Worst is over, says trucking industry analyst
The North American trucking market remains depressed, but there's good news: the worst is over, according to Kenny Vieth, partner in ACT Research, a Columbus, Ind.-based agency that tracks the North American commercial vehicle industry.
In this exclusive www.moderntiredealer.com interview, Vieth discusses the current state of the trucking industry, including the problem of excess capacity, and what things will look like mid-2010.
MTD: The trucking market has been depressed for quite a while. What led to this decline?
Vieth: Going back to 2006, we had the big pre-buy (of trucks) ahead of the U.S. Environmental Protection Agency 2007 emissions mandate, which made sense from the trucker's perspective. But unfortunately, just as the prebuy was finishing, the housing market started to roll over at the end of 2006. Freight markets were weak through 2007 but began to recover in the middle of 2008, but of course, the global financial crisis hit during the fourth quarter of 2008, which redefined the word “downturn” in the modern era.
MTD: A lot of our readers report that their fleet customers are parking vehicles, and have been doing so for some time...
Vieth: Certainly that has compounded the problem. The freight market was so bad in the first half of 2009, truckers weren’t even buying aftermarket parts. They were parking vehicles and putting them on blocks and swapping out tires… cannibalizing their own stock. And it wasn’t just tires. It was engine components, seats and steering wheels. One fleet who talks to us indicated that to put their existing trucks back on the road, they were going to need $15,000 (worth of equipment) per vehicle. And this is a good fleet, not a marginal fleet.
CTD: With a glut of trucks and not enough freight to haul, how does the trucking industry rid itself of excess capacity?
Vieth: There are three ways that we see. One, you can grow the economy. If the economy grows, the economy generates new freight, and if you have new freight, then you need new trucks to haul that freight.
Two, you can have below-replacement retail sales. Trucks are dying every month – old age is wearing them out – so there has to be a replacement process for the trucks that are hauling freight that’s already in the marketplace. Over the past year and a half, we’ve had retail sales that are significantly below the level of replacement, not just in the U.S., but really in North America. Our research suggests that somewhere around 17,000 trucks a month are being replaced in the North American market.
Finally, there is the opportunity to export trucks out of the U.S. If we look at prior downturns – and I’m thinking back to 2001 – the dollar was particularly strong, so it was difficult to take trucks out of the U.S. market. Flash forward to 2006, we went from 3,000 trucks a year being exported in 2001-02 to 10,000 trucks. In 2007-08, it was over 20,000 trucks a year being taken out of the marketplace. In 2009, despite the global nature of the financial crisis and the downturn in major economies, we managed to get about 16,000 trucks out of the U.S.
We think by sometime in the third quarter of 2010, we will shift from too many trucks for the amount of freight to be hauled to not enough trucks for the amount of freight to be hauled. It’s not going to immediately translate into new truck sales, but certainly truckers will be able to make some money again.
MTD: Where do you see the trucking industry by mid-2010?
Vieth: I think the supply-demand equilibrium will have worked itself out by mid-year. There will be the right amount of trucks for the right amount of freight.
"Assuming our projections are correct, we think demand for Class 8 vehicles is going to go vertical in 2011," he continues. "The present (trucking) fleet is extremely old. And truckers are running out of depreciation allowance on portions of their fleets, so there are tax implications.
"We think the supply-demand situation will clear up enough that freight will move up very nicely, which will allow fleets to fix the trucks they haven’t been running and start thinking about replacing some of the older vehicles in their fleet.
"As the Class 8 cycle goes, it’s either feast or famine. I think the challenge for suppliers is going to be the ability to meet demand levels."