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Road ahead bumpy and smooth for trucking
10/15/2008
A mix of good and bad trends coming together in the next few quarters
may create some positive karma for truckers, especially in the
truckload sector, according to Donald Braughton, managing
director-equity analyst and transportation, for Avondale Partners.
Speaking
at the 33rd annual Truck Blue Book Workshop in Aspen, CO, this week,
Braughton noted that lower fuel prices are giving carriers across the
board much needed financial “breathing room,” but only for the moment
as the continuing financial crisis on Wall Street hampers trucking’s
ability to gain short term credit for operating costs.
“My, how
the world has changed in the last few months,” he said. “From January
through July this year, the trend lines were coming together for the
first manufacturing-led recovery since 1983, with a boom in export
volume fueling freight volumes. Then the wheels came off.”
Braughton
believes the biggest short term issue now facing trucking is the
unwillingness of banks to lend money. “We were coming out of a
recession until Bear Stearns and Lehman Brothers went down,” he
explained. “From January through June this year, exports from the U.S.
were growing faster than imports, aided by fuel prices dropping
significantly and quickly in late summer. But people who make and move
tangible goods are capital intensive and need credit to operate.
Without it, they pull back. That’s what’s put the economic recovery on
hold.”
Longer term, through the end of 2008 and into the first
half of 2009, Braughton feels those freight-friendly market forces
should slowly reappear – and some, but not all, trucking segments
should be poised to benefit from them.
“In the first two
quarters of 2008, 88,000 trucks left the market from business failures
due to high fuel prices – that’s 4.5% of the industry’s capacity,” he
said. However, that means when freight demand eventually goes up, it’ll
quickly exceed trucking capacity, which should allow for better
pricing, Braughton notes.
Expedited longhaul TL carriers will
recover the strongest by mid-2009, Braughton predicts, with team driver
services being especially hot. Recovery in the LTL segment, however,
could be rockier, Braughton feels most likely accompanied by another
consolidation and failure of a major carrier. Drivers for once should
be more available in the type of “jobless recovery” ahead for the U.S.
economy, he adds.
Braughton also expects the balance of trade in
the U.S. to improve once again thanks to rising demand for exports
commodities produced by domestic manufacturers and assemblers. “Look at
what was happening January through June this year – total export volume
rose to $661.5 billion, with $473.3 billion coming from manufactured
goods,” he explained. “Consumers in China, India, Vietnam, and other
parts of the world want what we have – the lifestyle of the American
consumer. That’s what is driving this.”
As a result, more
manufacturing is starting to flow back to the U.S. – which should boost
domestic freight volume significantly. “We were stealing jobs from
Germany, France, and Italy – now we’re stealing jobs from Taiwan and
South Korea,” he said, pointing to a respective 55.9% and 38.6% surge
in export volume to those Asian nations in the first half of the year.
“Put
a plant here – like Volkswagen and Fiat are doing – and suddenly
freight moves multiply. Instead of talking a car off the boat and
moving it to a dealership lot, you are delivering raw materials and
components to plants, and then finished products to dealerships. That’s
what’s occurring now,” Braughton said.
There are some downsides
truckers must manage in the quarters ahead, of course, the largest
being higher labor costs & equipment sticker prices – driven by
stringent emission control mandates – and the ever more volatile world
of diesel prices. “Look, if diesel prices moved around 5%, fleets could
handle that – they can plan for that,” Braughton said. “When prices
swing by 26% to 56% year over year, however, that’s crushing.”
Sean Kilcarr, senior editor
Fleet Owner, Sean Kilcarr, senior editor, http://fleetowner.com/management/trucking_industry_future_good_bad_1015/