FTR Associates: Don't Get Excited Yet

While the freight market has been showing signs of marginal improvement over the last couple months, the industry will most likely find stable waters ahead, as actual growth will not occur for some time, said Noel Perry, managing director and senior consultant at FTR Associates. The company presented its Commercial Vehicle Truck and Trailer Outlook and Update during a webinar Friday.

The bad news? According to FTR's research, there are about 300,000 heavy-duty units that are either parked or under-utilized, an indicator that the industry has some way to go before things get better. These under-utilized units are those that are active but are not being filled to capacity. Of these 300,000, 90 percent are trailers, 60 percent of which are under-utilized and 40 percent of which are parked.

The good news? Pricing could improve by late next year, as opposed to late 2011, which was originally expected, Perry said.

Because the trucking industry is so heavily tied to the economic conditions, freight cannot grow until the economy grows by more than 3 percent, Perry said. He doesn't predict that amount of growth until early 2010. Until then, the industry will continue to see some stability, but little signs of recovery for at least another six months. The researchers said they expect the freight market to recover slowly over the next 10 years.

"We do not foresee more freight moving for some time yet," said Eric Starks, president of FTR.

FTR's monthly reports have been very hesitant to provide the optimistic outlook the trucking industry has been looking for, despite the fact that numbers are improving. In June, truck orders for all major North American OEMs increased 9.7 percent from May, the first rise in three months. July orders saw another boost of 9.6 percent, the firm reported. As a result, FTR increased its prediction for 2009's order rate to 108,024, up from 97,212. Still, the analysts are not jumping for joy just yet.

"However, while the orders are increasing month over month, the annualized rate continues to represent a very weak market for new vehicles," said Starks. "We expect this trend to continue well into 2010."

During Friday's webinar, Starks indicated that while suppliers are willing to put out cash for the new 2010 engine components, there is not enough truck order activity to sustain the amount of inventory. Fleet orders for the new technology are low, compared to the stockpiling, because fleets are afraid to be guinea pigs. As a result, Starks believes carriers will wait a quarter or two to see how the new engines pan out, delaying the changeover to the 2010 components. "It is really a matter of timing," he said.

The amount of overbuying of equipment versus sales will put pressure on OEMs for the next couple of years, while they wait and see if the freight environment can pick back up enough to compensate, Starks said.

Medium-duty trucks took the greatest hit from the recession, Starks said. The firm reduced its forecast for 2010 orders by 22,000 units. In addition, 2011 orders were lowered by 15,000 units.

Overall, equipment purchases will improve as individual businesses start to show improvement and succeed. "Why are they buying this piece of equipment?" Starks said. "They're buying this equipment to support their business." When trucking companies start seeing hopeful signs within their businesses, it will translate into buying more equipment.