Biz Buzz: Worst could be over for truckers, but good times are well down the road
FTR Associates says that there are still many trucks in service, and new truck purchases are an “over-buy” for the amount of freight that’s available during the economic downturn.
By KEVIN JONES
The Trucker Staff
9/14/2009
The good news for truckers is that the bad news isn’t as bad as it has been. The question for industry watchers is when business will actually start to pick up again — and how quickly.
“The freight story right now is very simple: the shrinkage has stopped, and that’s a very good thing, particularly for the truckers,” Noel Perry, senior consultant and managing director of FTR Consulting Group, said in recent conference call. “Now that we have stable freight levels, people can begin re-optimizing their networks to get productivity up.”
That’s the good news in the short term, Perry said, then noted that freight won’t improve until the economy is growing at pace of more than 3 percent — which isn’t expected until next year.
“Those of us in the freight industry will at least get stability, but we won’t get growth for at least six months,” he said. “That’s the price that we have to pay for this particularly bad downturn. The downside is more of the same.”
In fact, trucking likely will have to wait until “well into 2011” for significant improvement in freight and pricing.
Perry estimated excess capacity in trucking to be at about 300,000 units.
And while there’s a possibility of an upturn coming sooner rather than later, the long-term forecast doesn’t look particularly good. Perry likened the current cycle to the 1980s — “a lost decade” — when freight recovered slowly, and said another such 10-year cycle was possible.
Though he thinks the recession has probably ended, economist Bill Witte also expressed concerns about a turnaround.
“While things are starting to look better, I don’t think we’re going to see a really robust recovery,” said Witte, co-director of the Center for Econometric Model Research. “Beyond a couple of quarters out, I think there’s a lot of uncertainty about where we’re headed.”
Households are not spending in the current financial pinch, he noted, and if consumers are saving their money “it makes a robust recovery less likely.”
Additionally, “the federal budget situation is really very bad,” Witte said, noting the large deficits are unsustainable, and just how they are going to be resolved is “the 6.4 trillion dollar question.”
“On the upside, the numbers in the last couple of months have been coming in better than expected,” Witte said. “There’s the possibility that our near-term outlook could prove to be pessimistic. The possibility of some positive surprises over the next year is clearly there.”
FTR President Eric Starks likewise was hopeful, but cautious.
“Even though we’re a little bit more optimistic for the general economy, it still hasn’t translated into enough freight to change the dynamics of the capacity situation,” Starks said. “You’re going to have a lot of equipment out there that’s going to have to be worked off in the near term.”
Among issues pertaining to the Class 8 market, Starks said there seems to be an excess of orders for engine components, meaning that the truck makers are likely stocking up on engines ahead of the 2010 emissions changes.
Even just a few months ago Stark felt that the OEMs wouldn’t be willing to spend the money to build an engine surplus, but “they seem willing to do that now.”
“The OEMs will likely be building trucks with the older engines through March 2010, or even beyond,” Starks said. And while fleets have said that they are willing to accept the new 2010 engine technology, “it probably tends to be that nobody really wants to be that guinea pig.”
He said there was still an “overbuy” in the truck market, meaning that even the comparatively few trucks being sold were still too many for the amount of freight.
FTR’s forecast for truck builds, while definite improvements over the current slump, are still only slightly above recessionary levels, he noted.
FTR is projecting annual North American Class 8 sales of 105,000 units in 2009, rising to 133,000 in 2010 and 198,000 for 2012.
“It’s really nothing to write home about,” Starks said.
Kevin Jones of The Trucker staff can be reached for comment at kevinj@thetrucker.com.
Follow The Trucker on Twitter at www.twitter.com/truckertalk.