In The News

Freight stabilizes, overcapacity remains

Freight levels have stopped shrinking and the recession may be coming to an end, analysts told participants in the Commercial Vehicle Truck and Trailer Outlook and Update webinar hosted by FTR Associates Aug. 7.

But the industry has approximately 300,000 heavy-duty trucks that are either parked or underutilized, said Noel Perry, a principal with Transport Fundamentals. This overcapacity situation may not improve until the economy shows considerable growth – around 3 percent – possibly not until late next year. “The bad news is, we don’t get the kind of capacity utilization numbers we need to improve rates until into 2011,” Perry said.

Freight stabilization is a reflection of the recession coming to an end, possibly even this month, analysts said. “Our expectation is that this current quarter will show growth at about 2 percent [gross domestic product],” said Bill Witte, co-director of the Center for Econometric Research, the primary engine FTR uses to drive its forecasts.

While Witte is optimistic about the remainder of this year, “if you go beyond the next couple of quarters, there is lots to be concerned about,” he said. One reason is that consumers – hit hard by the tough economy – are saving more and spending less. At the same time, the Fed is pumping liquidity into the economy. If they don’t remove this liquidity when the economy starts to grow, inflation – or much higher interest rates – “will be big concern,” he said.

Projections of very large federal deficits through 2012 and beyond further complicate a strong recovery, he said. And he expects unemployment to remain high into the next decade.

Turning to the Class 8 truck market, Eric Starks, president of FTR Associates, said fleets continue to overbuy equipment relative to the amount of available freight. “This will continue to be problematic going forward,” he said. “It will take a large amount of time to eat up 300,000 trucks unless you have a significant uptick in economy.”

FTR predicts about 105,000 Class 8 factory shipments to the North American market in 2009, rising to 133,000 in 2010 and 198,000 in 2011.

Starks also noted orders for engine components are exceeding new truck activity. “It appears that OEMs are willing to put cash on the table to put these engines in inventory,” he said. This means 2007 technology engines will be placed in trucks longer than the industry expected, delaying the changeover to the 2010 engines, he said.

www.eTrucker.com