Hunkering down

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Our fourth quarter earnings outlook has been impacted by higher than anticipated fuel prices and a weak U.S. economy. Looking ahead to our fiscal 2009, we are expecting ... limited earnings growth. We are scrutinizing all expenses and investments to realign them with the current environment.” -Alan B. Graf, Jr., executive VP and CFO, FedEx Corp.


It‘s not a pleasant time to be in the trucking business, to say the least. With fuel prices way, way out of sight and freight still sluggish due to the U.S.‘s rocky economy, it‘s been a tough road to travel for independent truckers and fleets, plus truck manufacturers and related suppliers alike.


Just look at the escalating cost of fuel. In 17 states now, diesel costs over $4 a gallon. The industry trade group American Trucking Association (ATA) is projecting that if diesel fuel costs stay that high, the trucking industry will spend $135 billion on fuel this year - a $22 billion increase over the $112.6 billion spent by trucking in 2007 and an $85 BILLION increase over the industry‘s fuel tab of $52 billion back in 2003. That means, according to ATA‘s data, the cost to fill the fuel tanks on a typical tractor-trailer has increased 116%, or $615, in just five years.


“Fuel represents the second-highest operating expense for motor carriers, accounting for as much as 25% of total operating costs,” said Bill Graves, ATA‘s president and CEO. “For some motor carriers, however, fuel is beginning to surpass labor as their largest expense. An affordable supply of diesel fuel is imperative to keep our trucks moving, [yet] there is little to suggest that fuel prices will decline any time soon.”


The high price of diesel is also sparking talk of a nationwide trucker strike on April 1, this time being organized online by Dan Little, an owner/operator of a livestock hauling company in Carrollton, MO. According to an interview Little gave to The Quad-City Times, he estimates at least 1,000 other truckers from across the U.S. have committed so far to joining him in a strike on April 1.


“Call it a strike, a shutdown or just flat-ass going broke,” he told the Iowa newspaper. “What I would personally like to see is our federal and state governments, until our economy recovers, suspend federal and state fuel taxes. The second thing I‘d like to see is an oversight committee for truck insurance, which is part of what‘s taking us down.”


Little told the paper that the average owner/operator is paying $600 to $800 a month for truck insurance - an amount based on personal credit, which means the monthly cost is going up for a lot of truckers because their credit is going down, he stressed.


Truck makers are having a hard go of things, too, not in the least because of the “EPA recession” in trucks sales this year - a termed coined by Jim Meil, Eaton Corp.‘s chief economist - that‘s been aggravated further by the slump in freight due to the weakening U.S. economy.


“The commercial truck market is beginning to improve slowly but clearly it is still tough going,” said Daniel Ustian, chairman, president and CEO of Navistar, the holding company for International Truck & Engine Corp.


“To help offset cyclical downturns, our strategy has been to build successful and sustainable businesses in military and export markets,” he noted. “That strategy is paying off in the success of these expansionary businesses. And we are well positioned in our truck and engine businesses with strong products to respond to demand when the market does recover.”


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(Sales of Navistar's new MRAP vehicles to the U.S. military are helping it weather the downturn.)


Ustian said “expansionary shipments” of 40,000 to 45,000 vehicles this year will account for a third of Navistar‘s total worldwide vehicle shipments and help to mitigate the current weakness in its core markets, with defense business is expected to consistently generate $1.5 billion to $2 billion in annual revenue going forward, Ustian said.


Still, he noted Navistar‘s worldwide shipments of school buses, Class 6-7 medium trucks and Class 8 heavy trucks remain soft, with sales for the three months ending January 31 totaling 18,720 units, down 37% from 29,680 units shipped in the same period a year earlier when totals benefited from what he termed a “historic pre-buy” in advance of 2007 emissions standards.


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(Sales of Navistar's new ProStar tractors have suffered due to the new emission rules combined with the falloff in freight.)


Yet Ustian said the next pre-buy cycle - expected to begin in 2009 in advance of 2010 diesel emission requirements - should provide the necessary support for Navistar‘s operating and capital needs going forward. Funny, isn‘t it - the same cycle that‘s hurting the OEMs bottom lines right now is what‘s going to pull them out of the pits next year. But the key thing is surviving the ongoing downturn today to profit from the upswing predicted for tomorrow. That‘s a challenge owner-operators, fleets, and truck manufactures are all going to share in the months ahead.

What's Trucks at Work?

Trucks at Work: Sean Kilcarr comments on trends affecting the many different strata of the trucking industry.

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