Well, here it is, the start of a brand-new year, and before us is a golden opportunity to start with a clean slate, learn from our past mistakes and go boldly forth to accomplish great things.
As 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 your customers' evolving needs.
As Yogi Berra once said, “If you don't know where you are going, you'll end up someplace else.” So I think it might be helpful if I look into my crystal ball once again and see what's in store for us in 2016.
The good news is that the trucking and commercial truck tire industries left behind a pretty good year in 2015 and are starting out 2016 in relatively decent shape. The economy is growing at a slow but steady 2.5 percent annualized rate, and this could well continue through 2016. That's a scenario that pretty much was the same as we experienced last year.
The reason for this is that the U.S is now experiencing strong job growth, a slight increase in overall wages, an expanding housing market as well as sustained low gasoline prices—all which are raising consumer optimism and driving consumer spending.
In addition, there are no “bubbles” in the economy such as housing or technology that burst and led to past recessions when the bottom dropped out of these markets.
However, American businesses continue to be very leery of non-essential investment at a time when the strong U.S. dollar and weak economic growth are limiting exports. Some economists are concerned that since we are now eight years into the current recovery, the economy should start to slow and head into a recession. However, even they think the risk of this occurring in 2016 is small and in all likelihood will grow in 2017 and 2018.
Therefore, for 2016 expect these rather sluggish but stable trends to continue.
With the economy still growing, freight volume will increase about 3 percent, too, although it will fluctuate on a monthly basis as it did in 2015 since consumer demand for products ebbs and flows due to seasonal changes. However, many trucking companies will reach their capacity threshold. This will force many to purchase new equipment to expand their fleet size while others will raise rates or move toward servicing primarily their preferred shippers—those who don't hold drivers for long periods of time waiting to load or unload and who treat their drivers well.
We might also see shippers creating their own private fleets to help alleviate their inability to find trucking companies to haul their freight on their schedules.
Truck drivers will be the limiting factor for the growth in trucking capacity. While freight volumes will increase moderately, it is not expected that capacity will keep pace with this growth. The driver shortage that has been a constant issue for many years now is expected to worsen during 2016 and into the foreseeable future.
Not only is the industry losing drivers to retirement, but according to a study conducted by the American Trucking Associations (ATA), 88 percent of carriers find that most applicants are not qualified.
There has been an explosion in mergers and acquisitions in the trucking industry over the last few years. (Last year United Parcel Service Inc. (UPS) bought Coyote Logistics, FedEx Corp. acquired TNT Express, and XPO Logistics Inc. purchased Con-way Freight.) This trend will continue in 2016 as large fleets may buy smaller fleets simply to get their drivers.
My crystal ball indicates that 2016 will see a continuation of low energy costs. Diesel fuel is predicted to average $2.67/gallon this year, which is slightly lower than the $2.71/gallon it averaged in 2015. Gasoline is projected to average $2.36/gallon in 2016 compared with $2.43/gallon in 2015. This is great news for fleets since a 1-cent change in fuel prices impacts the trucking industry by $388 million annually.
The aging U.S. fleet with its substantially worse fuel economy will keep replacement demand for new trucks high for the next few quarters. Demand for Class 8 trucks will also be propped up by fleets continuing to upgrade their equipment in order to get better utilization by having less downtime for repairs. In addition these new trucks will help attract and retain drivers.
While Class 8 production should be about 10 percent lower than 2015, that will still be a very solid level of production and one that is more “normal” than what the industry saw over the last two years. It is expected that 290,000 Class 8 trucks will be produced this year in North America compared with the approximate 330,000 produced last year. All four heavy-duty truck OEMs in North America agree that 2016 should be a very good year for Class 8 sales.
The outlook for trailers is similar to power equipment, as growing freight tonnage will keep new trailer demand at healthy levels. It is expected that trailer builds will drop 10 percent also to 273,000 units from the more than 302,000 units that were built in 2015.
Trucking is dreading the hit that capacity and driver pay will take with the pending reinstatement of the 34-hour restart provision of the Hours of Service (HOS) Rule. The last revision of this rule was implemented in July 2013. However, in December 2014, Congress suspended the controversial 34-hour restart provision until a study could be conducted to determine the benefit of this productivity-killing requirement.
The American Transportation Research Institute (ATRI) found that 80 percent of the fleets it surveyed indicated a loss of productivity directly attributable to this provision and driver pay impacts were estimated to range from $1.6 billion to $3.9 billion annually.
A permanent solution cannot be put into place until a study on whether there is value to this restart provision is concluded. Until then the uncertainty of this issue will keep fleet operators up at night.
Another government mandate that could reduce the driver pool is the new requirement for trucks to be equipped with electronic logging devices (ELDs) to replace paper driver log books. Some fleets expect it will be taken as a negative intrusion by some drivers—especially those most experienced—and drive them to quit the business. It also will force off the road drivers who routinely violate HOS rules.
The ELD mandate details technical specifications for ELDs, clarifies supporting-document requirements and includes measures aimed at ensuring that ELDs are not used to harass drivers. It makes obsolete the use of paper logs, which are often bogus.
Fleets have until December 2017 to comply with this mandate. It is expected that the forced use of ELDs will accelerate the trucking industry's adoption of onboard technology, will provide truckers and shippers with a wealth of data that will help increase productivity over time and will forever change the trucking industry for the better.
In addition to ELDs, there is a rash of safety rules still to come in 2016. We'll probably see a rule requiring speed limiters on trucks with a top speed of 65 miles per hour. This will undoubtedly cut into driving times, productivity and capacity.
In addition, new rules focused on reducing greenhouse gases and increasing fuel economy standards for 2021-2027 model heavy-duty vehicles will also be released that will boost the cost of these trucks by tens of thousands of dollars and affect the availability of truck capacity.
The Drug and Alcohol Clearinghouse rule, which was widely supported by trucking, looks like it may be released in March. It creates an official clearinghouse of driver drug and alcohol test data which, once implemented, will take many drivers off the road. There is also a rule in the making that would increase minimum insurance levels for motor carriers as well.
So what are motor carriers concerned about in 2016?
Every year the ATRI surveys motor carriers to determine their biggest concerns. Going into the New Year, the uncertain future of the HOS Rule remains their largest concern for the third year in a row.
The No. 2 concern is the Federal Motor Carrier Safety Administration's (FMCSA) Compliance, Safety, Accountability (CSA) program. Fleets and drivers are still questioning the relationship between CSA scores and safety performance.
With the passage late last year of the of transportation bill, dubbed the Fixing America's Surface Transportation (FAST) Act, FMCSA has been ordered to remove these scores from public view until the Department of Transportation's (DOT) Inspector General completes a thorough review of the program to see whether non-preventable and not-at-fault accidents should be eliminated from score calculations in addition to making other scoring modifications.
The third concern as the year unfolds is of course the driver shortage, followed by driver retention. In order to address this major problem, the government is now considering a graduated program that could allow younger drivers already trained in the military, or those working with a trainer, earlier entry into the industry.
Rounding out the rest of the concerns are the growing scarcity of available truck parking, the electronic logging device mandate, driver wellness, the economy, transportation funding and driver distraction.
The big news under the heading of “Events” is that none of the Big 4 truck OEMs (Freightliner, Volvo, PACCAR, and International) will be exhibiting at the Mid America Truck Show in Louisville, Ky., this March. They have decided to participate in this show in odd-numbered years and in even-numbered years will focus on the enormous IAA Commercial Vehicles Show in Hanover, Germany.
Since their announcements last fall, several trailer and component companies have made the same declaration, so it doesn't look like there will be much to see in this year.
Since things are looking pretty good for the trucking industry, it is logical to forecast that 2016 should be a good year for the commercial truck tire industry, too.
With solid OE truck and trailer sales projected for 2016, and with every commercial vehicle with a driver plying the highways, the sales of new and retreaded truck tires should be strong throughout the year. At the time I am writing this, the Rubber Manufacturers Association (RMA) has yet to release its tire shipments forecast for 2016, but since truck and trailer builds are expected to drop by about 10 percent, it would be logical that OEM tire shipments will drop by that much as well—from the estimated 6.2 million that were shipped in 2015.
Replacement truck and bus tire shipments will probably increase 2 to 3 percent from the 18 million shipped last year. And retreads will most likely see a similar increase.
With the drop in new medium- and heavy-duty vehicle sales and the recent increases in domestic manufacturing capacity, commercial tire production can be directed to the replacement market and shortages should not pop up.
My crystal ball also tells me that more new truck and bus tires that have even lower rolling resistance will be introduced to the market in 2016. Expect to see more new, original equipment tires as well as retreads this year and more tires and retreads added to the SmartWay verified list for being fuel efficient.
Pressure on tire manufacturers is growing to produce more fuel-efficient tires to meet the CAFE (Corporate Average Fuel Economy) standards for medium- and heavy-duty vehicles from truck and trailer OEMs in order to help them attain the fuel economy and emissions goals required by the government.
In order to continue to develop ever more fuel-efficient tires and overcome the trade-offs between traction, wear and rolling resistance, tire makers are looking at new and different materials such as harder-wearing nanomaterials, new technologies, “intelligent” tires and non-pneumatic tires.
They are also searching for alternative and more sustainable raw materials to reduce their dependence on natural rubber and petroleum-based products whose prices have a history of fluctuation. Over the past year we have read about lettuce and guayule being used to produce new forms of rubber and even prototype tires.
Another innovation is a next-generation silica used in place of carbon black that can increase fuel efficiency 10 percent in addition to improving wet traction. And further, a new rubber has been developed that self-heals after it is punctured. Since the speed of technology advances is increasing exponentially, it is only logical that my crystal ball shows many more new developments in tires in 2016.
Tire pricing should remain fairly stable and likely remain flat since the cost of raw materials has stabilized from their nose dive over the last two years.
This scenario could go out the window if the federal government decides that China has been dumping medium-duty radial truck tires in the U.S. and assesses tariffs on these tires as it has with passenger and OTR tires. There is some real concern that this could happen since China shipped 8.38 million truck tires in 2014—which accounted for 48 percent of the replacement market. These numbers are rather hard to hide and may snag the government's attention.
Since most fleets are operating profitably and are financially strong due to tonnage growth, tightening capacity, increasing freight rates and low fuel prices, bankruptcies have declined. The motor carriers still in business have survived two recessions, a barrage of new regulations and fluctuations in fuel prices. They are much stronger as they are now benefiting from the fuel economy and productivity improvements they implemented that enabled them to go the distance. For the most part, you should have no fears about the financial health of your fleet customers and getting paid for your products and services.
There is some good news for those commercial tire dealers who also provide vehicle maintenance services. Beginning Jan. 1, a agreement between the Truck & Engine Manufacturers Association (TEMA) and the Commercial Vehicle Solutions Network (CVSN), which represents independent aftermarket distributors, gives fleets, truck owners and independent repair shops nearly complete access to the manufacturers' information, tools and parts needed for proper repair of heavy-duty, on-highway commercial vehicles.
The vehicle manufacturers now will make available to independent repair shops the same diagnostic information and repair code descriptions that are available to their dealers for model year 2010 and later trucks and buses that exceed 10,000 pounds sold in the U.S. and Canada.
This information includes critical wiring diagrams and locations of sensors and controllers as well as the ability to reflash the onboard computer modules after the repair.
While making this information available is mandatory, manufacturers are not compelled to share it for free. However, this agreement does put the independent commercial vehicle repair shop on a par with dealerships for the first time.
This year you'll also see more and more small- to medium-sized fleets motivated by the ELD mandate move to telematics not just for vehicle tracking but for remote diagnostics of their vehicle systems 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 dealership's getting involved with these systems will result in more vehicle and tire service business for your company.
Yes, I predict this will be a good year to be a commercial tire dealer. All the economic indicators are heading up rather than down and business is good for your fleet accounts that have steadily rising profits. They will need your products and services to enable them to be most productive and efficient.
However, 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, flexible and innovative as you go down new business paths. Remember what my thought-provoking, intellectual idol, Yogi Berra, said: “When you come to a fork in the road, take it!”