Trucking Industry Prepares for Continued Growth
by Apex Capital | July 11, 2012
Despite weak economic growth in recent quarters, which has led to a decrease in total truckload tonnage over the past two months, the American Trucking Associations has estimated that the outlook for freight volume should improve in the second half of the year, giving confidence to the trucking industry that capital improvements to replace aging equipment will increase profits.
The nation’s largest trade association for the trucking industry reaffirmed its guidance for the rest of the year, forecasting growth in truckload tonnage of between three and four percent. Although this growth rate has fallen from its heyday in the 1980s and 1990s, it still represents fairly robust growth, especially when considering that gross domestic product is only expected to increase by about two percent in 2012.
There are still some legitimate concerns among trucking operators about the fragility of this economic recovery as many problems remain on the horizon, including the European debt crisis, slowing growth in China and recurring government budget problem in the United States, but most experts believe that a double-dip recession is unlikely. In addition, there are several trends in the trucking industry that should help boost profitability in the coming quarters.
Trucking Industry Trends
Most notably, the price of oil has fallen considerably in recent months, reducing one of the largest costs felt by all trucking companies. Crude oil prices have fallen by 20 percent in 2012, which has reduced gasoline prices from their highs in April by nearly 50 cents per gallon. This has helped many companies save significant amounts of money, which they could use to reinvest in their businesses by replacing dilapidated equipment.
With new units in operation, trucking companies will be able to take advantage of better growth opportunities in the years ahead. FTR Associates has estimated that growth in freight tonnage should continue to show moderate improvement until a new peak is reached around 2015, giving companies plenty of time to invest for the future.
Given the tight capacity in the industry, which has fallen by 0.6 percent in the past year, trucking companies should be able to take advantage of the continuing economic recovery through increased pricing power. This power could increase even more if the economy, which has been held down in part by depressed consumer confidence, shows some unexpectedly good results in the year ahead.
With both the reduction in costs and the coming improvement in pricing power, it has become an advantageous time for trucking companies to invest in new equipment. These capital expenditures can help companies increase their operational efficiencies, which could improve their profitability regardless of the future state of the economy.