TL Fleets Review Purchase Plans as Economic Concerns Deepen
This story appears in the Feb. 23 print edition of Transport Topics.
CORAL GABLES, Fla. — Some truckload fleets that plan to purchase new tractors in 2009 say they may scale back their purchases as the U.S. economy weakens further, but others said they intend to keep buying.
Celadon Group Chief Executive Officer Stephen Russell said he still plans to buy 800 new tractors to replace older units.
“The alternative would be to buy in 2010 or 2011,” Russell said at the BB&T Transportation Services Conference here on Feb. 12. “By buying them earlier, we are avoiding any risks with the 2010 engines” required by the Environmental Protection Agency.
Randy Marten, chief executive officer of Marten Transport Ltd., said he still intends to buy 400 new units this year and trade in 225, boosting fleet size by 5%. However, he added that he has circled the last possible cancellation date on his desk calendar, just in case conditions change.
“We review future purchase plans on an ongoing basis, and our current plans are to purchase about 950 tractors and sell about 1,250,” said Joey Hogan, chief operating officer of Covenant Transport Group Inc.
A fresh look at equipment purchases could not come at a tougher time for equipment makers, whose sales are forecast to be as weak as last year, when Class 8 truck sales totaled 133,473, the worst since 1992. Sales peaked in 2006 but were about half of the tally in 2008. The industry needs sales of 170,000 units a year to maintain an average fleet age of three years, according to Werner Enterprises Inc.
Continuing equipment purchases while demand is weak was criticized by industry analyst Satish Jindel, president of SJ Consulting Inc.
“How will the industry bring pricing into line when there is excess capacity?” Jindel asked. “These are not normal times. You have to deviate from normal times and not add capacity. The big boys need to set the standard and cut capacity. They can’t wait for the small guys to go out of business.”
Some fleets said they were keeping their options open.
A third consecutive year of weak truck sales in 2009 “is expected to bring us from a market with too many trucks to a more balanced situation,” said John Steele, executive vice president of Werner Enterprises.
Werner’s 2009 capital spending will range from $50 million to $125 million, Steele said. Purchases will be influenced by the pace of used tractor sales that fell to $10 million last year from $23 million in 2007 as demand and valuation collapsed.
“We expect the used truck and trailer market will remain difficult before it gets better,” Steele said.
Werner’s 2009 capital plan is below the spending needed for normal replacement. Steele said the fleet’s average age is 2.2 years.
Douglas Stotlar, chief executive officer of Con-way Inc., said the company’s truckload unit is slowing purchase plans to 300 units this year after gaining 350 tractors that weren’t in operation when it bought Contract Freighters Inc. in August 2007. That move will increase the average fleet age temporarily, he said, but the company plans to resume a regular purchase schedule next year to renew its fleet.
Some fleets such as Cargo Transporters Inc. definitely are not in the market and are countering falling revenue by cutting capacity.
John Pope, chairman of the Claremont, N.C.-based truckload fleet, said the company won’t buy any tractors this year and is lengthening its equipment trade cycles. A revenue decline this year has trimmed its tractor fleet approximately 10%.
Less-than-truckload carrier Saia Inc. scaled back its capital budget by more than 60% to about $10 million and is allowing its average fleet age to increase to 5.8 years from five years, Chief Executive Officer Rick O’Dell said.
In another equipment development, Steele said that Werner has decided to test engines with selective catalytic reduction technology this year. Its tractors are supplied by Navistar Inc., the lone truck maker whose engines will use exhaust gas recirculation instead of SCR.
“We will have test engines to better evaluate this issue,” Steele said. “My guess is we will not purchase a number of new trucks in early 2010 to get some visibility on [the engines’] mechanical abilities.
He noted that engines with SCR are expected to result in better fuel economy, though distribution for necessary urea could be difficult because it will be sold in five-gallon jugs instead of a national supply network.