Hyperlink: http://news.bbc.co.uk/low/english/business/newsid_1399000/1399618.stm

Trucking industry faces world of woes

Wednesday, 20 June, 2001, 21:03 GMT 22:03 UK By BBC News Online's North America Business Reporter, David Schepp

Copyright, British Broadcasting Corp., Fair Use for Education and Research Only You would never know by looking, but there are fewer trucks on the highways and streets of America.

The slowing of the US economy has resulted not only in fewer goods being produced but fewer goods being shipped, which means less hectic times among American shippers.

Difficulties for the carriers not only include slowing freight demand, which began about eight months ago, but rising prices for diesel fuel and skyrocketing insurance rates have also put a pinch on over-the-road hauliers.

"All of these factors together have certainly made the environment difficult for most trucking companies," says Bob Costello, chief economist for the American Trucking Associations (ATA).

"[That] has led to significant amount of bankruptcies especially among the smaller companies," he said, adding that 80% of the trucking industry operates 20 or fewer trucks in its fleet.

Big business

Bigger companies may have a better time weathering the storm in the long haul, but for now their stock prices have taken a hit, with the average share price down around 3% for the year.

Over 75% of communities in the US get their freight only by truck Bob Costello, chief economist, American Trucking Associations told BBC News Online. "No other mode of freight transportation goes there."

Analysts say it may be the end of the year before the sector sees any brightening in the gloom.

Trucking is big business in the USA.

Nearly 90% of all freight is carried by trucks, hauling everything from hazardous waste to ice cream.

Because of the heavy reliance on trucks, the health of the trucking industry is a fairly reliable barometer of how the economy is doing as a whole.

The ATA's Costello says that Americans are just now becoming aware of how vitally important trucking is to the US economy.

Falling demand

After levelling off in March, the amount of goods hauled by trucks - known as freight volumes - fell once again in April and May. American business is on a diet, relying on smaller inventories and just-in-time delivery practices to get goods to their customers.

At the retail end, the same is true. Not wishing to pay shipping and storage charges on potentially slow-selling consumer goods, retailers have cut back, awaiting better economic news.

In response to the cutbacks, the nation's largest shippers, including Roadway, USFreightways and CNF have warned of lower profits in the coming months.

Industry officials hold little hope for better returns as long as distribution channels across the country remained choked with goods.

With fewer trucks needed to haul fewer goods, new truck sales have taken a hit thanks to a glut of used trucks.

An inventory of around 60,000 used vehicles has ballooned to around 200,000 as companies cut back or fold, the USA Today newspaper reported in its Wednesday editions.

Used-truck retailers have taken the unusual route of offering 2-for-1 deals. Buy one truck and get another free.

Europe also faces sales woes

Analysts also warn that the global slowdown leaves European truck makers facing even steeper sales downturns.

"Evidence is mounting that the slowdown in heavy-truck sales could be more than expected, particularly in Europe," investment-banking firm Morgan Stanley says in a recent report.

Morgan Stanley upped its decline in truck sales to 13% in 2001 from its previous estimate of 10%. It also said it expects sales to drop into the next year as well, with truck purchases off 9% in 2002 - more than triple its original estimate.

A report by Schroder Salomon Smith Barney sees a similar decline, forecasting declines of 11% in 2001 and 2002.

"Key drivers are a decelerating economy and weak haulier finances, again hit by rising oil prices," the report says.

It also noted that previous slowdowns averaged 51 months in duration and says, "We believe that at least two years of weakness is ahead."

-- Robert Riggs (rxr999@yahoo.com), June 22, 2001

Answers

The trucking industry is a good barometer of coming recession. I recall in late 1973, shortly after the Arab oil embargo was imposed, long-haul truck manufacturing came to a virtual halt, accurately predicting the severe 1974-1975 recession.

-- JackW (jpayne@webtv.net), June 22, 2001.

I commute some 30 miles each way on Interstate 81 south of Harrisburg PA; I-81 is a *major* trucking corridor. Very subjectively, it has seemed to me in the past month or so that the number of trucks is down (which at least tends to reduce traffic hassles for me).

Just a small observation, FWIW.

-- Andre Weltman (aweltman@state.pa.us), June 25, 2001.