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Fleet dilemmas in a recession: park trucks or cut mileage?

Some segments of trucking are between the proverbial rock and a hard place. With the current national economic picture what it is and no signs of improvement in the near term, what is a fleet manager's best choice in dealing with surplus vehicles? Park them? Run them all but with reduced daily/ weekly mileages? Sell some? And if so, which ones?

In for-hire trucking, vehicles are the business--moving other people's freight. Or if your company operates a corporate fleet, trucks deliver your own products or provide services. Examples of the latter would be a supermarket's warehouse-to-store fleet or a public utility fleet with bucket trucks to reach overhead lines.

In times like now, is it best to run the newest low-mileage trucks and tractors and park the others? And if you think the reduced need is long term, then should you cancel vehicle registrations and insurance, presuming you'll save a bundle of money? If any or all of your fleet is leased, can you turn back the surplus without big penalties?

Then there are driver issues: lay off surplus operators? If you do this, drivers will look elsewhere for work or take up other vocations. If your company operates its own vehicle maintenance shops, do you lay off technicians?

Here are several real-world examples: in the upper Midwest, a manufacturer who asked not to be named said he was cutting prices 5 to 10% of several product lines hoping to retain the volume if buyers would stock up. A family-owned regional LTL for-hire fleet with headquarters in the the Southeast said it could get by with 40 fewer tractors for the short term. Management picked out those with higher operating costs or in need of tires, brakes or other maintenance and rented a farmer's cornfield to park them in. They also dropped registration and liability insurance.

A food retailer found its volume of some products dropping significantly as customers weren't buying as much or dramatically shopping for the weekly specials. There's no way to significantly downsize the fleet as each store needed to keep shelves stocked. The company was able to combine several routes and deliver to those stores twice weekly rather than three times.

Looking at the national trucking scene, the American Trucking Associations (ATA) reported that freight tonnages were plummeting--down 14.1% in December '08 vs. December '07. Bob Costello, ATA's chief economist, was quoted as saying the economy will continue to contract until the third quarter. Whether that holds true following the stimulus package hammered out by President Obama and Congress and whether that package accelerates a consumer rebound remains to be seen.

Steve Russell, the CEO of Celadon Group, predicts that fleet bankruptcies will get worse as financially strapped fleets find they basically can avoid about $1800 annually in license renewals. The giant national LTL carrier YRC Worldwide Inc.--the merged name of giants Roadway Express and Yellow Freight--lost nearly $1 billion in '08 despite efforts to combine smaller terminals and boost efficiencies. Arkansas Best Freight (ABF), the national LTL carrier with its headquarters in Ft. Smith, Ark., has reported a drop of 1100 employees and a shrinking of its tractor fleet by 14%.

There are undoubtedly hundreds of similar stories around the country. Darry Stuart, president of DWS Fleet Management & Consulting, said a growing part of his business is to help customers downsize and face the music. He said family businesses in particular hate to lay off employees. Stuart gets them off the hook by acting as an outsider and giving them a business plan calling for reduced employees and vehicles. He takes the heat and family owners feel better.

How does all this translate to truck/tractor sales? Our current estimate is that it will be the fourth quarter of this year before we see a meaningful increase in monthly volumes. As this is written, President Obama has announced his "comeback plan," and if Congress approves it we may see a massive investment in rebuilding our nation's infrastructure, especially interstate highways and bridges. If this happens, it will likely be a late 2010 before the program translates into a big sales comeback for heavy-duty trucks.

In the meantime, market trends in engine horsepower gradually continue upward. For the truckload and owner-operator segments of trucking, 460 to 550 hp are typical, with the biggest numbers under 500 hp in over-the-road service. For the LTL industry and many vocational truck markets, 350 to 450 hp are the preferred ratings.

The horsepower race seems to have plateaued for now. Some segments of trucking would like to see 97,000 lb. GCW with the addition of a sixth axle (tri-axle semis). If that comes to pass, we will see a big change in Class 8 trucks and the horsepower that goes with it.

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Title Annotation:STREET SMARTS
Author:Winsor, Jim
Publication:Diesel Progress North American Edition
Date:Mar 1, 2009
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