“We think there will be a gradual improvement [in the economy in 2014],” says Kenneth Vieth, president and senior analyst of ACT Research. “We call this period the ‘Great OK.’ Things are too good to be sad and too bad to be happy.”
Vieth is voicing what fleets all over the country are experiencing as they begin a new year—an economy that is clearly doing better, but in a lackluster sort of way. This absence of economic vibrancy is forcing truck buyers to be cautious as well.
“It isn’t that there is uncertainty. People are not really worried that everything will fall apart again,” Vieth observes. “[But] until we get stronger economic activity, we will continue to move more sideways than ahead. If we could get just a little more economic growth…that’s what we are waiting for.”
Lana Batts, president of Driver iQ and a former president of the Truckload Carriers Assn. (TCA), agrees. “Fleets have to believe that the economy will continue to improve, to get slightly better,” she says, before they begin adding capacity.
American Trucking Assns. (ATA) chief economist Bob Costello sounds his own lukewarm encouragement about the end of the Great Recession. “I’m seeing some good signs out of the trucking industry that suggest the economy may be a little stronger than we think,” he says. To many industry ears, it must sound like fittingly faint praise.
Trucking, however, goes on and underneath the over-arching umbrella of general economic concerns, fleets are still buying trucks. Just as there are reasons to hesitate, there are good reasons to move forward with equipment purchases.
Composite data indicates as many as 270,000 Class 6-8 trucks will be sold in 2014, with another increase in 2015. One of the main drivers for truck purchases has been (and will continue to be) the fact that there are so many old trucks still in operation.
“If you go back to 2003, there were 1.99 million Class 8 trucks in the U.S.,” explains Vieth. “In 2014, there were 1.99 million Class 8 trucks, exactly the same number—zero percent growth. Back in 2003, there were 1.41 million trucks eight years old and younger. As we enter 2014, there are 1.26 million trucks eight years old or younger, a decline [in younger trucks] of 12%. That is a telling statistic.”
Replacement only
One reason that this is an important number is that older trucks are simply more prone to maintenance problems. “Most companies are still in the replacement mode when it comes to buying trucks,” says David Hames, general manager of marketing and strategy for Daimler Trucks North America (DTNA). Maintenance costs for trucks six to seven years old are about 16¢ to 17¢/mi., Hames explains, while maintenance costs for one-year-old trucks average just 1¢ or 2¢/mi.
There is a “tipping point age-wise for trucks,” agrees Batts, and that point is around five years old. “It is pretty tough to have a truck that old if you run about 100,000 mi. per year,” she notes.
Since CSA, Batts says fleets just can’t delay maintenance anymore and drivers are unwilling to try to “baby trucks home” because CSA maintenance violations also go against their own driving records. The result is more roadside repairs.
Trying to run older equipment can be a double whammy for fleets, observes Hames. “Older trucks have a higher propensity for maintenance problems and that means a greater likelihood of maintenance-related CSA violations, so fleets get hit with higher costs of operation plus CSA issues, he notes.
Older trucks might, in truth, be a triple whammy for their owners. In addition to higher maintenance costs and a greater risk of CSA citations, drivers will “vote with their feet,” says Hames, and leave employers running older equipment in favor of those offering newer trucks that are less risky to operate in terms of CSA compliance and more pleasurable to drive besides.
New benefits
The decision to buy new trucks isn’t all about getting away from the problems related to running older vehicles. Newer trucks have some considerable benefits to offer fleets that can be compelling reasons to buy, even if your older chassis haven’t started to wear down the budget with breakdown and repair problems. Chief among these is the potential for significantly improved fuel economy.
“New SCR trucks are performing significantly better in general than their older counterparts,” says Tom Fansler, president of Vusion, which uses predictive analytics tools to help fleets accurately assess their real fuel economy and other operating costs vehicle-by-vehicle and lane-by-lane.
According to Fansler, Class 8 day cabs, for example, have seen a net improvement of 1 mpg between calendar year 2007 and 2013 and sleeper-equipped trucks have seen a 0.9 mpg improvement, although not all truck manufacturers are doing equally well. That is a pretty big inducement to switch to newer equipment, he notes. DEF usage is not included in this equation, Fansler hastens to add, so 0.007 mpg should be subtracted to cover the costs for DEF at current prices.
Put another way, EPA 2007 trucks tend to get about 6.2 to 6.3 mpg, notes Vieth. With trucks built in 2010 and later, it is fairly easy to get 8 mpg or more. For trucks operating 100,000 mi./year, that can equate to 4,200 gals. per year per truck.
Not all the credit for fuel economy improvement goes to using SCR to help meet emissions requirements. More recently, truck OEMs have been pushing the mpg figure even higher with enhancements such as aerodynamic improvements and fine-tuning truck engines. “There have been a lot of improvements in fuel efficiency over the past 10 years, even over the past year alone,” notes Hames. “New equipment today greatly reduces the cost of operation.”
The 2013 Freightliner Cascadia Evolution, for instance, has been delivering a 5% improvement in fuel economy compared to its 2012 counterpart, according to Hames. Most fleets that took a few of the Cascadia Evolution trucks early on to see how they performed in their own operations have converted to the Evolution now, he says.
Specing for change
Hames also notes that DTNA is “starting to see fleets replacing equipment to have access to new technologies.” Automated manual transmissions are one example. They have been around a long time, he notes, but they are just now “really gaining popularity.”
Automated manual transmissions give fleets more flexibility, Hames says. They can help enable less experienced drivers perform better—closer to what their veteran driver counterparts can deliver—and that improves the bottom line.
Customers are also definitely taking a hard look at vehicle specs in general, he notes, with the goal of more optimally pairing equipment to specific applications. That can mean swapping out older trucks in favor of equipment better tailored to the particular job at hand—or to a route or duty cycle that has been redefined during the larger process of general asset optimization.
“We are seeing some fleets holding trucks longer as well,” Hames adds. “They are planning to keep trucks for four to five years instead of the three to three and one-half years we saw before the recession. Because they don’t wear out as quickly, they are also not looking quite as hard at spec’ing for maximum resale value as they did before,” he continues. “Instead, they are spec’ing for efficiencies during the first-customer use.” This doesn’t mean companies are ignoring specs that typically result in more residual value, such as engine size, it just means that they may not be carrying the same weight.
With so many pluses on the “buy now” side of the equation, it may seem surprising that some fleets are allowing a good, but not great, economic recovery keep them from upgrading equipment in anticipation of better times to come. There are, however, other factors that are keeping at least some fleets out of the market. Chief among them is the higher cost for new trucks and the fact that freight rates have not yet gone up, while driver wages and other expenses generally have.
“There are lots of things at play that are contributing to a wait-and-see attitude among some fleets,” says Batts. “I don’t think we will see the truck sales numbers of 2005 and 2006, at least not soon. Costs are up a lot for new trucks, and rates have not gone up proportionately.”
New-truck prices can be a shock if you haven’t been in the market since 2006 or 2007, agrees Hames. They can be up as much as $30,000 or so depending upon the specs. A significant part of that increase is due to the addition of new technologies, such as those required to meet EPA emissions standards.
According to both Batts and Hames, one counter force to the downward pressure of higher equipment prices is continuing fleet consolidation. The largest carriers have generally updated their fleets, observes Hames. That means the older trucks tend to be in smaller fleets. As industry consolidation continues, it will tend to wash out those older trucks in favor of new equipment.
A brightening horizon
There has been an uptick in mergers and acquisitions in just the past eight weeks, notes Batts. “Those companies must believe there will be more freight traffic, so they are going to buy trucks and drivers [via acquisitions and mergers to be ready],” she says. “Although as far as I know, no freight is being left at the dock, so they have no leverage yet when it comes to rates.”
Some improved leverage may be around the corner. ATA’s seasonally adjusted tonnage index showed an 8% improvement in October, the largest year-over-year increase since December 2011, although Vieth notes that the October jump “seems somewhat out of place.”
Granted, new trucks are expensive, but there are still lots of good reasons to buy new trucks now if you can make the numbers work, Vieth says. When you think about improved fuel economy, reduced maintenance costs, warranties, improved driver satisfaction and customer service, reduced exposure to regulatory penalties, and access to the best available technologies, he has a point. The period of the “Great OK” may be just good enough to begin moving ahead instead of sideways after all.
