DAILY NEWS Nov 16, 2012 7:23 AM - 1 comment

INSIDE THE NUMBERS: Answering the critical capacity question

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By: Lou Smyrlis
2012-11-16

TORONTO, Ont. -- Can equipment – specifically the inability of some carriers to invest in new tractors – fuel trucking’s next consolidation phase?

We take a hard look at that question in our latest Inside the Numbers newsletter, available here http://tinyurl.com/ajj5hof

American Trucking Association’s chief economist Bob Costello believes it could and I agree with him.

The average age of a Class 8 truck in the US is now up to 7 years – the highest since such has data been collected. During the boom times of the previous decade, the average age was around 4-5 years. There aren’t up-to-date stats for the Canadian market but we too are running the oldest fleet in recent memory.

Carriers needing to update their fleets are finding themselves squeezed by a variety of factors.

1. The average price of a Class 8 truck today is about $125,000, thanks to the added cost of meeting the latest engine emissions regulations. That’s a sizeable increase from the average $95,000 sticker price back in 2006.

2. At the same time, the average 7-year old tractor may have a resale value of just $20,000, compared to $50,000 had it been only 5 years old. That means carriers looking to update their fleets need to finance $105,000 of the sticker price for each truck whereas before the recession, with lower prices for new trucks and better prices for used, they would only have to finance $45,000. As a result, many small carriers are turning in two trucks to purchase one.

3. A slow growing and still volatile economic rebound is making carriers nervous about large investments in new iron. At the start of the recovery many carrier executives believed that keeping capacity tight would help place upward pressure on rates. The slow economic recovery, however, has thwarted that hope. The Canadian General Freight Index shows base rates dropping over the summer months, not increasing.

At the same time, aging tractors pose a number of problems for carriers, resulting in nothing but grief from their drivers, their customers and their own maintenance department:

-  Fleets unable to get out of their older trucks may have a hard time hanging on to their drivers as they get enticed by fleets able to put them in new iron.  

-  Our annual Shipper’s Choice survey shows that shippers place a priority on quality of equipment when selecting carriers. A carrier’s quality of equipment is rated higher in priority among shippers than its information technology capabilities, its problem solving abilities, its valueadded services and its sustainable practices. It’s a similar situation for LTL trucking. In fact, shippers set a higher standard for quality equipment for their TL carriers than for any other mode other than airfreight.

-  Older trucks are much more costly to maintain. On average, before a truck hits the 550,000 mile mark, maintenance costs work out to about 5 cents/mile. But above the 550,000 mile mark, maintenance costs rise to 15 cents/mile.

If freight volumes don’t bounce back strong in 2013 – and the projections for continued slow economic growth don’t suggest that they will – then carriers hanging on to older equipment will have to take a leap of faith. Those who won’t, or can’t, may find themselves in dire straits.

To read more, including the latest update on Canada’s economy and more transportation-related statistics, see our latest Inside the Numbers newsletter by clicking here: http://tinyurl.com/ajj5hof




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Reader Comments

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Bob

I have run new equipment with DPF,EGR + Urea and I will not be buying anymore....the downtime and added expense is not worth it...Almost all my new trucks have been down for extended amounts of time becauase of a problem associated with the aftertreament system.....I would rather buy used and rebuild rather than deal with the overly complex pieces of crap that they sell now days....parts availability is better with old trucks, more guys can work on them and the you dont have the big payment coming out of you bank account every month..

Posted November 19, 2012 01:28 PM


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