The recent spike in Class 8 truck orders won’t solve the capacity shortage currently plaguing the truckload industry, according to Legg Mason analysts John Larkin and David Ross. Their view runs counter to the conclusions that use economic theory alone. The logic of that approach is clear, they say. Carriers have been able to raise prices dramatically. Margins have expanded, and returns on invested capital have improved. Both new and existing carriers are in a position to justify the addition of capacity. The surge in new orders would appear to support that view.
Industry dynamics tell a different story, say Larkin and Ross. Carriers, manufacturers and dealers all suggest the new Class 8 tractor orders are for replacement vehicles, not expansion. Class 8 sales surged in 1999 and 2000, the analysts point out, as a result of incentives offered by Freightliner in its attempt to dominate the market. This contributed to an overpopulation of Class 8 tractors. Those vehicles are now ready for replacement.
The chronic driver shortage has constrained most truckload carriers from using all of the trucks in their existing fleets, let alone any incremental trucks they may wish to add to their fleets, say the Legg Mason analysts. Despite increasing driver pay, working with shippers to cut unnecessary driver detention, providing more comfortable, state-of-the-art tractors and trailer relay techniques that help get drivers home more often, many carriers still cannot find and attract enough drivers who meet commercial driving license (CDL), drug-free and other stringent requirements.
Further exacerbating the problem is the fact that key demographic age ranges that have been sources for drivers are deteriorating, the surge of imported containerized freight will continue and railroads can’t add capacity quickly enough to free up truckload capacity.The bottom line: Don’t expect to see any improvement through 2005.