June 2014, TruckingInfo.com - WebXclusive
Dick Giromini, Wabash president and CEO.
Richard Giromini was appointed president and CEO of Wabash National Corp. on Jan. 1, 2007, putting him in the position of navigating the trailer maker through the Great Recession.
This spring, he spoke at Forbes’ inaugural Reinventing America Summit and at the Global Truck and Trailer Leaders Summit in Melbourne, Australia. We caught up with him last month:
HDT: Let's start with a general overview of the trailer market as you see it.
Giromini: We certainly believe the current environment is favorable, with a strengthening macro environment. Fleets are becoming increasingly more comfortable with the level of demand they have, which is changing their behaviors and driving an increased interest in addressing their aging fleets. And that's one of the key drivers [of trailer demand]: the excessively aged fleets combined with the environmental compliance challenges and hours of service. We feel very good about the overall market right now.
HDT: Well, trailers, do last longer than they used do….
Giromini: Yes, we've been accused of being our own worst enemy that way, but we believe it's our responsibility to help our customers become more cost effective in operating their businesses. They are thrown so many curve balls and challenges with new regulations, as their operating costs continue to mount. One way to do that is build equipment that is more reliable, more durable, lasts longer, and requires less time having to be repaired – and more time on the highway generating revenue and profit. In the long run we believe that pays dividends for us, as customer loyalty to us increases and they want our product.
HDT: Tell us more about those environmental compliance challenges and what they mean for trailer demand.
Giromini: The first impacts, of course, were on the tractor side, with emission regulations going back to 2002, again in 2007, and 2010. More recently with the advent of CARB [California Air Resources Board] regulations in California, and $4 per gallon diesel fuel, we've seen a lot of emphasis on making equipment more fuel-efficient. One of the ways is accessorizing the trailer with side skirts. We developed the DuraPlate AeroSkirt several years ago and it's been a real nice product in providing fleets up to 6% fuel efficiency improvement – in some cases depending on length and type of haul, it can be a six-month payback. We continue to develop that technology, trying to take it to new levels and increase the fuel efficiency of the product, as well as working on trailer design to continue to provide lighter weight solutions, which also will have impact of improving fuel efficiency. Trailers today weigh about 1,000 pounds less than a similar product 10 years ago and we think there's more to come.
HDT: It's widely believed that the next round of fuel efficiency regulations for commercial trucks will incorporate trailers. What is Wabash doing in this regard?
Giromini: We continue to work on design, the aerodynamics, the weight. It's been a focus of Wabash forever. In the 29-year existence of the company, we have always led in trailer design innovation. That hasn't stopped. The focus may have shifted somewhat from features development to weight optimization and solutions that can help customers on the aerodynamic side of things.
Giromini cites the AeroSkirt as one of Wabash's innovations.
HDT: We've seen some more rounded trailer designs in Europe. Do you think we will see them here?
Giromini: When you go back 50 years ago here, the trailers in the U.S. had more rounded designs. As cube capacity became more and more of a need, you saw a lot of those radius corners changing. And some of it is by regulation that limits what you can do in the front of a trailer with the 53-foot maximum length limit and the way it's defined. Some of it is getting regulators to understand what an aerodynamic design can do without impacting the load capacity of equipment.
I do believe there are opportunities to adjust the design of the equipment, but it's going to take collaboration with the regulators.
Wabash is a member of the Heavy Duty Fuel Efficiency Leadership Group, an alliance of leading U.S. companies involved in the trucking industry, and we work with the Environmental Protection Agency and the Department of Transportation on helping to form and develop the new proposed fuel efficiency regulations for the heavy truck and trailer market. So part of the effort is to make sure we come up with regulations that make sense that will allow the flexibility to fully optimize what we end up with. So I can get the opportunity going forward to possibly see changes in the regulations of what's allowed to be done in a trailer.
HDT: What's your forecast for trailer sales for this year and next?
Giromini: We've said for quite some time now that 2014 will be stronger than last year. Early in the year, we estimated 5% to 7% growth for the market year over year in shipments. More recently we've seen the main forecasters in our industry, ACT and FTR, start to see the same things we're seeing, and they've made adjustments in their forecast for the year, ACT at about 7.5%, FTR being more conservative at 5.8% production level increases year over year. There may be an opportunity to see that grow even more. There seems to be strong quote activity and quote-to-order conversion. Seems like more and more folks are becoming aligned that this could be the strongest year to date of the current cycle, and for 2015 ACT projects that it could be even stronger than this year, and we tend to agree with them.
The pent-up demand for replacements is significant. The downturn during the great recession was so significant for trailer manufacturers that the average age of trailers has gotten to all-time highs. Even with recent strong demand it's barely taken a small bite out of average age. The fleets are feeling pressure under CSA regulations to assure their equipment is truly roadworthy and that's putting pressure on them to update their fleets and get a younger fleet. You've got the combined challenge of the new hours-of-service regulations that went into effect in July of last year causing productivity issues for carriers. I've heard 2 to 3% at the low end and I've heard carriers talking 14 to 20% in some cases for smaller fleets that don't have the flexibility in managing their networks. One of the ways to counter that productivity loss is through increased use of drop and hook activity, which requires additional trailers.
HDT: What equipment technology and business trends do you see in this market?
Giromini: From a technology standpoint, there's a lot of development being done with new materials. That's one way you can address the rising cost of fuel. Any improvement you can make relative to fuel efficiency, fuel economy, is welcomed by the carriers to help offset some of the rising costs they're seeing. So we continue to develop alternative materials that can be applied. It's a balance between very high cost materials that could be used, but they have to be cost-effective.
The other thing we're doing is creating equipment solutions that provide flexibility for customers so they can reduce operating costs not only for them but also for shippers. A great example of that is our DuraPlate XD-35, the only 35,000-pound floor-rated dry van. That provides a customer the ability to use one piece of equipment to haul steel coils on the inbound and appliances on the outbound. Traditionally the customer had to use two pieces of equipment to accomplish that – a flatbed and a dry van. It now can be done with a single piece of equipment.
One of the other things is broader in scope and that's the MaxClearance Overhead Door System we developed. Typically an overhead door setup has much less head clearance than a swing door setup. In our case, on a typical 53-foot dry van, we can provide up to 110 inches of clearance with an overhead door, which is equivalent to what a swing door can provide.
Additionally, our bonded sidewall trailer is now commercially available. It provides for improved aesthetics of the sidewall, you don't have any rivets, but it also eliminates the potential of leak paths through the rivets connections.
HDT: You mentioned how the recession affected the trailer industry. How did Wabash get through that?
Giromini: While it was very challenging, we looked at that time as a learning opportunity for us as a company. We learned so much from having gone through that. It really showed our organization what can be accomplished when everyone works together and buys into the mission. We improved our processes; we improved our systems; and learned a lot about ourselves through that whole process.
Next page: Wabash's strengths, room for improvement