Navistar’s Jack Allen sees big industry changes ahead
April 28, 2013
BANFF, Alta. – Jack Allen thinks there are some pretty heavy-duty changes coming to the trucking industry in the not too distant future – as if there haven’t been some already! But he also thinks that, rather than bemoan the...
BANFF, Alta. – Jack Allen thinks there are some pretty heavy-duty changes coming to the trucking industry in the not too distant future – as if there haven’t been some already! But he also thinks that, rather than bemoan the situation, the industry should look at the changes as opportunities.
Allen, the new chief operating officer for Navistar, also told the 75th Alberta Motor Transport Association Management Conference in this Rocky Mountain resort town that his company is moving full steam, or at least “full diesel and alternate fuels,” ahead into that future and intends to be a big part of it.
Saying it’s a great privilege to be leading Navistar through what he called “a great time of transition and challenge,” Allen noted that the company – like the industry – faces some pretty big challenges, but everyone goes through challenges at one time or another. “To paraphrase Mark Twain,” he said, “the rumours of our demise have been greatly exaggerated. Despite some elegantly crafted obituaries I’ve read recently, we’re moving ahead with a renewed dedication and resolve.”
But his address dealt more with what’s coming for the industry as a whole, in light of some possibly disturbing trends and looming new rules. “If there’s one thing I’ve learned, there’s really no industry that is immune to change. Change is the only constant we can count on, and we succeed by turning uncertainty and change into opportunity.” Allen said he believes the trucking industry has a tremendous future and it’s the shared responsibility of all the stakeholders to recognize that they need to adapt and, in some cases, even be “the driver of that change.”
One big change – and a good one – Allen bets is coming, is a more stable price for diesel fuel. He noted that the price of diesel has seesawed over 30% over the past three years, a situation exacerbated by instability in the Middle East and the European financial meltdown.
“It seems like every global crisis there is results in the price of diesel fuel in North America being…on a wild ride,” he said, “And it’s very difficult to manage a fleet when (that happens).”
Fortunately, new exploration techniques are leading to significant growth in the domestic supply of oil, and projects like the Keystone XL pipeline could also play a significant role in the effort to get fuel to market, which Allen said could greatly stabilize the cost of diesel.
Diesel is only one part of it, though. “Over the past decade, we’ve seen a number of technologies come to market, things like hybrids and electronic drivetrains,” Allen said, “but if there’s one technology that people in this industry are really excited about, it’s natural gas.”
Allen thinks natural gas may be the most significant change the industry has seen since commercial vehicles switched from gasoline to diesel power in the 1950s, and noted that new technologies such as fracking are making vast new reserves of the stuff available in the US and Canada. “There’s plenty of supply for today and for the future,” he said, “and because of this ample supply it should cost less.”
Allen said another advantage to using natural gas is that “this is a domestic solution, not a foreign solution. The next Arab Spring, the next European crisis, will not impact the price of natural gas, which should translate into more stable prices and, as an alternative to diesel, help moderate diesel price inflation and volatility as well.”
Not only that, but “the environmentalists like natural gas,” he pointed out. “It has 20% less carbon than an equivalent energy unit of diesel.”
While he admitted that there’s a lot of work to be done before natural gas power is available widely (such as setting up infrastructure and getting the hardware price down) “if industry volumes increase and more suppliers come to market, we can expect these prices to fall. Natural gas has been called the fuel of the future for a long time, and I think that that future is going to arrive sooner than we think,” he said.
Allen also expressed surprise that, considering current unemployment rates, there aren’t more people lining up to climb into cabs. He opined that the driver shortage isn’t just about how demographics and regulations make the profession less attractive to new people, however. “There’s also a social issue here,” he said. “Driving a truck doesn’t have the same appeal (to today’s youth) as it did to previous generations. The thought of being on the road for an extended period of time, away from friends and family, is really an issue.” To combat this, Allen said, “you’re going to need to address the fundamental deterrence to driving trucks today, including quality of life.” He warned that could come at a price, however, and said manufacturers had to help out here, too, by building products that are more driver-centric, easier to drive and safer, in order to help facilitate “shorter training periods for drivers to become more efficient and productive.”
Many of these features exist today, such as automated manual transmissions, lane departure warning systems, parking assist, the use of more blind spot cameras and satellite connectivity, but “they’re going to become more prevalent and sophisticated,” he said.
Allen also blamed new rounds of regulations for challenging the industry’s bottom line. “Compliance has come at a price,” he said, noting that over the past decade emissions surcharges have added an average of over $20,000 to the price of every heavy truck sold and over $10,000 on medium-duty trucks. Furthermore, “used truck values today show that this added expense is not being retained over time…and as a result, fleets are being forced to adjust their depreciation schedules to reflect today’s new reality.”
Allen doesn’t think we’ve seen the end of new rules, either. “The leaders in Ottawa and Washington alike have a strong regulation mindset,” he said. “It’s just the business they’re in.”
He thinks new rules will be different from current ones that have focused mostly on vehicle systems, though. “We’ll see more stringent fuel standards and that means most manufacturers are going to have to ensure that each specific truck/trailer combination will meet regulations.” He predicts that manufacturers and suppliers will not only need to engineer new technology but “as an industry, we have to keep in mind the cost that this could have on all of us. So we need to work together with the regulators in a collaborative way so that they fully understand the financial impact of policy decisions that they make on our industry.”
The good news is that this is under way, both in Ottawa and Washington, and Allen credited many industry associations with playing an important role in this effort.
Allen also had some sobering thoughts about whether or not the trucking industry will return to what was considered its normal state of only a few years ago, before the bottom fell out of the economy. “What’s normal?” he asked rhetorically, noting that in the past several years, larger fleets have been growing, while small fleets are becoming scarcer. “A variety of factors have driven costs up to the point where it’s very difficult for many smaller operators to survive,” he noted. “The burden of increased fuel costs, labour costs, and regulation have simply made the economics unfavourable for too many trucking companies.”
Fleets are also getting older, which Allen said implies that “we re
ally may have experienced a formative shift in the age of trucks on the road. With the increased costs due to emissions changes and access to capital, trucks are running fewer miles today and are lasting longer, so naturally vehicles on the road today are older. What many of us thought might be a pent up demand for trucks may not be at all. So welcome to the new normal.”
The average length of hauls is also changing. “Many of our largest customers have seen a significant shift…over the past decade,” Allen said, citing a number of factors – one of the largest being the growth of rail and intermodal. “In many cases it’s simply more affordable to transport freight by rail than by truck,” he said.
Allen also predicted that factors such as the expansion of the Panama Canal will have a dramatic impact on freight patterns throughout North America. “As new ports are opened to larger container ships at the east coast,” he said, “then more freight is going to arrive at those ports…closer to its final destination.”
On a more positive note, Allen predicted that “there are going to be growth opportunities in places where there weren’t in the past.”
He also predicted that his side of the industry will have to adapt as well, since its customer base is changing in order to remain competitive. “They’re bigger, more diverse, and they’re more national in scope,” he noted, “and they’re relying on our dealers for more support. I bet that these changes are permanent and they’re going to result in a more sophisticated level of customer support and integration that ‘s going to be needed by the manufacturers, dealers, and suppliers.”
Allen’s bottom line is also upbeat. “Even with all this change and uncertainty, I remain incredibly optimistic about the future,” he said. “Trucks aren’t going away. The economy thrives on trucks and there’s opportunity wherever you look. Commerce cannot and will not happen without trucks. This is a tremendous responsibility that we all bear.”
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