Challenges and opportunities

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So many attendees this year have an optimistic outlook for their companies. This is just such great news compared to what we heard last year.” –Gary Petty, president and CEO, National Private Truck Council

Attendance here at the National Private Truck Council’s (NPTC) annual convention – held this year in Cincinnati, OH – is definitely up over last year, with close to 900 folks prowling the show floor and workshops covering a wide variety of topics, compared to roughly 750 in 2009.

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By and large, most of the people I’ve talked with – representing fleets and suppliers alike – seemed to think we’ve turned a corner not just in terms of the U.S. and global economy, but in trucking as well.

[That's Gary Petty, NPTC's president and CEO, at right.]

However, that doesn’t mean the challenges facing the industry suddenly up and melted away; rather, they are shifting. One logistics manager I talked with fulminated on the growing lack of capacity in trucking and how that may plague the industry for some time to come.

Fleets – both private and for-hire – in many cases made permanent reductions to their operations in the face of the dire economic headwinds of 2008-2009, leaving them constrained now that freight volumes are starting to tick up again.

Still, this is an issue driven in large measure by the relentless long-term pressure on freight rates by shippers; a strategy that is starting to come back to haunt many, and may yet force many to get back into the trucking business themselves if they want to obtain reliable, consistent capacity.

[Below is a music tour of NPTC's 2010 convention being held here in Cincinnati, OH.]

I talked with Carl Anderson with Stoughton Trailers about the strong quoting activity going on for transportation equipment right now. After many fleets over-extended the ownership period for trucks and trailers in order to reduce capital expenditures, many may find themselves with no other option than to buy new units.

“Everyone’s looking for late model used equipment, but guess what? Not a lot of that is out there as everyone held on to their units during the downturn,” Anderson told me. The trailer manufacturing industry would welcome a host of new orders; according to ACT Research, trailer sales as a whole dropped to 79,432 units last year – a nearly 50% drop from 144,377 in 2008 and over 75% decline from 277,398 units in 2006.

There’s also growing concern over rising diesel fuel prices. Since February this year, the average price for diesel in the U.S. increased 25 cents to $3.06 per gallon, and forecasts from the Energy Information Administration indicate demand for crude oil – from which diesel is made – is only going to go up in the months ahead.

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More troubling to John Felmy, chief economist for the American Petroleum Institute, is that U.S. energy policy still seems to be focused on reducing opportunities to tap domestic supplies of oil and natural gas – restricting supply even as global demand seems headed for a spike.

People don’t realize, Felmy (at left) said, that when President Obama announced his Administration’s intention to open parts of the Atlantic Coast to offshore drilling, his plan also called for the removal of large swaths of the Pacific Coast from consideration. “He put 3.8 billion barrels worth of potential supply on the table, while taking 13. Billion barrels off of it,” Felmy noted in a presentation here at NPTC.

The issue is that there’s roughly 116.4 billion barrels worth of untapped oil supplies in the U.S., both on land and in coastal waters – capable of fueling 65 million cars for 60 years – with a further 650.9 billion cubic feet of natural gas available, which could heat 60 million homes for 160 years. This is all critical as energy demand continues to rise, while alternative sources of power remain scarce.

“We say we’re going to double the amount of power we’re going to get from the wind over the next decade; great, that brings us from 1% to 2% of that generating capacity,” Felmy explained. “What people don’t realize is that it takes a long time to transition from one energy source to the next. For example, oil was discovered in 1859, but it wasn’t until 1950 when its use surpassed that of coal.”

This is but one of many challenges trucking – and freight transportation at large – is going to face as the world’s economies continue to recover.

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