There are several wild cards that could have a major impact on the trucking industry in the immediate future. Kenny Vieth, a partner with A. C. T. Research addressed several of them at this year's mee...
There are several wild cards that could have a major impact on the trucking industry in the immediate future. Kenny Vieth, a partner with A. C. T. Research addressed several of them at this year’s meeting of the Heavy Duty Manufacturers Association.
Oil Prices For every one cent rise in fuel prices at the pump, more than US$2 billion is diverted from the North American economy towards energy spending, Vieth pointed out.
“Instead of buying goods that would require trucks, we’ve bought gas instead,” he explained. In fact, he said over the past few years, more than $300 billion each year was diverted from goods to gas. “That’s a lot of freight up in smoke.”
Even more disconcerting, is the fact fuel prices appear poised to increase further.
“What concerns me is not where the cost of gas and diesel prices are today, but potentially where they could be by early 2010 without oil price relief,” said Vieth. He noted that for every $5 increase in the price of a barrel of crude oil, gas and diesel prices eventually rise 20 cents per gallon. If that relationship is maintained, it would suggest a $95 per barrel price for crude oil would result in $4 per gallon pump prices.
“Four dollars a gallon from 2007 levels would divert an additional $160 billion from goods to gas,” said Vieth. “If we see $4 per gallon gas while the economy is still dealing with the aftermath of the housing bubble, economic weakness deeper into 2008 would appear to be unavoidable and a Q2 or Q3 recession would be a likely outcome.”
Will there be a pre-buy before the next round of emissions standards are implemented in 2010? “The short answer is yes,” Vieth said.
He said EPA2010 will add another penny of ownership costs per mile for new trucks. The good news, however, is that the 2009 pre-buy will not be as severe as previous versions, he said.
In 2006, the North American economy was at the peak of its cycle and truckers were at the peak of their profit cycle. So the conditions were perfect for the storm of supply and demand that occurred, Vieth explained. In 2009, however, the North American economy will still be struggling, freight volumes will be weak and there will be lingering over-capacity. Still, Vieth said the industry will not escape the effects of a pre-buy altogether.
There are many reasons why a pre-buy will be unavoidable, Vieth said. He pointed out early adopters of the newest technology have no way to recover their investment, the first customers will get the bugs that weren’t worked out in testing and then there are issues involving parts availability and technician training.
“You’ve got a pretty compelling reason, at least initially, to avoid the new equipment,” he said.