazilian stock markets over that time and the absence of a sharp fall in European stocks.

The consensus forecast for growth in U.S. gross domestic product this year is 2% to 2.5% over 2011, said Steve Latin-Kasper, director of market research and data for the National Truck Equipment Association.

“But the average is never exactly right, so I’m thinking the actual result will be a little higher than that,” said Latin-Kasper.

“The U.S. commercial vehicle market grows and contracts more rapidly than U.S. GDP,” said Latin-Kasper, whose trade group represents manufacturers of components and systems for medium-duty truck makers.

Trouble for the residential housing industry and state and local governments have held back GDP growth in general and medium-duty sales, specifically, but Latin-Kasper said he thinks those two sectors have finally stopped contracting and will post modest growth this year.

He predicted that this year’s medium-duty U.S. truck sales will grow 18.9% over last year and that those in 2013 will grow by 10.9% over 2012.

The U.S. economy probably will continue to grow as it has in recent months, which is to say moderately, said ACT consultant Sam Kahan, a former economist with the Federal Reserve Bank of Chicago. He said employment levels will continue to grow, but the national unemployment rate will stay high as once discouraged workers return to the labor force to seek jobs.

In terms of freight, Kahan said the forecast increases in U.S. vehicle sales is good news for trucking, as the manufacture of cars generates a large number of shipments.

ACT forecasts North American heavy-duty truck production of 299,400 units this year, up from 255,300 last year. Production next year should hit 307,000, the research firm said.

Motor carriers should be able to get real increases in freight rates, said Paul Will, vice chairman and chief operating officer of Celadon Group, Indianapolis, a large truckload carrier.

In an interview prior to his presentation at the seminar, Will said the market balance has shifted from the depth of the recession, with leverage moving to carriers from shippers. He said rate increases should stick because trucking capacity is already tight and that savvy shippers think it will tighten ever further between now and the end of next year.

Eaton’s Meil said his trucking-capacity index is near 100%, while the “sweet spot” of balance between carriers and shippers is probably around 90%.

Meil said trucking does have problems, especially high costs of inputs such as diesel fuel and trucks, but for now, he said, there is no proven alternative to the use of trucking services.

Other analysts addressed global truck sales and said the world beyond North America will be largely flat, with this year looking like last year, but that growth should reignite in 2013.