The health of your business, of course, relies on the health of your customers’ businesses. Having an accurate pulse on their economic well being means you can better plan your business and improve your forecasting.
I recently had the opportunity to hear what many of the top fleets are saying about the current state of the industry and what to expect in the near term during last month’s Commercial Carrier Journal Symposium. Sponsored by CCJ magazine (a sister publication to Truck Parts & Service), this annual event brings together trucking fleet executives from across the country.
The bottom line of a presentation by John Larkin, managing director and head of transportation capital markets research for Stifel, Nicholaus & Company, was that the next two or three quarters look grim for fleets. However, those that survive this bleak period are likely to prosper.
Here are some details leading to that conclusion and some factors that will affect your customers’ business in the year ahead:
- Manufacturing moving off shore over the past several years has changed transportation dynamics in the United States. Demand for transportation of raw materials and components is declining while the need to move finished goods from ports is rising.
- Freight is becoming more condensed, and many products weigh less than in the past. For example, three flat screen TVs now occupy the same amount of space as one tube TV. Packaging also is becoming more space and weight efficient.
- Manufacturers are redesigning supply chains to reduce transportation costs, favoring multiple regional production locations.
- Trucking company failures declined in the third quarter of this year compared to the second quarter, but still are high – up 48 percent compared to the third quarter of 2007.
- Volume for some load types is holding up significantly better than for others. For instance, volume growth for large less-than-truckload fleets was 7.6 percent in August compared to a year ago, and was 2.4 percent for small LTL fleets. Refrigerated and bulk tanker loads are increasing, and dry-van loads are holding relatively steady. Flatbed loads are down 11.4 percent, largely as a result of the decline in home construction.
- Recent freight capacity reductions are unprecedented, with Class 8 truck sales plummeting and thousands of trucking companies going out of business. In August, truckload capacity had fallen three percent year-over-year. When supply and demand tighten, pricing power will shift to carriers.
Of particular interest to the aftermarket is the average fleet is aging. In September 2007, average Class 8 fleet age began rising after declining for three and a half years, according to A.C.T. Research. In September of this year, average fleet age was 3.2 years. With a 2009 pre-buy unlikely in light of the uncertain economy, average fleet age could be higher than it’s been in a decade when freight levels pick up. Those aging vehicles are bound to require increased maintenance, repairs and replacement parts.
