Truck Parts and Service | Heavy Duty Trucking, Aftermarket, Service Info
Issue link: https://read.dmtmag.com/i/111733
Inside the Numbers Vital signs not good for weaker ���eets By Avery Vise avise@randallreilly.com I n January, we discussed how aging equipment was setting the stage for largescale trucking failures. At the time, it seemed this might be a gradual trend, one that might easily be missed if you weren���t paying attention. Just a couple of months later, however, there are some early indications that this shakeout in the trucking industry could come sooner rather than later. Over the past dozen years or so, spikes in trucking failures typically have come during a time of surging diesel prices. Understanding the link between diesel prices and trucking failures is simple when you recognize that fuel surcharge payments typically lag behind the actual freight shipment by six weeks to two months. Carriers typically use current surcharge receipts to pay current fuel bills. But when those surcharge payments are based on fuel prices that might be 30 or 40 cents a gallon or more below current prices, you can see there���s potential for a cash-���ow crisis. Diesel prices haven���t recently experienced the dramatic surges of 2005 or 2008, but there were some close calls in 2012. And now, diesel prices have risen more than 26 cents in ���ve weeks to a level not seen since mid-August 2008 ��� about a month after the alltime high. Prices still are about 60 cents below that record, so it���s hardly time to declare a crisis. But it���s de���nitely something to watch. Meanwhile, the politics in Washington are as dysfunctional as ever. Congress and the White House didn���t solve the ������scal cliff��� problem at the end of the year. Taxes went up, and it���s not certain that that���s the end of the tax hikes. And nothing was done on the spending side or on raising the debt limit. This time around, the politics are quite different. Democrats had leverage before because if nothing was done, the result would be higher taxes. Now, if nothing is done, government spending drops, which is exactly what many Republicans would like to see ��� even if it means cutting the Defense Department���s budget, too. But there could be near-term economic consequences to such a drop in government spending. In any event, everything ��� taxes and spending ��� really remains up in the air, continuing the climate of uncertainty that is dampening business investments and consumer spending. Diesel prices, politics could spur shakeout. And there���s one more challenge lurking: The revision of truck drivers��� hours-of-service regulations coming in July. It���s generally accepted that the main changes ��� a modi���cation of weekly restart provisions and a mandatory daily break ��� will hurt productivity and increase carrier costs. Despite the potential impact of rising diesel prices and counterproductive government policies, many economic indicators remain positive. The housing market clearly is recovering, and manufacturing seems on solid footing after a few months of weak indicators. And yet, there are signs that the predicted shakeout in the trucking industry could be on its way. In the January 2013 Randall-Reilly MarketPulse survey of for-hire trucking executives (www.rrmarketpulse.com), 36 percent of carriers with 100 or fewer trucks said they would neither replace nor add trucks in the next six months, while only 12 percent of larger carriers said they would make no changes. And 9 percent of smaller carriers said the cost of equipment was their top worry. While that���s not a large percentage, it���s the largest percentage registered since Randall-Reilly began the survey a couple of years ago. Meanwhile, none of the larger carriers in the survey reported cost of equipment as their top concern. The comments in the MarketPulse report also were telling. Several of the larger carriers in the survey remarked that January was better than expected in terms of business conditions. None of the smaller carriers said this; most noted the weakness in freight or the economy. None of this proves that a transformation is under way, but it���s de���nitely something to watch closely. Now more than ever, if a customer shows signs of ���nancial dif���culties, it pays to be proactive. Avery Vise is executive director, trucking research and analysis for Randall-Reilly, publisher of Truck Parts & Service. 36 T R U C K PA R T S & S E R V I C E | TPS0313PG036_Avery.indd 36 March 2013 2/20/13 3:16 PM