The economic recovery is progressing very nicely for durable goods, which is translating into a good recovery for the flatbeds and dry vans that are transporting them, according to Noel Perry, senior consultant for FTR Associates and principal of Transport Fundamentals.
In Thursday’s FTR webinar, “The State of Freight: Another Turning Point,” Perry said “growth levels are higher than we experienced in the previous recovery. If you’re in the business of moving durable goods—which is particularly flatbeds and dry vans—this is a pretty good recovery.”
He said that the overall recovery is slow but politicians and many economists are stressing “bad news,” and people are underestimating the potential for the recovery.
“Industrial production is not growing as rapidly as we’d like, but is still growing,” he said. “The latest data is 4% year-over-year growth, and this is very good for trucking, because we move the things that industries produce.
“The housing industry bottomed out and is recovering. It’s still very small, but moving in the right direction, and that helps transportation. Construction for businesses is in positive territory. There’s a lot good about this economy, and it’s heavily concentrated in hard goods—dry van and flatbeds.”
He said the numbers support his notion that truckers are not ordering as many trucks and are managing capacity more tightly than they ever have in past. He categorized the purchase of new vehicles by mandatory replacement and by discretionary purchases for growth or for extra replacement. Replacement is 35,000 units per quarter, “but they are purchasing practically no more than that. A year ago, not only were they replacing, but they were adding another 22,000 units, either in additional replacements or for growth. This is powerful data. It shows we may be underestimating capacity utilization levels.”
He said that by the end of the decade, there may be as many as 100,000 natural gas-powered heavy-duty vehicles.
“Long term, natural gas will become a viable fuel, either in transformed, remanufactured form or its own form for on-highway vehicles,” he said. “That’s because everybody expects diesel-fuel prices will accelerate more rapidly than natural gas.
“Do they save money? Right now, not much. LNG compared to diesel is 1.7, so a diesel truck goes 1.7 times farther. For CNG, you can get up to 3500 pounds per square inch and get a range 1.5 of a diesel truck. LNG in long haul has an 11-cent advantage. If you subtract the capital cost takes to build one of the engines, the advantage falls to 7 cents a mile. They’re heavier, and that takes away payload, and gets it down to 4 cents. Government incentives push it to 5. That’s certainly enough to get fleets experimenting with it, but not enough to change the market.”
Larry Gross, senior consultant for FTR Associates and president of Gross Transportation Consulting, said intermodal activity for June was encouraging and makes intermodal “one of the superstars of the recovery.”
“The performance has outpaced that of the economy in general and trucking in particular,” he said. “Year to date, the total moves up 5%—3.4% in international and 7.8% in domestic. Domestic is within 1% of the all-time record for moves per month set in March. If things proceed on a normal seasonal path, we expect intermodal to increase 6% from June to October, and domestic 11-12%. We would expect to hit an all-time record as early as August and certainly by October.”
He said, however, that the intermodal market share most recently has flattened out, edging down .1% between the first and second quarters.
“That’s something that hasn’t happened since 2010,” he said. “Lower fuel prices and a not-as-tight capacity situation on the truckload side are combining to, at least for the moment, hold down gains in intermodal share.”
He said there is concern about a possible East Coast port strike September 30, with critical talks currently under way and many issues on the table.
His intermodal projection is for 4.7% growth this year (6.4% domestically) and 4.5% in 2013 (5.2% domestically).