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The Trucking Industry: 2008 and Beyond. The Industry Today. Truck sales are down 2007 emissions pre-buy Skyrocketing diesel prices Economic downturn. 2007 Pre-Buy. Fleets purchased 2006 models in higher volume to avoid purchasing the new 2007 engines
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The Industry Today Truck sales are down 2007 emissions pre-buy Skyrocketing diesel prices Economic downturn
2007 Pre-Buy Fleets purchased 2006 models in higher volume to avoid purchasing the new 2007 engines Required to meet EPA emissions standards implemented in 2007 Pre-buy left pre-2007 trucks in inventories The pre-buy wasn’t as much as projected
Vehicle Registrations Fall 2007 had the lowest number since 2003 with 642,333 units Falling nearly 20% from the record number registered in 2006 Class 8 registrations down 37.8% Class 4 new vehicle registrations were up in 2007 than 2006
2007 Engines A headache in one way or another Requires investment in new training and new tooling Higher price tags Resistance of customers because of unproven technology In some cases, increase in downtime
It’s Diesel Prices Stupid The rapid rise in diesel prices during the 1st Quarter had a significant impact on carrier margins Results in many fleets further delaying equipment purchases According to A.C.T. Research
Fuel Impacting Buying Customers canceling orders, sometimes several times Tom Graddy, chairman & CEO, Vanguard Truck Centers On one day, a customer considered ordering several trucks Lost couple of loads, cancelled the order Gained a couple of loads, reinstated the order Got his fuel bill so changed his mind again
Fuel ImpactingOwner-Operators Kenny Doonan, President, Doonan Truck & Equipment “If owner-operators today aren’t tied into a major carrier or tied into a major shipper, where they have automatic fuel adjustment clauses. They’re going to be a thing of the past.”
Minimal Fuel Impact On Oil fields Refuse and recycling Municipal services
Why Are Fuel Prices Escalading? Supplies are in good shape Oil market is no longer functioning on supply-and-demand fundamentals Diesel-gas price differential not likely to change significantly in thelonger-run A bubble in commodities market is the problem Need the dollar to strengthen ATA’s Economic & Motor Carrier Industry Update, March 2008
Positives Of High Fuel Prices Increase in aerodynamic interest Changing the business with ¾ to 1 mpg difference Making it not as affordable to operate older trucks Increased interest in gasoline engines for medium-duty applications Increased interest in alternative fuels
Impact Of Economy Poor fiscal policy decisions by government and consumers alike put the economy in a bind The economy is pulling anchors Housing market Credit market High oil prices
Freight Rise And Fall Freight Transportation Index rose 2.4% in January Matching its largest monthly increase in the past two years The freight TSI measures the month-to-month changes in the output of services provided by the for-hire freight transportation industries. Department of Transportation’s Bureauof Transportation Statistics
Freight Rise And Fall For-Hire Truck Tonnage Index was down in March from after remaining unchanged in February For-Hire Truck Tonnage Index fell 3.3% in March Lowest level since November 2007 Monthly Truck Tonnage Report, ATA April 24, 2008
Downturn Is Nothing New It’s been a difficult 12 months But trucking is cyclical so we’ve been here before We adapt because of the nature of the industry Optimistic future Projected 10-year expansion Increase truck population 44% According to ATA/Global Insight Study
Capacity Issues Capacity likely to tighten quickly once freight volumes improve Underlying fundamentals still support tight capacity (driver shortage) ATA’s Economic & Motor Carrier Industry Update, March 2008
Bright Spot While high fuel prices and slow economy are forcing some carriers out of business, the remaining ones should have leverage to charge higher rates when the economy comes back because capacity will be tighter A brisk export business in used trucks to Russia and other countries is helping to take some capacity out of the market
Fleet Talk Ray Greer, President & CEO, Greatwide Logistics Services Becoming more aggressive with on-board computers Breaking the myth that Owner-Operators would never adopt on-board technology It is widely accepted Why?
Fleet Talk Real-time monitoring of fuel consumption has resulted in $10,000 to $15,000 in incremental income to Owner-Operators
Fleet Talk Dave Berry, Vice President, Swift Transportation When Swift went to 62 miles per hour Each mile per hour is worth 1/10 of a mile per gallon
The Industry Tomorrow Still expecting a 2010 pre-buy The longer the U.S. economy remains weak, the less likely it is that builds will rebound significantly in 2nd half 2008 Still expecting a modest recovery 2nd half 2008 According to ATA/Global Insight Study
Fleets 2010 Prebuy 2nd half upswing projected Fleets start 2010 pre-buy Truck dealers project that 2009 will be the biggest truck sales year ever
Truck Build Projections Heavy Duty Trucking, October issue
Engines In 2010 Two different technology approaches SCR – Selective Catalytic Reduction EGR – Exhaust Gas Regeneration
Proponents Of SCR AB Volvo Volvo Mack Daimler Trucks North America Dodge Freightliner Sterling Western Star • Ford • General Motors • Paccar • Kenworth • Peterbilt • Mercedes Benz • Volkswagon • Cummins medium duty and vocational trucks
Proponents Of EGR Cummins International MAN Caterpillar hasn’t made a decision
SCR Pluses Used in Europe without problems since 2005 Offers better fuel economy Lower operating costs Small urea tank projected to be topped off every two or three times a truck’s diesel tank needs filling Critics are saying Higher new purchase costs Might be problems with urea – diesel emissions fluid
EGR Pluses More common technology Lower upfront costs No costs for DEF tank and catalytic chamber Doesn’t require driver to monitor DEF fluid gauge Critics are saying Higher operating costs
Talking About 2010 The faster the industry can get the right knowledge to the carriers, the better decision they can make….the fewer problems the industry will be facing
We Must Adapt To Grow Conditions Trends Forecasts
Preparing For Future Plan for sustainable growth Recognize the emergence of the global economy Ensure safety New technology Anti-counterfeiting measures
How The IndustryLooks Today Trucks/Tractors Over 4 million Class 6 – 8 trucks and tractors For-Hire dominates Class 8 Government/Utilities/Services continues strong growth in Class 8 Private Fleets own Class 6 & 7 Government/Utilities/Services declined in Class 6 & 7 for heavier equipment
The Trucking Universe The following statistics present a clear, unbiased picture of Classes 2c – 8 commercial truck ownership and usage Trucks and Tractors By Class By Vocation ©2008 Newport Communications Group, Profile of the U.S. Commercial Truck Market
Class 2c – 8 Truck Universe12,680,341 Vehicles Tractor universe grew 2.2 million between 2003 and 2007 Class 8 grew almost 300,000 Class 7 declined by nearly 100,000 128,000 gain in Class 6 Class 3 – 5 declined by nearly 129,000
Class 8 Truck Universe By Vocation2,712,588 Vehicles 928,000 For-Hire Carriers, making up 34% of the market Private Fleets, Lease/Rental and Agriculture has held the same since 2003 Government/Utilities/Services gained a percent Construction/Mining/Logging declined a percent
Class 8 Truck UniverseBy Fleet Size2,424,500 Vehicles 3% increase in 500+ fleets since 2003 10 – 99 fleets has held steady since 2003 1 – 4, 5 – 9 and 100 – 499 declined by 1%
Class 6 & 7 Truck Universe By Vocation1,319,136 Vehicles For-Hire and Agriculture each increased by 1% Wholesale/Retail/Manufacturing declined 1% All other vocations remained steady Lease/Renal with 327,000 trucks and For-Hire with 315,000 trucks make up half of Class 6 & 7 trucks
Class 6 & 7 Truck Universe By Fleet Size1,319,136 Vehicles 500+ Fleets dominate Class 6 & 7 Little change in market share in all sectors
Class 3 – 5 UniverseBy Vocation1,924,363 Vehicles Numbers are down but all vocations maintained their market share Category includes major package delivery such as UPS and FedEx 59% of Class 3 – 5 are diesel powered 78% of Agriculture uses diesel power 68% of Wholesale/Retail/Manufacturing uses diesel power 66% of Construction/Mining/Logging uses diesel
Class 3 – 5 Truck UniverseBy Fleet Size1,924,363 Vehicles Commercial operations with 1 – 4 trucks own over half of the trucks in Class 3 – 5 Giant delivery services dominate 500+ operations
Class 2c Truck UniverseBy Vocation6,724,254 Vehicles 1.4 million Agriculture trucks account for the largest segment of Class 2c Wholesale has over 1.3 million 35% are diesel powered Over half of Agriculture are diesel About one-third of Construction/Mining/Logging, Lease/Rental and Wholesale/Retail/Manufacturing are diesel