Guest Column

Avery Untitled 1Face it, the recovery is here

As Truck Parts and Service discussed thoroughly in January’s issue, 2010 generally was much better than 2009 for the parts and service industry, and 2011 looked promising, too. A recovery in trucking is underway, but the question remains: Will it last?

Starting with the proposition that as long as fleets and owner-operators are moving freight, then things can’t be too bad for parts and service, the answer is yes — at least for the next few months. Freight has been strong recently. The American Trucking Association’s monthly for-hire tonnage index was up 3.8 percent in January after a 2.5 percent increase in December.

Based on comments from a number of trucking companies, January would have been even better had it not been for the unusually severe winter storms that blanketed a large area of the United States.

More important, near-term indicators for freight are strong. The Institute of Supply Management’s composite index of manufacturing activity in February was at its highest level since May 2004. ISM’s production and new order indexes — indicators of future freight activity — were even stronger. Throughout the manufacturing sector, the ratio of inventories to sales is near all-time lows, which is great news for trucking companies because increases in demand will translate almost immediately into production and freight activity.

The big weakness remains the housing market, but at least that sector is not getting worse. The February Randall-Reilly survey of trucking executives showed that 70 percent believed business would be better in six months. Another 14 percent believe business will be much better.

The latest indicators confirm a freight rebound, but watch fuel.

For parts sellers and service providers, the downside to all of this good news is that sales of new trucks clearly are on the rebound. According to preliminary data from FTR Associates, net orders for Class 8 trucks totaled 27,009 in January — 324 percent higher than the 6,400 units ordered in January 2010.

Still, many truck owners seem set on wringing as much out of existing trucks as possible before making the leap to new trucks. According to Polk, registrations of used commercial vehicles achieved a record level in 2010 with about 672,000 units registered — nearly 22 percent more than 2009.

There’s one factor that could change current dynamics: The price of diesel. Since the end of September, diesel prices are up 26 percent. Recent unrest in oil-rich Libya and elsewhere in the region have added fuel to the price increases. So far, the pace of increases doesn’t come close to matching the surge in 2008, but that could change. And unlike in 2008, there doesn’t seem to be a looming global recession or financial crisis to burst the bubble.

How exactly a continued surge in diesel prices might affect equipment decisions is hard to know, but it probably would delay fleet renewal by smaller carriers that could face a cash crunch due to the lag between freight hauling and payment of fuel surcharges.

On the other hand, larger, more stable carriers might accelerate their truck purchases to take advantage of fuel economy gains over pre-2010 technology. But a prolonged surge in diesel prices also might put hundreds of carriers out of business and increase the supply of used trucks, although those trucks would be quite old.

While skyrocketing diesel prices could change equipment purchasing in the near term, there’s no getting around the reality that carriers simply must continue to renew their fleets.

Avery Vise is editorial director, fleet/dealer/aftermarket for Randall-Reilly and chief editor of Commercial Carrier Journal.

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