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Commercial horizon: Changes aplenty Freight's fate Eyes on fuel Focus on safety Tire industry outlook Advancements

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Happy New Year, everyone and welcome to 2013! Quite frankly, I never thought I'd live to see it.

Several times in my life I've almost been run over by a truck. Surprisingly enough, though, I've been lucky and here I am!

The New Year beckons us to boldly go where no man or woman has gone before despite the fact that 13 is usually an unlucky number. Being a rather superstitious person, I am a little hesitant to boldly go forward. Even Yogi Berra said, “The future ain't what it used to be!”

However, I'm willing to bet that if I look into my crystal ball, I'll get a glimpse of what's waiting for us out there in 2013. And if I make sure I don't break any mirrors this year, walk under any ladders and stay away from all black cats—as well as errant trucks bent on my demise—the year might turn out OK. Ah, the haze is clearing in my crystal ball. Let's see....

The bad news is that the economy will continue to be much the same in 2013 as it was in 2012. It will continue to muddle through the year and be fed by slow growth in consumer spending and business expansion. But the good news is that we can expect 2014 and 2015 to be robust periods for the trucking and truck tire industries. Gross Domestic Product (GDP) will increase from 2.1 percent at year-end 2012 to somewhere between 2.5 percent and 2.8 percent by year-end 2013. This growth will be impacted by several factors.

First, spending restraint and tax increases at the federal level will still cut economic growth by 1.3 percent in 2013. However, state and local governments will have finally caught up to the debt they need to pay down and will be spending increases in tax revenue as opposed to using them to pay down debt.

Consumers are still afraid of economic uncertainty and their confidence is still low, although there is pent-up demand building. People probably won't really loosen their purse strings until 2014. The construction industry is on its way back but is growing slowly. It won't really pick up until 2014. Unemployment still remains the big elephant in the room and we will probably not see an unemployment rate under 7 percent until 2016.

To help the economy, the Federal Reserve will continue to stimulate it. The federal funds rate—the interest rate at which banks lend to other banks—is likely to remain at zero to 0.25 percent through late 2014. Therefore, commercial banks should keep their prime lending rates at 3.25 percent.

The Fed also will continue its program to lengthen the average maturity of its securities holdings by purchasing $40 billion worth of long-term Treasury securities a month and selling an equal amount of short-term Treasury securities in order to put downward pressure on long-term interest rates—actions that already have helped to reduce the unemployment rate.

Corporate profits and stock prices are predicted to strengthen as a result, but concerns about debt-related issues in Europe still cloud the crystal ball. If Europe escapes a collapse from the crush of sovereign debt in Greece, Ireland, Italy, Portugal and Spain, and we manage to avoid other possible shocks such as war, terrorism, oil price spikes or a natural disaster, the U.S. should avoid another recession and continue to pull out of the economic doldrums into a much healthier 2014.

In the trucking industry, freight shipments should have a stable 5-percent growth rate in 2013 although there will be spurts and stops from one month to the next.

The devastation wreaked last year by Hurricane Sandy is expected to pump up freight levels in the short term for trucking—which could amount to roughly $10 billion to $15 billion in transportation business as the Northeast begins to rebuild. This storm-related transportation demand should peak in April.

Some truck segments will benefit more than others from tonnage growth. Flatbed carriers will benefit from improvements in the construction market as will tanker operators from growth in the petroleum industry. However, refrigerated carrier freight will tend to be flat and until manufacturing gets back on track, dry van freight may actually decline.

Trucking's fate in the coming months will be determined by the industry's combined fleet size relative to freight and the number of qualified commercial drivers that are available. Currently trucking capacity is moderately tight. If the economy really takes off, it will get severely tight by mid-2013 and there will not be enough trucks and drivers to haul everything.

A new trend that has appeared recently is that manufacturing is making a comeback in North America. That's happening since the cost of producing and shipping goods from Asia to the U.S. and Europe is escalating due to increased transportation costs driven by higher fuel prices, rising wages for factory workers in China, risk associated with currency fluctuations and disruptions in global supply chains. Some think tank experts believe that by about 2015 manufacturing in some parts of the U.S. will be just as economical as manufacturing in China because of the shrinking wage differential and savings in transportation costs and inventory.

When all costs are taken into account, states like South Carolina, Alabama and Tennessee are among the least expensive production sites in the industrialized world. So it comes as no surprise that the tire industry has and continues to migrate to that area.

A survey of carriers last fall indicated that the Federal Motor Carrier Safety Administration's Compliance, Safety, Accountability (CSA) safety rating system ranks No. 1 of the top 10 critical issues facing the trucking industry.

The industry also has ongoing concerns with the coming changes in the federal hours-of-service regulations, which ranked No. 2. Many fleets are concerned that changes to the 34-hour restart provision and the addition of a mandatory rest break after eight hours of driving will reduce total drive time and increase the number of drivers and trucks needed to haul freight in an environment that already has a driver shortage.

It is estimated the driver shortage could easily reach 100,000 to 200,000 in a very short time if driver productivity is reduced by the hours-of-service requirement and freight tonnage increases. This certainly will cause the rate environment for fleets to improve.

As far as diesel prices go, the U.S. Department of Energy predicts that domestic crude oil production next year will reach its highest annual average rate of production since 1992 and diesel prices will average $3.84 per gallon in 2013, down 3 percent from an average of $3.97 in 2012.

What is more exciting is the longer-term forecast for U.S. energy. According to the International Energy Agency, the global energy map is changing in a dramatic way. It predicts the U.S. will become a net exporter of oil and natural gas by 2020, overtake Saudi Arabia for a few years as the largest global oil producer in the world, and become all but self-sufficient in net terms.

Its forecast indicates that almost 90 percent of Middle Eastern oil exports will be sent to Asia by 2035. Demand for oil will grow by one-third with China, India and the Middle East accounting for 60 percent of it, while demand in the U.S., Canada and Europe will be basically flat due to more stringent corporate average fuel economy (CAFE) standards for both commercial trucks and automobiles and the use of natural gas in heavy-duty vehicles. From a political standpoint, this has the added advantage of shifting the Middle East headache from the U.S. to China.

It is expected that around 236,000 new Class 8 trucks were produced in 2012. With the economy projected to be quite uninspired, it is projected that truck sales in 2013 will be flat to as much as 5 percent higher than 2012. Any increase would be driven by a slight increase in demand from the housing and truckload sectors. Trailer sales, which ended 2012 at about 224,800, are expected to increase 5-7 percent in 2013. Most of the sales will be for replacing aging trucks rather than adding capacity. This is the case for trailers as well.

Of primary concern to every American is how the government is going to pay for improvements and maintenance in the nation's highway infrastructure. We have a transportation funding problem because people are getting far more miles per gallon and are also using more alternative fuels than ever before.

As a result of people buying less gas, there are less revenues being collected. It's a good bet that we will see fuel-tax hikes applied all over the country at the state as well as the federal level this year. For example, in Virginia, Gov. Robert McDonnell is considering indexing the state's gas tax to inflation—something that has never been done at the federal level. In addition, many other states are considering putting tolls on their highways to raise needed infrastructure revenue.

The trucking industry will be closely following the implementation of last year's highway law, Moving Ahead for Progress in the 21st Century (MAP21).

This law kicks off 29 safety-related initiatives, including the mandatory use of electronic on-board recorders and a field study on the 34-hour restart in the hours of service rule, as well as important endeavors such as the creation of the first national freight policy. The House of Representatives' Transportation and Infrastructure Committee has requested an audit of the Department of Transportation's Compliance, Safety, Accountability (CSA) safety enforcement program, which is due in September, to determine its effectiveness.

Besides legislated activities, various federal agencies are studying or considering other activities that can affect the trucking and tire industries. Last month the National Highway Traffic Safety Administration (NHTSA) announced it is seeking input on truck tire maintenance procedures to help determine the impact of tire pressure monitoring systems (TPMS) on commercial vehicle fuel economy. NHTSA is planning a study on feasible fuel-economy standards for medium- and heavy-duty trucks for model year 2019 and beyond.

Part of the study will be the time savings that may result from implementing a TPMS rule for trucks. So it looks like the stage is being set for a TPMS mandate in the trucking industry.

NHTSA is also fairly far along with new tire labeling rulemaking, which may end up being very similar to the one adopted in Europe.

In addition, the U.S. Environmental Protection Agency (EPA) has been reconsidering its decision to not define tire-derived fuel (TDF) as a solid waste. If this agency's position on TDF changes, TDF would be subject to serious restrictions that would have a dramatic impact on the tire recycling market.

Looking around, it's apparent that more and more fleets are experimenting with trucks powered by natural gas. It is now generally accepted that natural gas is really coming to the trucking industry. Once infrastructure hurdles such as a dependable fuel supply network are developed, a new generation of engines is produced and driver acceptance is achieved, its viability will be assured. These factors are close to being achieved, with forecasts projecting 7 percent market share for natural gas engines in five years. This will be a revolutionary change in the trucking industry.

In the tire industry it is expected that raw material costs will remain fairly stable through the year, as natural rubber suppliers have cut back production to meet lower global demand, especially from Europe and China as a result of their economic downturns.

Since the price of oil is not expected to fluctuate much either and may actually decline a bit, we should not see much in the way of truck tire price increases this year.

With the economy continuing to muddle along and fleets purchasing only the trucks they need to replace their very old ones, there will be no surge in sales of new and retreaded truck tires in 2013. The Rubber Manufacturers Association (RMA) announced that 2012 U.S. shipments to truck and trailer manufacturers increased only 5 percent from 2011—reaching around 5.2 million units—and predicts that 5.3 million units, a 2-percent increase, will be shipped in 2013.

In 2012 replacement commercial truck tire shipments actually declined about 900,000 units (5 percent) to 15.7 million units. However, in 2013 the RMA expects replacement sales to get a nearly 4-percent boost (600,000 units) to 16.3 million units.

The demand for low rolling resistance, fuel-efficient tires will continue to grow as the cost of fuel remains high and as more fleets work to become SmartWay verified. The list of SmartWay-verified tires also will expand as more truck tire manufacturers strive to get their entire line of over-the-road tires blessed with the fuel-efficient certification. More and more on-highway retread products also will get SmartWay certification now that retread testing requirements have been decided.

Fleets will continue to select tires that are designed specifically for their operations, while others that have tried Tier 3 tire products in the last few years to fill their tire needs due to low cost and/or tire availability reasons will continue to purchase these products—especially since many of them are now SmartWay verified. As a result market share for Tier 3 brands will continue to grow this year.

The use of wide-base tires will grow faster in 2013 and especially over the next few years as OEMs strive to meet the new commercial truck CAFE standards, carriers continue to search for improved fuel economy and fleets adopt tire monitoring and maintenance technologies to help them maintain proper tire inflation pressure to ensure they get optimal performance from these inflation-sensitive tires.

Fleets that value their relationships with their traditional truck tire market suppliers will continue to demand services and programs that reduce their operating and tire costs, keep them up and running, help them maintain their tires so that they provide multiple retread opportunities and provide added value to them. Service will remain the key to maintaining these fleet accounts.

As a result expect tire companies to continue to build their service networks and non-tire product and service portfolios.

Farther down the road, exciting innovations may be on tap for the commercial truck tire market.

One of the hottest areas for innovation is in the development of tire inflation products. Dana Corp. has developed a way to monitor and maintain tire pressures on trucks and tractors equipped with Dana drive and steer axles. The system continuously measures tire pressures and when necessary, adds air through the axle itself, requiring no external hoses or pumps. It can be added to trailer axles from other manufacturers as well.

Goodyear has developed Air Maintenance Technology designed to eliminate complex hardware by having an internal regulator inside the tire that senses tire pressure and then opens the valve to allow airflow into a pumping tube inside the tire. As the tire rolls, the flexing of the tire flattens the tube and pushes the air through the tire into the inlet valve. The air then flows into the air chamber until optimum tire pressure is reached, at which point the valve closes. Both this product as well as Dana's will be undergoing field-testing in North America this year.

Looking further down the road are changeovers to raw materials that are more sustainable and have less long-term environmental impact than natural rubber and petroleum. As a replacement for natural rubber, tire makers are studying guayule, a desert shrub, Russian dandelion and bioisoprene, which is derived from renewable resources, and soybean oil as an alternative to petroleum- based oil.

As you can see, there are great changes taking place in both the trucking and tire industries. To have 2013 turn out to be a good year for your business, you'll have to work hard to convince your fleet customers that you want to be not only their tire consultant but their partner in business by helping them optimize their tire performance, reduce their tire cost per mile by offering valuable services and recommending products that address their fleets' specific needs to lower their overall operating costs.

To do this you'll need cost-effective products, well-trained personnel, quality service and rapid response times in emergency situations. If you have these tools in your toolbox you can boldly go forward into 2013.

I am boldly going forward into the New Year as well, but I am also clutching a rabbit's foot in one hand, a four-leaf clover in the other and am keeping my fingers crossed, too, just for luck. Here's to a happy New Year to you all!
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TB Reader Poll

Previous | Published February 1, 2019

What issue concerns you most heading into 2019?

The threat of more tariffs.
27% (27 votes)
The new Congress in Washington.
35% (35 votes)
Price fluctuations for the products we sell.
10% (10 votes)
More disruptions across the industry.
29% (29 votes)
Total votes: 101
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