In short, many factors combined in recent months to create a somewhat worrisome and fuzzy picture of trucking for 2002 and beyond.
Rising insurance costs remain a concern. But other factors combine to cloud the crystal ball: rising fuel prices due to Middle East unrest, the effects of lower emission standards for trucks that go into effect Oct. 1 this year, and rumors of yet another oil embargo.
On the positive side, recent reports indicate truck sales are picking up. But that may only be because buyers want to beat EPA’s Oct. 1 deadline calling for trucks to emit no more than 2.5 grams of nitrogen oxides per brake-horsepower hour.
While most manufacturers reported rising orders in late February and all of March, it may be due to “pre-buying.” For that reason, truck makers may be reluctant to commit to higher production levels now in the belief business would slow after October.
A Freightliner spokesman recently told the press, “There are indications of accelerated purchasing patterns for fleets,” but he added it was too early to gauge how this will develop during the course of the year.
There are other concerns too. If the new truck engines are too costly, if they operate inefficiently — burning more fuel and requiring more frequent repair and servicing — the industry would be in for added woes.
The view from motor carriers;
the owner-operator factor
To make matters worse, no one participating at this year’s Economic Summit (sponsored by Newport Communications) in Louisville, KY, during the Mid-America Trucking Show, said there was an increase in shipments.
Most participants worried about one thing — the rising cost of fuel.
Summit participant U.S. Xpress Enterprises Inc., Chattanooga, TN, submitted its annual report April 1, 2002, to the Securities and Exchange Commission. The report stresses the possible impact of surcharges and the rising cost of fuel.
“Shortages of fuel or increases in fuel prices could have a materially adverse effect on the operations and profitability of the company,” the report said. “Many of the company’s customer contracts contain fuel surcharge provisions to mitigate increases in the cost of fuel … however, there is no assurance such fuel surcharges can be used to offset future increases in fuel prices.”
To complicate the matter, some reports tell of owner-operators who refuse loads to areas of the country such as California and the Northeast, where fuel prices are among the nation’s highest.
Another concern, contained in U.S. Xpress’s SEC report, is the availability of financing.
“The trucking industry is extremely capital intensive. The company depends on operating leases, lines of credit, secured equipment financing and cash flows from operations to finance the expansion and maintenance of its modern and cost-efficient revenue equipment and facilities.
“At present, the company is more highly leveraged than some of its competitors. If the company were unable in the future to obtain financing at acceptable levels, it could be forced to limit the growth or replacement of its equipment and facilities. A significant increase in interest rates could have a materially adverse affect on the company’s results.”
Pat Quinn, co-chairman, US Xpress, listed for summit participants trucking’s leading problems. They include soft freight, declining truck values, limited capital, the new EPA emissions regulations and the federal excise tax on truck enhancements.
Meanwhile, Don Orr, COO, Smithway Motor Xpress Inc. of Fort Dodge, IA, told summit participants the company’s revenue-per-mile declined almost every year since 1996. The company survived seven bankruptcies of major customers costing $10 million and uncollectible billing to the tune of $1.2 million. In addition, half of Smithway’s customers didn’t pay the fuel surcharge put in place last year.
Smithway’s annual report submitted to the SEC March 28, 2002, said: “A combination of high fuel prices, rising insurance premiums, a depressed used-truck market, a declining number of owner-operators and slowing freight demand associated with an economic recession affected the profitability of most trucking companies, including Smithway.”
It appears despite the improving economic situation, some carriers simply fell too far behind when fuel prices were high. Owner-operators should be wary of such situations.
On a positive note
One might ask which among the negative factors is likely to change in the near future. Middle East fighting could settle down, as it has in the past; it appears the United States may now be experiencing economic recovery; and used-truck prices are starting to firm up.
And in the midst of gloom-and-doom scenarios, some Wall Street analysts report a decent earnings outlook for many trucking stocks.
The reason cited is that freight demand remains relatively high, which gives carriers a better chance to collect surcharges. And fuel problems will probably hit truckload carriers harder than LTL carriers who handle pallet-sized shipments and who are better able to offset large fuel cost increases, analysts say.
And to date, there’s at least hope that new “EPA-compliant” engine technology may not cause undue economic burdens for truck manufacturers and truckowners. But still, it will take a lot of “Ac-Cent-Tchu-Ateing The Positive” before the trucking industry stops singing the blues.
But it will happen.
As far as fuel prices go, we were blessed with a warm winter and historically, summer diesel prices are lower. And now, more than anytime in the recent past, both owner-operators and truckload carriers are united in their quest for a legislative fix on fuel charges. What’s more, surcharge legislation is due to become part of the nation’s energy policy.
And while the economy may not bounce back as quickly as we would like, truck shipments always pick up in mid-spring.
The upside of trucking’s “perfect storm” is thousands fewer carriers will be chasing available freight. That in turn makes it easier for carriers to charge and collect for all services provided, including loading or unloading and determining when trucks are delayed beyond a reasonable time. Charges for these services should be spelled out clearly and itemized individually on freight bills.
In a perfect world, owner-operators would be paid for these services; peace in the Middle East would stabilize diesel prices; and federal regulators would seek out industry concerns before enacting laws that affect trucking. Such a combination of events would surely have us all singing, “Happy Days are Here Again.”
— Dick Larsen, senior editor