Fleet replacement strategy underway to add capacity

Facing a shortage of qualified drivers, rising fuel costs and increased maintenance expenses, shippers are becoming more astute in choosing new equipment or in dealing with their dedicated providers. For instance, shippers are increasingly opting for more fuel-efficient leased vehicles.

On the carrier side, according to a survey conducted on behalf of dedicated contract carrier FirstFleet Inc. (www.firstfleetinc.com), 59% of respondents have adjusted for higher fuel costs by increasing loads carried by each truck.

Another frequently employed strategy has been the installation of logistics or wireless communications devices within truck cabs. While these are aimed at increasing productivity, many shippers are using these devices to monitor driving patterns and equipment specifications to help develop fuel-saving, equipment maintenance and specification strategies, according to the survey.

Based on the survey, 93% of carriers will be replacing almost a quarterof their fleets during 2005, and 72% indicate that half of their fleets will be replaced in the next two or more years. While tougher engine requirements are slated to become effective in 2007 (see "Potholes on the road to cleaner diesel"), most respondents indicate they'll replace about 38% of their fleets before the new regulations take effect.

Fleet replacement and expansion is already underway, according to equity research firm Morgan Stanley (www.morganstanley.com), which notes that orders for Class 8 vehicles in November were the highest on record — some 40,000 units were ordered that month. The industry has an average necessary replacement rate of 18,000-20,000. With capacity issues remaining, projections are that the truckload segment of transportation will continue to order more equipment to answer what Morgan Stanley sees as "the extreme supply-demand imbalance in today's market." Eventually, this purchasing boom will lead to over-capacity once again, but the soonest this is anticipated to happen is 2006.

Morgan Stanley's study of truckload revenues for each loaded mile shows increases for the first three quarters of 2004 at 5.5% for the first quarter, 7.3% for the second and 9.4% for the third. As the peak shipping season hit, Morgan Stanley reports anecdotal instances of retailers paying as much as double normal contract rates to move their freight. Its research indicates that customer price increases will play out to between 4-9% for the fourth quarter of 2004.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish