Trucking fleets should start seeing an improvement in business in the second half of 2003, but enough negative factors still exist to make a recovery tenuous, a trucking industry economist told commercial tire dealers attending Bridgestone/ Firestone's annual BizCon meeting.
``Overall for the economy, we should expect uneven, moderate growth with improvement in the second half of the year, although I don't believe it will be a huge surge,'' said Bob Costello, chief economist for the American Trucking Associations. ``Stronger growth levels are likely to return in 2004. For motor carriers, I think freight volumes will improve as the economy does.'' He made his remarks at the 7th BizCon gathering April 23-25 in Las Vegas.
The trucking industry, which slipped into its own recession in early 2000, has been affected by the overall economy, rising diesel prices, soaring insurance rates, geopolitical factors such as the war in Iraq and other influences, he said. The trucking slump started early as businesses invested heavily ahead of the Y2K scare.
``Unfortunately, shortly after Jan. 1, 2000, business investment in new equipment slowed dramatically,'' Mr. Costello said. ``The Y2K scare simply pulled future demand into 1998 and 1999. There was no reason to purchase new equipment thereafter because businesses had heavily invested in the years before.''
From 2000 through 2001, truck tonnage contracted 8.5 percent, though it grew 7.1 percent from the end of 2001 to the end of 2002. In the first quarter of 2003, tonnage grew about 4 percent from the first quarter of 2002. However, that growth was uneven throughout the various sections of the trucking industry, he said.
The most important factor for commercial tire dealers is the effect the downturn has had on small truckload (TL) carriers that have less than $30 million in annual revenues, Mr. Costello said. Ninety percent of all trucking companies operate 20 or fewer trucks.
``Freight volumes for small TL carriers have yet to recover from the recession, although we have finally seen glimpses of improvements in recent months,'' he said.
Bill Williams, owner of Bill Williams Tire Center in Midland, Texas, said his business has seen some negative impact from a slump in the trucking sector. ``Everybody's kind of sitting and waiting.''
Andrew Thompson Sr. of Cleveland Tire Center Inc. in Cleveland, Tenn., said his business has had a tough year as his remaining customers are more conservative about the economy. ``We've seen more bankruptcies (of small carriers) in the last two years than we had in the five years previously,'' he said, adding he hasn't yet seen signs of a turnaround.
But Mr. Costello said several factors should help the companies that were able to weather the storm: trucking capacity has been tightening mostly because many fleets can't afford new trucks; the build rate of Class 8 trucks is below the replacement rate; the used truck market has stabilized; and bankruptcies have reduced overcapacity.
``For these reasons, I have never talked to so many optimistic truckers,'' Mr. Costello said. ``They know the current situation is not great, but they are expecting big things when the economy turns around.''
Also, barriers to entering the market-such as high insurance premiums and volatile fuel prices-are tough, meaning the surviving trucking companies will prosper the most from renewed growth. Over time, he expects the trucking industry to continue to grow-and buy more tires.
He said the total truck fleet should grow 30 percent to about 8 million units in 2014 from 6 million units in 2002. Trucks in classes 3-5 will grow the fastest, with an expected 50-percent jump from 2002 to 2004. This category included 1.2 million units in 2002. He predicted the number of class 8 trucks will rise to 3.4 million units in 2014 from 2.6 million units in 2002.