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The 2015 business outlook

The sun shone brightly on the trucking industry in 2014. But what does 2015 have in store?


It’s been a good year to be in trucking. Most indicators of the industry’s health were positive in 2014. Class 8 truck orders were robust, trailer demand unprecedented, freight volumes consistently strong and there were widespread reports of rate increases taking hold and improved pay packages for drivers and owner/operators being offered.

It was exactly the type of year this industry needed. But what’s in store for 2015? We called upon industry experts to shed some light on what to expect in the year ahead. Specifically, we asked about: the US and Canadian economies; the regulatory outlook; mergers and acquisition expectations; and the price of diesel.

The US market outlook

Looking ahead to 2015, industry forecaster FTR continues to be bullish on the trucking industry’s prospects. Jonathan Starks, director, transportation analysis with FTR, told Truck News he expects to see the US economy continue to grow in the 3% GDP range.

“Most indicators are positive,” he said. “There’s nothing really overtly strong, from what we’re looking at going forward, but the manufacturing sector is still holding up pretty well, which is a good sign for the freight environment. There’s no real acceleration but it’s staying pretty robust.”

Starks said truck capacity will continue to be tight through 2015, barring a major change in regulations and/or the economy. This is allowing carriers to pass though rate increases, a trend Starks said is likely to continue in 2015.

“If you look at the data you can see a definite upward trend in rates ever since about the middle of 2013. That’s when the new hours-of-service came into play and I think it had a noticeable impact on the marketplace being able to get rate increases,” said Starks. He added the spot market saw a major jump in rates over the last winter, with rates remaining elevated throughout the year due to a tightened truck market. Increases to contract rates tend to follow the spot market and Starks said “We expect to see some similar type of growth in 2015, especially on the contract rates side. It tends to take longer for contract rates to filter through the system.”

As far as concerns go, FTR has been sounding the alarm about what it dubs “regulatory drag,” an onslaught of new regulations that could further inhibit the trucking industry’s productivity. However, Starks said carriers should enjoy a reprieve from new regulations in 2015 before new regulations are implemented in the following years. Referring to 2015 as a “buffer year,” Starks added “We think it will be in the 2016 timeframe before we see a big jump in implementation of regulations that will impact the market.”

This past year saw a surge in demand for Class 8 trucks and trailers and while Starks said the current pace of order activity is not sustainable, orders placed this year should result in a very strong year for retail sales of equipment in 2015.

Closer to home

David Bradley, head of the Ontario Trucking Association and Canadian Trucking Alliance, was more subdued when discussing the year ahead for Canadian carriers.

“I would characterize the market right now as okay and stable,” he said. “You get mixed views in terms of how robust carriers think things are, depending on who their customer is and the product they’re hauling. One thing I think is clear; there appears to be a real pickup underway in the US and I think the hope is that if they can raise that ship then that will raise all other boats as well.”

A strengthening US economy has resulted in greater demand for southbound freight than what has been seen in recent years.  Bradley said a weaker Canadian dollar and strong US demand could bode well for Canadian cross-border carriers but whether that will spur direct investment within Ontario remains to be seen.

“There’s lots of reasons for optimism,” Bradley said. “But maybe because I’m an economist I would always use the term cautious optimism. We’re not out of the woods yet in terms of the economy in North America.”

Policy priorities

The new year is shaping up to be a busy one on the regulatory front in Canada.

“I think we’re going to finally see the whites of government’s eyes here on issues like electronic logging devices (ELDs),” said Bradley, noting the US is expected to reveal its regulation – likely a universal mandate requiring their use – by Sept. 30. “That’s the direction we have been advocating in Canada for about a decade,” Bradley said of a universal mandate for ELDs.

Bradley will be watching closely as the US reveals its next round of greenhouse gas (GHG) emissions standards for heavy trucks. While previous GHG reductions were easily applied uniformly in the US and Canada, that could change as the requirements become more stringent, Bradley noted.

“In our view, the first round, the government of Canada could get away with simply adopting what the US did without consulting the provinces,” he said. “This time around, we don’t think that will fly. In all likelihood it’s going to be looking at both the tractor and the trailer. With the kinds of configurations we have here we’re not going to be able to take the 80,000-lb tandem-tandem solution and apply that in Canada. It behooves all the governments here to start working together on these things.”

And of course this being Canada, there are many regional worries that need to be seen to as well, Bradley noted, citing the weight limitations placed on wide-base single tires in Western Canada as one example.

In Ontario, mandatory training for entry-level drivers will be on the agenda, though Bradley said he’d be surprised if it is implemented before 2016.

“I think it will start to take shape (in 2015),” Bradley said.

Cross-border carriers will watch with interest as a pilot project for in-transit shipments in the US is conducted. Nine Canadian carriers will participate beginning in the summer, with the hope Canada and the US will permanently allow domestic freight to be moved across international borders. This could affect, for instance, how domestic freight is hauled from the Greater Toronto Area to Vancouver, with trucks permitted to run through the States. The same benefits would apply to US carriers, who would be able to move freight such as mail, for example, through Canada from Buffalo to Detroit or to more easily transport domestic freight from Alaska down through B.C.

Bradley hopes the project will prove successful and also hopes for some progress towards allowing the repositioning of empty trailers in each country.

“Those are the kinds of things that each on their own might not seem like a lot, but in combination if we can get some of this stuff done it can help facilitate cross-border trucking and trade in general,” Bradley said.

M&A outlook

The past 12 months have seen some major merger-and-acquisition blockbusters, the most notable among them TransForce’s purchase of Contrans. Another major deal involved Kriska Group and Mullen Group, which formed a new joint venture that will be looking to grow further through acquisition.

We asked Mike McCarron, M&A with Wheels Group, whether M&A activity will accelerate or slow down in the year ahead.

“Over the next year to 18 months, there’s going to be a lot of movement,” he predicted. “I think everyone understands that the industry – both on the asset side and non-asset side – is as primed for consolidation as it has ever been, because the reality is, without scale and technology moving forward, I’m not sure you’re going to be able to survive.”

McCarron anticipates a quieter year from TransForce, though he indicated they could be divesting their waste segment and some of their truckload businesses in 2015. He said he expects more US carriers to show interest in acquiring Canadian companies and also predicted the arrival of some new homegrown buyers as well.

“We’re going to see some new players – some new people getting into the M&A game,” McCarron predicted. “We’ll see some new public entities and some Americans making noise as well.”

For trucking company owners looking to sell, McCarron said it makes more sense to do so when business is good, which could drive more transactions.

“A lot of owners are going to be reluctant to sell, because business is so good,” McCarron said. “But the best time to sell is when business is good. When you wait till business is bad, it’s much harder to sell your business. You will get more money now because your earnings are better. The guys who get out when business is good are going to reap the benefit. When business is bad, you are not negotiating from a strong point. It’s very hard to negotiate when you’re not prepared to walk away and when business is good, you don’t have to do a deal. One of the key points that’s going to be interesting to see is, is our industry perceptive enough to get out while business is good? Like any business, it’s very cyclical.”

Diesel prices

One of the biggest questions weighing on the minds of both shippers and trucking company executives will be the future of diesel prices. Roger McKnight, chief petroleum analyst with En-Pro International, told Truck News there will continue to be some relief at the pumps for the next six months, after which prices will once again rise rapidly.

Diesel prices have eased in recent weeks as the price of crude oil has plummeted. However, McKnight noted current inventories heading into the winter season “aren’t that great” and added that demand for home heating oil will mean that diesel prices won’t follow the same, sharp downward trajectory as crude.

“This is heating oil season so demand for diesel and heating oil is much higher this time of year than in the summer,” he said. “That’s one reason we’re not seeing a complete match with the cost of crude.”

However, for now fleets should enjoy the fact that diesel prices are lower because relatively cheap diesel isn’t going to last, McKnight warned.

“The Saudis may be able to live with this low cost of crude, but nine of the other 12 (OPEC nations) can’t. I think crude will stay low for about six months and then things will start to recover and go back up again rather rapidly,” he predicted. “These low prices will last a maximum of six months, so we’re probably looking at into June, then after that things will start to go back up again.”


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