In The News

Trucking economist foresees rebound

Economic woes have left many fleets wondering when things will ever turn around. Yet there are several strong indicators that a market rebound is forthcoming, a trucking economist said during a Bear Stearns teleconference yesterday.

“We thought diesel prices would go up to $4 a gallon, but we didn’t think it would happen in six weeks,” Kenny Vieth, a partner at A.C.T. Research Co., LLC, said during the teleconference. “Every penny increase in diesel is $2 billion diverted from consumption to energy.” He added that because of the high fuel prices, between $250 billion and $300 billion will be diverted from spending and investment through the next few quarters.

On top of that Vieth pointed out the impact of fleets pre-buying trucks ahead of the 2007 emission regulations. “The over-buy of trucks still hadn’t come back into line by the end of 2007,” he said. “There were simply way too many trucks chasing way too little freight…When the Class 8 population grows quicker than freight, bad things happen.”

But Vieth sees a silver lining. “Sure, things are bad, but compared to five or six years ago they aren’t that bad,” he said. “Prices are a little below trend, down about 10% now, compared to 10% above in 2005, but it was 50% below in ’01.

“Our model is saying that by the end of 2009, the number of Class 8 vehicles on the road will be insufficient to haul freight,” Vieth continued. “Rising backlog and lower inventory is setting the stage for a rebound.

“Will there be a third pre-buy? The short answer is yes, but the long answer is not as much as last time,” Vieth said. He added that the strength of the economy would determine the amount of time for the Class 8 market to fully recover, but estimates 2008 production at 234,000 trucks and 2009 at 325,000.

“The last two to three months have put a damper on the short term economic outlook because of the price of oil and gasoline,” Vieth said. He added that while there was a decline of about 15,000 trucks in inventory in 2007, the inventory to sales ratio is still relatively high, and backlog has increased about 20,000 since September 2007, bringing it back up to around 80,000 units.

However, one reason inventory is up is the price of a new truck increased approximately $6,000 in 2006, and because of low sales from 2001-2003 there aren’t a lot of five- to seven year-old trucks on the market. But Vieth added that because credit availability has improved in the past 18 to 24 months, it may be easier for fleets to purchase this year.

“Carrier profits remain surprisingly buoyant,” Vieth added. “Trucker’s profits got creamed in Q1 this year…but the data shows truckers are doing better, relatively speaking.”

Fleet Owner Headlines