The Rising Cost of New Iron

LAS VEGAS — Will equipment become the new diesel? Good chance, said American Trucking Associations’ (ATA) Economist Bob Costello at the associations’ 2012 Management and Exhibition Conference in Las Vegas this past October.

“You know, it used to be before fuel surcharges were prevalent, prices would spike and you’d see a lot of companies go out of the industry very quickly. Now with equipment, that has the potential to drive more capacity out of the industry. It’s going to be a longer process than diesel fuel was, but it can certainly happen. “

Costello showed a few slides to illustrate his reasoning, pointing to the current average age of Class 8 trucks first, which is close to seven years.

“We know that some fleets that have a high average age are having a hard time keeping drivers because of CSA; drivers are nervous. You have equipment that you’re going to get dinged on; we’ve seen drivers leaving those fleets and going to one that has younger equipment.“

And getting those younger trucks is easier said than done.

“In 2006,” Costello explained, “a new Class 8 tractor cost roughly 95,000 — if you traded in a truck worth 50,000, you financed a truck for 45,000. But things have changed since 2006. We’ve had two EPA-mandated engines come on-line since then, so a new truck doesn’t cost 95,000, it costs closer to 125,000. If you happen to be lucky and have a tractor that you can trade in for 50,000, you still have to finance 75,000.”

But with the average age of a tractor closer to seven, your trade might be worth $20,000. Now you have to finance $105,000.

“Some of these fleets are having to sell two trucks to get a new one,” Costello said, adding that many smaller fleets are turning to finance leasing.

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