CVOC: Economy Improving, Customer Challenges Remain
Analyst predicts driver shortage, but no double-dip recession
Preceding the Great American Trucking Show, the CVOC was estimated to attract about 350 attendees for the two-day conference.
Following are highlights from the event.
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“Why do you buy a truck?” asked FTR Associates President Eric Starks. “To move freight” was the answer – in relative unison – from the audience, prompted by a message lit up on dual video screens behind the presenter.
The concern over the last several years’ freight picture linked every single individual in the businesses represented in the room, and though “substantial downside risks in the marketplace” made positive forecasts difficult to make, Starks said his transportation forecasting and analysis firm’s Trucking Conditions Index suggests the trucking industry broadly “will feel better and better through June 2011.”
For freight volumes, truck sales and driver supply, though, the question of degree looms large. Given the substantial hit the entire economy took in 2008, continuing through most of 2009, “we are going to have to see some heavy-duty growth just to get us back to where we started” to decline, Starks said.
But slow growth is growth, he was quick to note, and he was optimistic on several fronts, noting, for instance, that a double-dip recession appeared to be unlikely with a continuing strong manufacturing sector as well as other sound fundamentals. A “growth recession,” he said, in which recovery is so slow as to seem as if the recession is continuing, “is fairly more likely to occur” barring a financial event of global magnitude.
Rate hikes that fleets might demand from shippers could be expected to continue their rise. “In general, the trucker will have the upper hand in the rate environment,” a situation that differs markedly from the recovery from the last recession of similar, if lesser, magnitude, Starks said. Noting fleets’ expected continuing push for higher rates, “In the 1980s and 1990s, they didn’t even think about it,” Starks said. “They couldn’t.”
Good news for driver pay. Demand already is exceeding supply in the driver hiring pipeline, Starks said, adding that “CSA 2010 will be a huge problem. The industry will struggle to keep drivers in the system.”
Starks presented an analysis hinging on the industry’s ability to hire and process drivers into the system. “Per quarter [before the downturn], they could have hired 150,000 into the system and processed them easily. Now they can only process about 100,000. As the need to bring drivers into the system becomes more important, we’re already down by a third in the ability to get the drivers into the trucks. You can only put so many people through that funnel. This tells us we’re looking at a driver shortage of unprecedented levels” by mid-2011, Starks warned.
Starks predicted that Class 8 truck sales appear to be in line with the modestly hopeful freight picture. In terms of new units, manufacturers could expect truck orders of 148,000 factory shipments this year, 188,000 in 2011 and 257,000 in 2012.
“We’re only getting back to recessionary levels” in that timeframe for reasons having to do with significant overbuying in the lead-up to the recession, Starks said. “If you’ve overbought, you have to at some point underbuy. We’re not doing it yet, though in our forecast, it’s something of a long-term issue, not a short-term one.”
Another illustration of this effect was in the truck scrappage rates, which historically have stayed well under the level of retail sales. In the past, if a fleet scrapped a truck, it bought a new one. “This time if you scrapped it, odds are you didn’t replace it,” said Starks, who added that this downturn marked the first time sales fell below scrappage rates since a brief blip in 1990-91.
Starks ultimately tempered all these data and his shorter-term forecasts with a reminder of the lengthy amount of full recovery time the last big recession that began in 1980 brought with it. “The last time that we saw a recession like this and a recovery, it took us 15 years to get back to the previous peak [truck sales] levels.” n
Fleet execs discuss cost, productivity challenges
A panel of fleet executives discussed the changes they made to their operations during the recent recession, what they are doing today during the transition and what they see for the future in terms of the cost and productivity challenges they will face.
Max Fuller, co-chairman of U.S. Xpress; Leo Suggs, chairman and chief executive officer of Greatwide Logistics Services; and Tom Kretsinger, president and CEO of American Central Transport, shared their strategies and ideas during a panel discussion.
“Every day is a bold move,” Fuller said when describing current struggles. “If you are not making bold moves, you will not be here for long. We had to change the way we did business during the last two or three years. We did damage control, and now some of the things that we tied down we will have to loosen up and move forward aggressively and give good service.”
Suggs said that if there is any silver lining to a recession, “it is that it causes you to look at every part of your business and eliminate inefficiencies. Those who survived the recession have come out of it much stronger.”
The panelists agreed that one of the biggest challenges they face is capacity, which is impacted by the ability to find and retain drivers. “The priority today is what do we need to do to find capacity, and we will have to do things we have never done before,” Suggs contended.
One bold move, according to Suggs, may be recruiting in Eastern Europe.
The discussion also focused on equipment and 2010 engines. The U.S. Xpress fleet is already using some 2010 engines, and Fuller said that drivability and reliability are good so far, but that the big problem is cost. “And it is not just the cost of the engine, but the cost of the truck as well,” he said.
Kretsinger said that equipment decisions are tough to make and that the new engines “cause sticker shock at a time when we have come off of 18 months of cost-cutting.” He believes owner-operators are not in a position to purchase the newer vehicles.
The driver shortage also likely will have an impact on the type of equipment fleets purchase. The fleet executives agreed that fleets will have to focus on driver amenities and ways to keep drivers comfortable and safe.
The regulatory environment is very much on the minds of fleet executives. Kretsinger believes that Comprehensive Safety Analysis 2010, electronic onboard recorders and hours of service all are tied together and will have an impact on fleet management. His fleet already is using EOBRs that allow him in real time to see what his drivers are doing.
Suggs believes the convergence of these three items can have a catastrophic impact on trucking. “If you couple the likely reduction in hours of service with CSA 2010 and the driver shortage, we have a crisis shaping up,” he said.
The panel wrapped up by talking about what they think the next five years will look like. Kretsinger said that instead of fleets focusing on miles, they will be focusing on driver time. “We will be looking at how to put drivers’ time to good use.”
Better utilization of equipment is what Suggs sees on the horizon. “We can’t afford to have drivers and equipment sitting on the side of the road for 10 to 12 hours.”
Hodges: Trucking looking up, but faces challenges
American Trucking Associations Chairman Tommy Hodges offered a guarded assessment of the trucking industry: about 5,500 carrier failures have led to nearly 200,000 fewer trucks in the marketplace. However, this tightening of capacity and stronger consumer confidence has Hodges more optimistic for the short-term outlook.
As for the economic downturn, “we’ve hit the bottom,” Hodges said. “We are in a replenishment mode. We have hit the bottom in consumer confidence, and consumers are feeling better.” As for the long term, Hodges pointed to various think-tank groups that are forecasting a 30 percent increase in freight tonnage over the next decade. n
