A Newport Communications
Service since 1970
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| January 2001 A Newport Communications Service since 1970 |
U.S. economy is near the bottom of this business cycle, says Newport Economist Jim Haughey. Now to spring is the "ugly period," but he expects only a few relatively weak quarters of 2% GDP growth before we again see the 3% to 4% growth the economy can sustain without re-igniting inflation. Good news: Housing, first market to hit bottom, now shows signs of recovery.
Overall freight volume growth fell from 6.5% annual rate in spring & summer to 3.3% in the fall; is expected to accelerate some to 4.8% next year, says Haughey. Spending on goods outpaced spending on services through Sept., then turned sharply downward. Durable goods spending, exports & business investment all slipped in Oct. High energy prices are diverting some consumer spending from goods to services.
1,320 trucking companies with 5 or more trucks closed their doors in 3rd quarter, according to research by A.G. Edwards & Sons (see chart). Transportation analyst Donald Boughton says they had predicted 900-1,000 failures — well above the record 745 bankruptcies in 2nd quarter.
Problem: high fuel prices coupled with several years of driver pay increases. "Spikes in the price of fuel prompt trucking company failures," Boughton notes. But this time it was more severe for a couple of reasons: 1) magnitude of change: "We went from some of the cheapest fuel to some of the most expensive"; 2) freight rates haven't kept pace with higher wage costs.
"In a normal fuel environment, when trucking companies raise driver pay, they go to their customers & say, 'We'll need a price increase to offset those higher costs,'" Boughton explains. "But in '97 & '98, when fuel prices dropped, customers were likely to say, 'Take it out of the windfall you're getting in lower fuel prices.' Fuel surcharges usually kick in at a set fuel price level & many carriers didn't adjust their surcharge thresholds to make up for higher driver costs.
"All at once, they're having to pay for 3-plus years of wage increases. That set up stressful financial conditions for a number of companies. As we ran into the latter months of the year & softening demand, they couldn't help but go under." Even if fuel prices drop significantly, Boughton expects the cash flow bite to show up in 4th quarter & 1st quarter 2001 with another round of carrier failures.
"That's bad news for the people failing, but great news for the rest of the industry," he adds. The LTL industry has already gone through its consolidation phase & something similar for the truckload industry has been needed for some time, he says. "The truckload industry as we now know it was invented in the wake of deregulation. Anyone could get in. But there's a size advantage in this industry & the smaller players are losing their ability to compete."
Bigger carriers have more ways to maximize asset utilization, Boughton says. "Core carrier isn't a concept, it's a reality." He expects the carriers who can guarantee 20 trucks a day will get a little better rate while small fleets will be relegated to the spot market where rates are normally lower. "By the latter half of 2001 & certainly by 2002, some of the marketplace leaders are going to be going great guns."
Sales TrendsSeasonally adjusted Class 6-8 truck sales in Nov. matched 26,000-plus totals for previous 2 months. Actual sales fell 5,000 units from Oct., which is a seasonally stronger month. Nov. sales were15,000 units behind Nov. '99 "blistering sales pace," Newport's Haughey notes. Class 8 U.S. retail sales are currently about half the peak levels of 2nd half '99. Sales may be at the bottom of the down cycle since they appear to be a little short of "normal" replacement demand, he adds. Forecast: 387,000 Class 6-8 this year, 368,000 in 2001.
"OPEC is no longer the major problem," says Haughey, but diesel prices probably won't come down before summer. "This winter began much colder than normal ... diverting distillate from diesel to home heating. Booming Asian economies are buying over 75% of new oil supplies, raising the price to U.S. refiners. And the sudden end of the U.S. natural gas surplus has slowed conversion of heating systems from oil to gas." U.S. Energy Dept. still expects $1.30 to $1.35/gallon by end of 2001, "but they've consistently underestimated prices for the past year," he notes.
3rd quarter trailer shipments totaled 217,600 units, down 17.1% from 3rd quarter '99; year-to-date shipments are running 5.6% below '99, according to survey of manufacturers by Economic Planning Associates. EPA President Peter Toja says they expected a "digestive phase" following record '98 & '99 sales, but drop was sharper than anticipated — especially in light of continued economic expansion & rising exports. "There is little doubt that higher fuel costs, increased driver pay & benefits, & costlier insurance premiums are sharply curtailing both trucker profitability & the desire to invest in new equipment," he says.
Van shipments totaled 169,000, down 5.1%. Dry freight van shipments were down 5.6%, insulated trailers down 4.6%, drop frame trailers were up 28%. Shipments of non-vans totaled 48,600, down 7.3%. Platform trailers were down 15.1%, low beds down 3.4%, dump trailers down 9.5%, bulk trailers down 9.3%, tank trailers were up 5%. EPA forecasts gradual easing of trailer demand into 1st half 2001. Modest improvement toward year-end will set stage for next upward cycle starting in 2002. Contact: Economic Planning Associates, (631) 864-4900.
HDT freight volume index revised to eliminate software from business investment. "Most software is either distributed electronically or written on site & not shipped," Haughey explains. "Since software accounted for 25% of the gain in business investment spending over the last year, growth of the index has been reduced."
Freightliner closes Charleston, S.C., Western Star plant, says it won't open until extra capacity is needed or they find something else to build at the facility. Western Star lays off another 150 production workers at Kelowna, B.C., plant, bringing total after 3 cutbacks to 600.
Dorsey Trailer shuts down its 3 plants, files for bankruptcy. Company says lenders wouldn't approve additional credit. ArvinMeritor closes Fairfield, Iowa, marine & construction driveshaft plant; says it will continue to build on-highway driveline products at regional Customer Value Center plants.
Executive Views"Integration of proprietary power & proprietary components is of major importance to us," says Freightliner LLC President/CEO Jim Hebe. "Only through higher concentration of our own componentry can we develop the differentiated technology & quality control to provide productivity gains that our customers have come to expect." He says 10% of Freightliner & Sterling trucks have Mercedes-Benz 900 Series engine. MB4000 Series just became available in Sterling trucks. Now that Freightliner parent DaimlerChrysler owns Detroit Diesel, "We can boast a higher integration of proprietary engines at Freightliner than anyone in N. America except Mack," he says, noting that use of DDC & MB engines across all product lines will soon be 50%.
Freightliner will enhance the Western Star product line, but preserve the brand name, custom engineering & styling, says Hebe. Goal is to distribute complete Sterling/Western Star product line through a single, integrated N. American network of 375 to 400 dealers. Company also wants 10% medium/heavy truck market share for Sterling/Western Star within 3 years. Western Star to focus on owner-operators & severe service markets such as logging, construction. Sterling to focus on vocational & short haul. Hebe says more medium duty products, including a LCOE, are in the works. "Don't be surprised to see a Class 4/5 delivery truck from us sometime soon," he says of the e-business niche.
Navistar International posts $159 million profit on sales of $8.1 billion for fiscal 2000 ending Oct. 31. Fiscal '99 profit was $544 million on $8.3 billion. Profit for fiscal 4th quarter, excluding a $190 million restructuring charge, was $85 million on $1.9 billion vs. $132 million on $2.5 billion 4th quarter '99. Restructuring charges included corporate downsizing that eliminated 1,100 positions.
Fourth quarter results reflect downturn in truck demand & adverse pricing environment, says Chairman/President/CEO John Horne. Worldwide shipments of International trucks & buses totaled 124,900 trucks vs. 129,000 last year. Medium truck shipments totaled 56,500 vs. 55,300 in '99; heavy truck shipments were 45,000 vs. 52,000. Shipments of midrange diesel engines to other manufacturers totaled 304,400 vs. 286,500 last year. Company shipped 392,900 engines worldwide, up from 374,200 in '99. Navistar forecasts total truck & bus demand, U.S. & Canada, at 321,600 units for fiscal 2001, down from 440,000 this year.
"Next generation" International trucks to debut Feb. 2001. New cab fabrication plant in Springfield, Ohio, gearing up for full-scale production starting mid-March. Company is already taking orders for 4000 series trucks. Severe service & heavy duty models to be available next summer.
TechnologyFreightliner plans Jan. launch of 3 web sites: MyTruck.com for trucking information & services; MyTruckShop.com for service-related information & assistance, Dream Machine (D-Machine.com) electronic parts & accessories catalog. Company adds Microsoft Windows CE for Automotive operating system to its Truck Productivity Computer, also voice interactive software from Lernhout & Hauspie. More than 2 dozen mobile computing suppliers are developing software, hardware & services for the onboard computer.
Associates says finance rates through its website are as much as 4 points lower than rates available through traditional channels. "Truck dealers have to accept that the F&I process is changing," says Pete Piccolo, E-market Business VP. "The margins in this business have gone down so much in past 5 years, we had to get more efficient at processing loans. Our customers were also asking us to go direct." But dealers have little to fear. Online applications average 300/month versus 14,000/month through dealers, he says. Associates will have some new Internet-based F&I tools for dealers next year.
CompuBank & Ryder-financed pFreight to offer Internet banking services for truckers. GE Capital Fleets Services & Innovative Fleet Management to develop direct-to-dealer Internet sales channel for used vehicles. GoFreight.com buys LoadsOnline.com. FreightPro.com gets $7 million in 2nd round financing for technology development & marketing.
Xtra Lease to sell/lease Terion Inc's Fleet View cellular-based trailer system. Xtra will install system in 25,000 rental trailers & offer basic tracking services free to customers.
Cummins & Westport Innovations get $1 million for joint natural gas heavy duty engine project. Goal of 2-year project: develop natural gas-powered 400-hp heavy duty truck engine that will beat 2002 U.S. & California NOx standards. Funding comes from U.S. Energy Dept., California South Coast Air Quality Management District & California Energy Commission.
Alliances & AcquisitionsVolvo Chief Leif Johansson says they'll pare number of suppliers by about half after merger with Renault's truck div., including Mack, is complete. "If Volvo/RVI/Mack have 2 suppliers in the same sector, we will select 1 & where we have 3, there will be 2 at the most," he told a European business publication. Merger still needs antitrust approval in U.S.
Volvo/Mitsubishi alliance in Canada is doing well & a study of U.S. distribution & manufacturing strategies should be out first quarter 2001, says Mitsubishi Fuso Truck & Bus President Yuzo Murata. He says company is considering U.S. production using more N. American components.
DaimlerChrysler & Caterpillar to develop medium duty engines, fuel systems & other powertrain components worldwide. Products will be used by both companies & sold to 3rd parties. Deal also calls for joint R&D in combustion technology, electronics, air handling systems, exhaust after-treatment & materials technology. Both say they'll remain independent suppliers of heavy duty diesels & Caterpillar will continue to supply heavy duty engines to Freightliner companies. Alliance requires approval by U.S. & European regulators.
Bergstrom Climate Systems buys BorgWarner's Kysor-Westran division. Heil Trailer Intn'l buys Kalyn/Siebert. Hadley Products buys stock of KAM Truck Components. Citigroup completes acquisition of Associates First Capital after state & federal banking regulators okay $31.1 billion merger. Eaton to supply medium duty truck transmission components to DaimlerChryser in Brazil.
ExpansionJost Int'l opens new 80,000-sq.-ft. plant in Greeneville, Tenn., for machining & assembly of fifth wheels & fifth wheel slides for N. American markets. President Lee Brace says facility takes over fifth wheel production from company's first U.S. plant in Grand Haven, Mich., where Jost trailer landing gear is built. Jost has sold 3 million fifth wheels worldwide.
HonorsKenworth & Hino rank highest for overall satisfaction in latest J.D. Power & Associates Medium Duty Truck Customer Satisfaction Survey. Study is based on interviews with 2,066 "primary maintainers" of Class 5-7 trucks in service approx. 26 months. Kenworth scored highest among medium conventionals. Chevrolet, Peterbilt, International & GMC Truck also scored above industry average. Hino took top marks in the COE category, followed by Mitsubishi Fuso. International scored highest in service satisfaction. Researchers look at customer satisfaction with vehicle performance, product quality, interior/exterior design, parts & service, manufacturer image.
Dana's Spicer Driveshaft Div. wins 2000 Malcolm Baldridge National Quality Award for manufacturing.
PeopleThomas Kassouf to COO, Wabash National, from VP/gen. mgr., Kohler Generator Div. Ron Harmon to president, Tuthill Transport Technologies. Brad Roth to sales & marketing mgr., Sloan Transportation Products & Hebco Products Inc. from sales & marketing director & OEM truck sales director. Andrew Ason to gen. mgr. Hebco Products.
David Plaster to vocational sales VP, Volvo Trucks N. America from truck & vocational marketing director. Goodyear Commercial Tire Business Unit names Rick Howell marketing director, Commercial Tire Systems, Dave Beasley gen. marketing mgr., commercial group; Mike Simon sales gen. mgr.; Armond Boyes gen. mgr., N. American retreading operations.
Kevin Pruett to new market development director, Terion Inc., from business development mgr., Harris Corp. Communications Systems Div. Robert McCloskey to Terion heavy equipment sales mgr., from OEM sales mgr., John Deere Special Technologies' Global Vehicle Communications Unit.
Arrow Truck founder Jerome Nerman gets Marvin J. Gordon Lifetime Achievement Award Used Truck Assn. Motor & Equipment Manufacturers Assn. President Robert Miller receives Boulton Award for industry service from Automotive Parts Rebuilders Assn.
John Collins resigns as president/CEO of Intelligent Transportation Society of America to set up his own transportation consulting practice. David Hensing, acting engineering/technical services director for American Assn. of State Highway & Transportation Officials, named interim ITS director.
Retired: Paul Ritter, senior sales VP, Mack Trucks. Lewis Nerman, owner/president, Arrow Truck Sales.
U.S. RETAIL TRUCK SALES REPORT
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