Survival has its rewards: Analysts see potential for industry rebound

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“It’s a great time to be a survivor,” says Bob Costello, chief economist of the American Trucking Associations. “There is a lot of potential in the pipeline.” Costello and Donald Broughton, transportation equity analyst at A.G. Edwards Inc., delivered that message to attendees of the Randall Trucking Symposium in Tuscaloosa, Ala.

Having emerged from one of the worst recessions ever to hit the trucking industry in 2000 and 2001, the economy has shown signs of slow but steady recovery, Costello says. Record-low interest rates, increased demand for used trucks and decreased trucking capacity due to thousands of bankrupt carriers forecast a bright future. However, unstable fuel prices, insurance costs, wage increases, and high inflation in the near future continue to cast doubts for recovery for many carriers.

Insurance costs have climbed due to lower investment gains by insurance companies in the stock market and higher liability awards. An A.G. Edwards analysis of the insurance costs per truck of publicly held carriers shows an increase to $6,400 per truck in 2002 from $6,000 in 2001. Many trucking companies are self-insuring or raising their retention levels. “We have yet to see if they are adequately reserving for additional risk,” Costello said.

In 2003, with less carrier capacity due to bankruptcies and consolidation in the industry over the past two years, one of the main factors in successful operations is lane density, Costello and Broughton said. Lane density is the main factor that leads to deadhead miles. Comparing the deadhead miles of publicly held carriers, small carriers reported 23 percent deadhead miles in January 2003. In comparison, large carriers reported 15 percent deadhead miles, Broughton said.

Lane density has caused a barrier to entry, even though the failure rate of carriers has decreased significantly in the past year. “The days of a guy getting a truck and getting into this business are over,” Broughton said. He apparently was referring to independent operators seeking their own customers, not truck owners leased on to larger carriers.

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Other signs of economic recovery include steady increases in tonnage. As of January 2003, tonnage in the truckload sector increased by approximately 10 percent over 2000, whereas LTL tonnage decreased by approximately 10 percent. In addition, according to ATA, pricing is steadily improving: the rate per total mile increased 2.5 percent over the last 12 months.

The total number of miles has decreased by 0.3 percent, however, during the same period. According to surveys by ATA, from 1993 to 2003, revenue grew by 6.04 percent, and the number of loads by 5.1 percent, and total miles by 3.84 percent.

In 2002, the number of medium-length hauls (500 to 1,000 miles) increased significantly over 2001, while the number of long distance hauls (more than 1,000 miles) and short hauls (less than 500 miles) decreased. Driver retention has been the main factor in this trend due to more companies creating dedicated routes to return drivers home every night, Costello says.

Both Costello and Broughton agree that wages will increase in 2003, and that low interest rates during the past two years could lead to inflation – potentially the biggest problem to face the trucking industry in the next couple of years.