Fleet Management

FTR: We're on the Bottom, But Where Do We Go From Here?

November 06, 2009

SHARING TOOLS        | Print Subscribe
"We really have reached a bottom, and that's a good thing." "We think the economy is starting to improve." These are just a few of the promising phrases listeners heard from Eric Starks, president of FTR Associates
, and Economist Bill Witte, respectively, during an FTR webinar Friday morning. The forecasters presented the good news in their Commercial Truck and Vehicle Outlook.

But, as with most good news that comes from FTR, it almost always comes with a caveat: there's no free lunch. Starks explained that there's still a lot of uncertainty about how long it will take for things to firm up. At a minimum, things won't start firming up until the third quarter of 2010, he predicts.

The researchers reported that October Class 8 orders jumped to 21,792 units, a 104 percent boost over September and a 117 percent year-over-year rise. However, Starks said these sales are not due to fundamental, underlying demand. "You can't get too excited about this," he said. These orders are coming from fleets that are filling their near-term production slots with 2007 technology engines. Orders are expected to slow in November and fall substantially in December.

"Why do you buy equipment? It's to move freight," Starks said.

Freight forecast

And freight has a long way to go. According to Noel Perry, senior consultant at FTR, freight doesn't grow until the economy grows more than 3 percent. The economic growth dropped below 3 percent back in 2005. "Not only has this thing been deep, it's been extremely long," Perry said. "We really can't cry wolf until at least the first or second quarter of next year."

Currently, there are a record number of about 300,000 surplus active trucks, or trucks that are sitting in lots, Perry said. In addition, the number of trucking bankruptcies is the same as the last peak in freight, most likely because banks are keeping these companies afloat, he said. The banks don't want to declare more losses on their books, and they don't want to repossess all that equipment, he explained. Therefore, the banks are letting these troubled fleets survive, and that equipment will just sit.

The good news is that the slow growth and weak consumption rates will be offset by the expected rapid growth in the industrial sector, which will provide freight and add growth to the industry, Perry said. In addition, if the recovery plays out the way it did in 1983, we would see a spectacular year in 2011, and capacity would get back to normal levels by the end of 2010. "Let's hope that that repeats," he said.

Overbuying

Starks pointed out a disconnect between the forecast in freight and the forecast in equipment sales. The equipment market is growing at a faster rate than freight, and this is not a good thing. "We are consistently overbuying equipment right now," Starks said.

In order to make up for that overbuying and reach an equilibrium, fleets are going to have to underbuy at some point. This same overbuying phenomenon is happening with trailers.

In 2010, Starks expects there to be much more downside risk than upside risk when it comes to North American Class 8 equipment. He recommends that fleets start planning for this now. Companies need to have an upside and a downside in their back pockets, he said.

Comment On This Story

Name:  
Email:  
Comment: (Maximum 2000 characters)  
Leave this field empty:
* Please note that every comment is moderated.

Newsletter

We offer e-newsletters that deliver targeted news and information for the entire fleet industry.

GotQuestions?

ELDs and Telematics

sponsored by
sponsor logo

Scott Sutarik from Geotab will answer your questions and challenges

View All

Sleeper Cab Power

Steve Carlson from Xantrex will answer your questions and challenges

View All