There are up to 120,000 too many Class 8 trucks on the road today, said Bob Costello, chief economist and vice president for the American Trucking Associations. His remarks were to fleet attendees Tuesday, June 5, at the CCJ Spring Symposium in Tuscaloosa, Ala.
“In less than a year, we went from tight capacity to overcapacity,” Costello said, due primarily to fleets pre-buying trucks last year to avoid the lower-emissions 2007 engines. When it comes to negotiating rates, “many of you have seen what that means with shippers.”
At the same time, truck tonnage is contracting. Tonnage fell 1.7 percent last year compared to 2005, driven by a slow housing market, which meant fewer of the heavier, flatbed loads that raise the overall truck tonnage number. This year also started off poorly, but the good news is “if we haven’t hit the bottom of that trend, we’re darned close.” While there’s still plenty of volatility in the market, the general direction is upward, Costello said. After unprecedented growth in 2005, revenue also has slowed, although Costello predicts a modest rise later this year and much stronger long-term growth.
On the cost side, don’t look for fuel prices to stabilize any time soon, Costello said. As countries such as India and China – which make up 37 percent of the world’s population – put more demand on energy, prices will become more volatile. Currently, those two countries consume 11 percent of the world’s oil, but that will increase as their gross domestic product per capita climbs. While politicians talk about reduced dependency on foreign oil, in reality we will become more dependent on OPEC, which controls 61 percent of oil reserves, he said.
“We have seen too little investment in both upstream and downstream capacity – refining and getting new oil,” Costello said. The trucking industry will spend a record $106 billion on diesel this year, he said.
Looking at the overall economy, Costello called this year’s predicted 2.1 percent increase in gross domestic product “a below-trend growth year” because it’s less than the index’s long-term growth rate of 3 percent. Nevertheless, “I don’t think we’re going to go into a recession,” he said. “A lot would have to fall in place for that to happen.”
However, if there is another downturn in the housing market, or if the Federal Reserve raises interest rates in the near term, “those two items could get us to rethink where the economy goes,” Costello said. Another red flag would be if the inventory-to-sales ratio – the measure of what retailers have in stock relative to sales – continues to rise; a high ratio mean less freight to haul.
