Executive Briefings

Capacity Pinch Seen as Truck Fleets Continue to Shrink and Demand Rises

Although fleet bankruptcies get most of the attention, the slow, steady and largely unnoticed downsizing of fleets will have a major impact on freight capacity as tonnage picks up, according to Derek Leathers, president and COO of Werner Enterprises.

While Werner's average tractor age stands at 2.3 years, the company has invested over $650m in new equipment over the last three years. As a whole the truckload industry average tractor age is now 6.6 or 6.7 years, up from 5.5 years less than a decade ago, Leathers reported.

"To claw back from 6.6 years to get to 5.5 years, the industry would have to spend $24bn within a 24-month window," he said. "I don't know where that money comes from. Banks are not lined up to lend money to an industry whose return on assets at this point is still very unimpressive."

Saddled with aging trucks, significantly higher prices for new replacement vehicles and banks unwilling to fund fleet capital requirements, "fleets are slowly shrinking," he said during the keynote address at the ALK Technology Summit. "They're trading two or three old trucks for one new one. And because they can't afford new trucks, the cost of maintenance [for the older trucks] puts them in a death spiral."

Truckload capacity has dropped 17.6 percent since the end of 2006, according to Leathers. "That is a huge, huge amount of trucks taken off the road, but it's happened quietly," he said.

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While Werner's average tractor age stands at 2.3 years, the company has invested over $650m in new equipment over the last three years. As a whole the truckload industry average tractor age is now 6.6 or 6.7 years, up from 5.5 years less than a decade ago, Leathers reported.

"To claw back from 6.6 years to get to 5.5 years, the industry would have to spend $24bn within a 24-month window," he said. "I don't know where that money comes from. Banks are not lined up to lend money to an industry whose return on assets at this point is still very unimpressive."

Saddled with aging trucks, significantly higher prices for new replacement vehicles and banks unwilling to fund fleet capital requirements, "fleets are slowly shrinking," he said during the keynote address at the ALK Technology Summit. "They're trading two or three old trucks for one new one. And because they can't afford new trucks, the cost of maintenance [for the older trucks] puts them in a death spiral."

Truckload capacity has dropped 17.6 percent since the end of 2006, according to Leathers. "That is a huge, huge amount of trucks taken off the road, but it's happened quietly," he said.

Read Full Article