Year in Review: Trucking Gains Traction as Economy Stabilizes

This story appears in the Dec. 20 & 27 print edition of Transport Topics.

Trucking companies finally gained some traction in 2010 as the economy stabilized and demand for freight hauling increased.

But the year also will be remembered as a turning point in the regulation of the industry as governmental agencies laid out sweeping new safety and environmental rules, which some industry representatives said would limit new entrants to the trucking market and dissuade existing carriers from expanding.

“The list of issues that we’re expected to manage our way through is greater than at any time in the history of trucking,” American Trucking Associations President Bill Graves said at the 2010 Management Conference & Exhibition in Phoenix in October. “These are game-changing times.”

Despite an upturn in freight shipments — ATA’s truck tonnage index increased 6.1% through the first 10 months of 2010, compared with the same period in 2009 — Graves said carriers face uncertainty about prospects for further improvement in business conditions.

“That rise back to profitability, back to robust freight volumes, back to the need for new trucks and trailers, back to having headaches over where to find drivers . . . keeps eluding us,” Graves said. “The timing now seems destined to be sometime in 2011.”

Whenever business picks up, Graves said, trucking faces the most significant changes in government oversight since deregulation in the early 1980s.

Before the year ends, the Federal Motor Carrier Safety Administration is expected to propose scaling back the number of hours a driver can spend behind the wheel, along with a proposal to increase the number of carriers that must use electronic onboard recorders and implement the new safety enforcement program, known as Compliance, Safety, Accountability.

Other issues include the failure of Congress to pass a new highway finance bill, the creation of a first-ever fuel economy standard for trucks, support for development of alternative power sources and increased scrutiny of companies’ use of independent contractors.

American Trucking Associations filed suit to block parts of a clean-truck plan by the Port of Los Angeles that would have prohibited the use of owner-operators by drayage carriers, while other port authorities across the country moved to implement “clean air” plans similar to those in Southern California.

A new law holding owners responsible for the maintenance and safety of container chassis led several ocean carriers to shift equipment ownership to third-party operators and trucking companies.

For general freight carriers that survived the recession, the economic outlook brightened significantly in 2010.

A survey of trucking executives in September by Transport Capital Partners found that 63% of carriers experienced increases in freight rates, with 7% reporting rate increases of more than 15% and 17% reporting increases of 10% or more.

The improving financial condition of carriers was one of the factors behind an increase in equipment sales in 2010.

Through November, Class 8 truck sales in the United States rose 14.6% from the same period in 2009, according to WardsAuto.com.

In January 2010, the last round in the Environmental Protection Agency’s tightened emissions standards went into effect, requiring new engine designs and sparking a competitive battle among manufacturers about which technological approach — selective catalytic reduction or enhanced exhaust gas recirculation — is better.

Another sign of strength for truck equipment in 2010 was an increase in used equipment values. The average retail price of used trucks rose 3% to $42,100 in September from August, according to a survey by ACT Research Co.

The number of used trucks sold declined 5%, however, as the dearth of new truck sales in recent years left dealers with minimal stock of late-model trade-in vehicles.

“Having fewer trucks of the right specifications is exacerbating the shortage of equipment and helping to drive up prices,” said Steve Tam, vice president of the commercial vehicle sector for ACT.

Fuel became more expensive, with the cost of diesel rising more than 18% from January to December, as improving economic activity around the world pushed up the cost of crude oil.

While the cost of fuel was going up, the cost of money remained low as the Federal Reserve Bank injected funds into the banking system in 2010 to stabilize financial markets and encourage borrowing.

“We see lenders returning to the market after being out for a good two years,” said Juergen Rochert, vice president of Daimler Truck Financial.

“Next year, we are quite optimistic [because] increasing demand and limited supply favor truckers,” Rochert said.

The Equipment Leasing and Finance Association reported that new business volume for October was $4.9 billion, up 14% from October 2009.

ELFA President William Sutton said the volume of financing was “encouraging,” although some lenders were still experiencing soft demand.

“The trends seem to be heading in the right direction,” he said.

Dan Clark, president and general manager of transportation finance at GE Capital Equipment Finance, said trucking companies were starting to buy more trucks but were not yet expanding the size of their fleets to accommodate increased demand for freight hauling.

“Equipment is old and needs to be replaced,” Clark said, “but I don’t see an increase in capacity.”

Clark estimated that, during the economic downturn, between 250,000 and 400,000 trucks were taken off the road and that it takes about 200,000 new trucks each year to offset the number of trucks taken out of service.

Sales of Class 8 trucks have been well below the 200,000-unit replacement level for the past four years.

Still, a survey of 50 transportation chief finance officers by GE Capital in the third quarter found reason for optimism.

Three out of four survey respondents said they expected a significant increase in revenue growth for the remainder of 2010, and transportation ranked near the top among all industries in terms of plans to increase spending on capital goods.

Clark said that 60% of those surveyed plan to buy new equipment and finance it with a loan, 36% will lease new equipment and 43% will rent equipment when they need it.