Like a game of crack-the-whip, the recession started a ripple of often unexpected events that could still deliver a surprisingly strong snap to the trucking industry in the year ahead-- even as the recovery begins. According to Lana Batts, managing partner at Transport Capital Partners, LLC, there are a few issues to keep a close eye on as 2010 unfolds.
“People genuinely feel like we have hit the bottom, but we don’t expect things to come back very fast this time,” Batts told FleetOwner. “For starters, we will see a significant spike in business closures. I’ve already heard of carriers planning to get out of trucking at the end of the year. Insurance providers demand up-front payment; fuel and licensing are up-front costs; payroll services are not going to carry anybody. However, for the survival of the industry [this reduction in capacity] will be a good thing in the longer term.”
It is not just fleets leaving the industry that will put the squeeze on capacity, according to Batts, fleets are also holding back on replacing equipment. “Equipment is getting older,” she noted. “There is a slight uptick in equipment purchases, but not yet anywhere enough to meet what we used to consider ‘normal’ replacement needs. The fleet survivors are going to be very smart this time. As capacity tightens, they won’t race to buy trucks. Instead, they will raise rates first.”
Tightening capacity will put pressure once again on shippers and brokers, Batts added. “Those shippers who kept renegotiating rates are in for a rude surprise if they do not guarantee a certain amount of freight to their core carriers,” she said. “Carriers lost eight years worth of rate increases in about eight months, but their costs did not go down-- not one.
“Shippers will still go to the third-party brokers because they don’t have traffic departments of their own anymore, and the brokers’ margins will erode because there is limited capacity and they will have to pay carriers more,” Batts added.
Besides the capacity crunch, the used truck market is another factor to watch now, according to Batts. “We need to keep an eye on the price of used trucks,” she advised. “Many carriers are upside down on equipment. They are carrying the value of aging trucks on their books and that value is dropping every day. Right now, the value of those trucks is higher than they could be sold for, so there is no point in their banks and lenders foreclosing and taking a loss. Eventually, however, they will hit a point where the value of the trucks and the book value are equal. Then there will be nothing to stop lenders from pulling the plug.
“Changes in consumer behavior will also impact the trucking industry in the year ahead. We just don’t see consumers starting to buy again very soon,” Batts continued. “The whole supply chain is being re-engineered. Consumer behavior has changed. The baby boomers are not going to spend a dime they don’t have to spend now, so you can’t expect them to lead the way to recovery anymore.”
The emphasis on sustainability is also transforming trucking, according to Batts. “You just can’t justify sourcing things from across the globe if you care about sustainability,” she noted. “That will bring more manufacturing closer to home again. I think Mexico will be a big winner here. There will also be a huge growth in intermodal shipping,” she added. “Shippers are already asking ‘do you have an intermodal option?’”
Batts, like most other industry watchers, definitely sees a place for trucking in the future, however. “At some point, almost all goods will move by truck,” she stated.. “There is no other way to get the job done.”
