Truck manufacturers have spent millions modifying their products to accommodate the new EPA-compliant engines. Meanwhile, many in the industry continue to fight the consent decrees. And even if the deadline sticks, orders surged in the spring, so it could be months after October before anyone will buy new trucks – especially if trucking remains soft. We spoke with Ed Caudill, general manager of Kenworth Truck Co. and vice president of parent company Paccar, in late April regarding the pre-buy and about the health of the trucking industry.
CCJ: What is at the heart of today’s pre-buying?
Caudill: First of all, I don’t call it “pre-buying;” I call it “concern buying.” A lot is driven out of customer uncertainty. They don’t understand enough about the engines, and everything they have heard is bad. I think that’s driving them to buy product before they would normally. I’m not sure that’s good for the industry.
CCJ: It’s the talk of the industry, but do you think all carriers are truly aware of the engine changes?
Caudill: What is amazing is that a lot of customers haven’t awakened to the fact that this is a significant change. Many of them have, and some have ordered more trucks than they normally would have. Customers are spending a lot of time trying to understand what this means to them in their operating expense.
CCJ: And what will it mean?
Caudill: If EPA is right, it’s $15,000 over the life of the truck, and that’s a lot to absorb in operating costs. It’s about half a million dollars – when you look at acquisition costs, fuel, maintenance and drivers’ wages – over the life of the truck. When you throw another $15,000 in there, it’s a big hit. For a highway fleet that’s already at a 97 or 98 operating ratio, that puts them up to where they aren’t even cash flowing.
CCJ: Your largest engine supplier, Caterpillar, has asked its customers to help lobby for a delay in EPA’s engine deadline. Does Kenworth support that?
Caudill: We have chosen in cases like that not to take a position. I believe EPA understands very well what we think. We have gone under the premise that the decree will be implemented and come Oct. 1 that our trucks will have to be able to handle the emissions-changed engines. And they are. They are ready now. That said, I think the industry would have been better off had we had more time.
CCJ: You are concerned, of course, with the strength of your customers’ business. What do you hear from them regarding freight trends?
Caudill: It continues to be very positive. Most of the carriers I talk to – and I have probably talked to 200 to 300 in the last 90 days – tell us that as the economy has picked up, they have picked up. Many reported March being the best month they have had in the last 12 to 14 months. Most carriers will tell you that they have gotten some rate improvement, although not all the rate improvement that they want or probably need.
CCJ: Do you think rate improvements stem from carriers going out of business?
Caudill: When you combine the number of fleets that have failed over the past 12 to 18 months with the number of owner-operator failures – I have heard as high as 75 percent – there are very few carriers out there now. The used truck glut is more of a dealer/OEM issue and a suppression of a fleet’s equity in their used trucks. It’s not helping shippers because there’s no one driving those trucks.
CCJ: One of the reasons for that situation, of course, is tight financing. What has to happen for that to change?
Caudill: The economic cycle will take care of that to an extent. As more lenders come back into the business, there will be more loosening. Right now, there aren’t that many people financing trucks.