Fuel prices continue to put pressure on the economy and on trucking companies, but exports of heavy trucks are helping to remove excess capacity, said Kenny Vieth, partner, A.C.T. Research Inc., Tuesday in a Bear Stearns conference call.
Vieth noted that during the six-week period from mid Feb. to the end of March, we saw a 70-cent increase in the price of a gallon of diesel fuel.
"We're not seeing a demand side recovery, but there is kind of a stealth supply side recovery for truckers," Vieth explained. "We are seeing considerable sales of late model Class 8 equipment beyond the United States. There is capacity leaving the market, which should allow profitability to recover, and once it recovers, getting those trucks offshore means you need more new trucks domestically."
Vieth had a number of bad news/good news observations. Utilization improved in the fourth quarter of 2007 compared to the same time in 2006, Vieth said, but it's still about 4 to 5 percent below the trend line. Trucker profits are down, but they're better than they were during the last economic downturn in 2000 and 2001. Interest rates are up, but he's not hearing anyone saying truckers can't get credit if they need it.
Vieth believes there will be another pre-buy as truckers try to put off making the decision on which technology to choose to meet 2010 emissions regulations - higher rates of EGR or selective catalytic reduction (SCR), which requires the use of urea, also called diesel exhaust fluid. However, he doesn't believe the pre-buy will be as large as the one in 2006.
"Oil and gas prices will be the key determination of U.S. economic activity in the coming quarters," Vieth said. "The dollar shouldn't have that much more pressure applied to it. The economy is going to determine the speed of Class 8 [demand] recovery…. We've seen good productivity growth the last couple of quarters, corporate profits are looking pretty healthy and then finally there is this need for truckers to start replacing a lot of trucks if you're a short term trade cycle fleet and you bought a lot of trucks in 2004, 05, and 06 you're going to see some cycling going on. I think the truckers will be coming back into the market."
Vieth noted that during the six-week period from mid Feb. to the end of March, we saw a 70-cent increase in the price of a gallon of diesel fuel.
"We're not seeing a demand side recovery, but there is kind of a stealth supply side recovery for truckers," Vieth explained. "We are seeing considerable sales of late model Class 8 equipment beyond the United States. There is capacity leaving the market, which should allow profitability to recover, and once it recovers, getting those trucks offshore means you need more new trucks domestically."
Vieth had a number of bad news/good news observations. Utilization improved in the fourth quarter of 2007 compared to the same time in 2006, Vieth said, but it's still about 4 to 5 percent below the trend line. Trucker profits are down, but they're better than they were during the last economic downturn in 2000 and 2001. Interest rates are up, but he's not hearing anyone saying truckers can't get credit if they need it.
Vieth believes there will be another pre-buy as truckers try to put off making the decision on which technology to choose to meet 2010 emissions regulations - higher rates of EGR or selective catalytic reduction (SCR), which requires the use of urea, also called diesel exhaust fluid. However, he doesn't believe the pre-buy will be as large as the one in 2006.
"Oil and gas prices will be the key determination of U.S. economic activity in the coming quarters," Vieth said. "The dollar shouldn't have that much more pressure applied to it. The economy is going to determine the speed of Class 8 [demand] recovery…. We've seen good productivity growth the last couple of quarters, corporate profits are looking pretty healthy and then finally there is this need for truckers to start replacing a lot of trucks if you're a short term trade cycle fleet and you bought a lot of trucks in 2004, 05, and 06 you're going to see some cycling going on. I think the truckers will be coming back into the market."
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