Happy New Year and welcome to 2015! The first week or two of January always fills us with hope and optimism as we look forward to what the new year will bring—that is, at least until we find that it is more cold, snow and shoveling. But beyond that, we're starting off the year with a clean slate that we can use to hopefully record our business growth and successes.
To help you make strategic plans for your business, it would be helpful to know what the business climate in the trucking and commercial tire industries will be like; what new innovations and technological changes will shape coming events; and how you should make changes to address our customers' evolving needs.
Even though Casey Stengel said, “Never make predictions, especially about the future,” I'm going to go out on a limb here and gaze into my crystal ball once again to catch a glimpse of what 2015 will—or, hedging my bets a little—may be like.
Coming off a strong 2014, it's rather easy to forecast that the economy in 2015 will keep expanding. According to most economists, the U.S. should be able to weather any global turndown. While Europe is facing the risk of a recession, the U.S. is now experiencing fewer jobless claims, growing job openings, more factory orders, rising numbers of building permits and escalating consumer-goods orders.
Hydraulic fracturing—petroleum “fracking”—is at the root of this growth as it continues to drive the first industrial-led economic recovery since the early 1960s. Along with the strengthening economy, truckload freight volume should grow about 3.5 percent and further tighten the available capacity in the truckload sector.
Some economists believe this should result in rate increases ranging from 4-6 percent during the next two years as freight demand keeps rising. Others say broad rate increases of between 8 and 10 percent are expected no later than the second quarter of this year. Either way, freight rates will be trending in the right direction.
The driver shortage will continue this year and into the foreseeable future, too. Right now the industry is 30,000-35,000 drivers short. Since the trucking industry is disproportionately dependent on employees 45 years of age or older—many of whom are expected to retire in the next 10 to 20 years—and freight tonnage is predicted to continue to grow, trucking will need to recruit nearly 96,000 new drivers every year just to keep up with the demand for drivers.
This will be tough in an industry that has a hard time appealing to young people. But the demographics of truck drivers are changing. This year more immigrants from Africa, the Middle East and Europe, as well as women and couples, will be climbing into truck driver seats.
Already the number of women driving trucks has doubled to around 10 percent. Expect this trend to continue. Carriers will continue to look for innovative ways to attract and retain drivers. They will offer different pay and benefit packages, including performance-based pay, seasonal bonuses, increased vacation pay, sign-on bonuses and higher referral bonuses in addition to new trucks to drive.
This will, of course, drive up operating costs, but thankfully, they can be covered by freight rate increases and the strong freight market. While these efforts will certainly help, burgeoning federal regulations coming in this and the next few years will reduce the potential driver pool.
These regulations impact the Hours of Service rules, the Federal Motor Carrier Safety Administration's (FMCSA) Compliance, Safety, Accountability (CSA) program scores and healthcare rules, change the minimum insurance requirement, create a drug/alcohol database for truck drivers, tighten training standards, and mandate speed control, electronic stability controls, and electronic driver logs (ELDs).
The good news is that the price of diesel fuel will continue to decline. By April 2015, according to a U.S. Energy Information Administration of the Department of Energy prediction, fuel prices will continue to decline to $2.97 a gallon before picking up and ending the year at $3.17 a gallon.
Low fuel prices are always a good thing for the trucking industry as well as the rest of us since we have more money to spend on other things resulting in increased freight tonnage. Rising U.S. crude oil production can take the credit for helping to lower global oil prices and reduce imports. Total crude oil production, which averaged 7.4 million barrels per day in 2013, is expected to climb to an average of 9.5 million barrels per day in 2015.
This would be the highest annual average crude oil production since 1970. With the money they are saving on fuel and making from increased freight rates fleets are going to buy new trucks and trailers this year big time.
Why? They need to.
The average age for Class 4-8 vehicles is now 14.7 years, and the average trailer lifecycle remains near record highs. Fleets need to replace aging equipment as well as expand their fleets and add capacity.
Truck utilization has reached 99 percent and is expected to stay elevated. Fleets need to update equipment to be in compliance with California's Air Resources Board (CARB) and EPA SmartWay requirements, make up for productivity/utilization losses from Hours of Service rules and reduce the costs of upkeep of older vehicles and unscheduled repairs.
They also need to ensure drivers that vehicle maintenance will not impact their livelihoods with downtime and poor CSA scores.
ACT Research L.L.C. projects that 2015 will be the best year for North American truck production since 2006 and the third best in history. While full-year production of Class 8 trucks should come in at 298,300 units—up from 245,800 in 2013—it expects 2015 should hit 327,600 units.
Trailer builds are expected to end up at 264,000 units in 2014 and reach 284,000 units in 2015. Manufacturers are confident they can accommodate these levels of production and are working with their parts and tire suppliers to have product ready for these builds.
Some of the trends that will impact trucking this year and probably for the next few years are the continued shift of consumer goods purchasing from retail stores to the online e-commerce world, increased movement of freight from over-the-road truck to intermodal, and more consolidating within trucking's ranks in addition to continued difficulty finding drivers.
New technologies coming to the trucking industry include autonomous trucks. However, they do have an uphill battle from the motoring public, which holds a dim view of them.
Also, legislation and liability uncertainties are expected to be the main barriers for them becoming more widely adopted. Currently there is no federal legislation or position on this technology, and manufacturers are concerned that liability will be shifted from the driver to the car maker—which at this point threatens to stifle innovation and development.
Should these obstacles be overcome, many believe that trucking would be ideally suited for this technology. In the past couple of years, natural gas has been hyped to be the next fuel for the trucking industry. In fact, two years ago it was predicted it would fuel up to 20 percent of new heavy-duty trucks by the end of the decade.
However, it looks like the movement to alternative fuels has stalled. This can be blamed on fleet concerns about the return on investment of these expensive vehicles, lack of a fueling infrastructure and declining diesel fuel prices. While the use of natural gas trucks and buses has grown, it is at a much slower rate. If diesel fuel settles in the $3.25-$3.50 per gallon range, the little savings that would be at the pump would not be sufficient to generate the payback that most fleets require for the higher investment they would have to make in natural gas-fueled trucks compared with conventional diesel-fueled trucks.
Government incentives would be needed to motivate fleets to adopt this cleaner technology. In May the Highway Trust Fund will run out of money and Congress must act before then to either extend the current bill for another short period or actually pass a long-term bill that solves this problem for the next several years.
For once I happen to agree with President Barack Obama that Congress is incapable of passing a long-term, comprehensive transportation measure this year but instead will opt for a short-term highway funding fix again.
The logical and simplest solution to funding desperately needed repairs to our highway infrastructure is to raise the federal fuel tax, which is now 18.4 cents per gallon on gasoline and 24.4 cents on diesel. But passing gas tax bills is really tough. In fact there hasn't been an increase in this tax in 20 years.
Perhaps gaining our oil independence and lowering the price of gasoline and diesel in the U.S. will enable a gas tax to be passed. Only time will tell, but it will take longer than the next 12 months to get this dilemma solved as Congress continues to crawl along in its attempts to find alternative ways to raise revenue.
For the commercial truck tire industry, 2015 should be a very good year. With strong OE truck and trailer sales projected for 2015 and with every commercial vehicle with a driver plying the highways, the sales of new and retreaded truck tire sales should be strong throughout.
It's looking like 2015 will be a strong year for OE and replacement commercial truck tire sales. Retread sales also should be strong. Spotty shortages of truck tires could pop up this year, but for the most part, tire manufacturers should have the capacity coming on line in 2015 to meet demand since they have been expanding their production of truck tires in North America over the last two years. In the U.S.
Bridgestone Americas, Continental Tire the Americas L.L.C., Michelin North America Inc. and Yokohama Tire Corp. are all completing expansions of their truck tire plants. Yokohama is building a truck tire plant in West Point, Miss., that will have an annual production capacity of 1 million tires beginning in October. Bridgestone is expanding its Warren County and La Vergne, Tenn., plants to produce 1,200 more truck and bus tires a day. Continental is expanding its Mt. Vernon, Ill., truck tire plant and Michelin is doing the same at its Starr, S.C., OTR plant, and Waterville, Nova Scotia, factory.
Not only will more commercial tires be produced in 2015, but more new truck and bus tires will be introduced to the market as well. Expect to see more new, original tires as well as retreads this year and more tires and retreads added to the SmartWay verified list for being fuel efficient. Tire pricing should remain fairly stable and may even be a little soft as raw material costs decline and the supply of tires grows.
It is expected that raw materials costs will continue their downward trend as the price of petroleum continues to drop and as natural rubber prices stabilize, which will improve tire manufacturers' bottom lines. It will be interesting to see if anyone blinks and actually makes some cuts in pricing—which may be necessary to prevent further erosion of market share to off-shore Tier 3 tire brands. In an effort to be eco-friendly as well as protect their sources of raw materials, tire companies will still continue to search for sustainable, replacement materials for natural rubber.
Ninety-seven percent of natural rubber used in tires comes from hevea (rubber) trees in Southeast Asia. It is projected availability of this resource will become tighter as hevea tree farms are decimated by economics and/or disease and the global demand for tires grows in the coming years. Bridgestone and Cooper Tire & Rubber Co. are working to harness biopolymers extracted from guayule as a replacement for synthetic rubbers and natural rubber.
Bridgestone and Continental also are working on extracting rubber from dandelions for use in tires, and Goodyear is using ash left over from the burning of rice husks to produce electricity as an environmentally friendly source of silica for use in fuel-efficient tires. All of these efforts could result in stabilizing raw materials production and improving the sustainability of the tire industry in the years to come.
Tire sales, though, are not the only opportunities commercial tire dealers have in the commercial market. One tire dealer told me recently, “If you are just selling tires, you won't last in the commercial tire business.
There's just not enough money in it.” He's right, but the good news is fleets need plenty of other services tire dealers are perfectly positioned to provide. The trend to outsourcing tire maintenance will continue in 2015 as well as outsourcing services such as fueling and light-duty vehicle preventive maintenance.
Fleets want weekly/monthly on-site inspections of tires for tread wear, damage and inflation pressure, scheduled mobile service in addition to emergency roadside service. Over the past few years several tire companies have put together networks of company-owned facilities, truck stops and tire dealerships to provide mechanical inspections and light-duty vehicle repairs to truck operators.
These services add value to the fleet-tire dealer/manufacturer relationship, serve to keep trucking companies as customers and provide another revenue stream for commercial tire dealers. Expect the continued expansion of these types of programs in 2015. This year you'll also see more and more small- to medium-sized fleets move to telematics—not just for vehicle tracking but for remote diagnostics of their engines as well as their tires.
Gaining visibility of their problems as they are developing provides fleet operators with the information they need to manage and address situations in the most efficient and expedient way possible. Your getting involved with these systems will result in more service business for you. This year is going to be a good year for the commercial truck tire business and a good year for you to be a part of it.
All the economic indicators are heading up rather than down and business is good for your fleet accounts that have steadily rising profits. I believe this will be the best year for trucking since 2006 and promises to be a strong year for commercial truck tire dealers, but that's not saying it won't be full of challenges.
There are a lot of new opportunities and forces that will probably be changing the way in which you do business.
Be open to them and look for ways to provide innovative services and products that will enable your commercial clients to focus on their core businesses rather than on equipment problems.
As Peter Drucker said: “The best way to predict the future is to create it.”