Smooth road

SO FAR this decade, it's been a bumpy ride for tank truck manufacturers and their carrier customers. When the new century arrived, previous years of a bountiful market prompted robust trailer sales, saturating the market so that the year 2000 ushered in bleak prospects. Hardly had the situation begun to worsen when in 2001 terrorists attacked the United States and set the situation back even further.

Despite predictions each year that better times were on the horizon, it wasn't until 2004 that the industry began to see some improvement. The next year the road smoothed out. At the annual 2005 Southern Bulk Carriers Day in October, the absence of petroleum tank trailers was obvious as carriers were so busy handling an increase in business that they couldn't release a vehicle for the show.

By January this year, the boom across all markets meant manufacturers were busy handling backorders. “All market segments are running very well and we haven't seen any let up,” says Dan Jarboe of Beall Corp. “We know that many tank trailer builders are quoting lead times of one year or more, and Beall is no exception.”

According to Peter Toja of Economic Planning Associates, demand for tank trailers continues on a strong uptrend. After a 30% year-over-year gain in the first quarter of this year, second quarter shipments of 2,700 units were running 28.6% ahead of the second quarter of 2005. As a result, first half 2006 tank trailer shipments of 5,300 units were 29.3% above the comparable period of last year.

“Sales continue to be strong in both new and used trailers,” says Mike O'Donell of Stuart Tank Sales Corp. “If you have equipment available it will move. All areas seem to be strong — sanitary, chemical, petroleum — and pneumatic trailers are especially needed.”

At Brenner Tank Inc, John Cannon points out that the strong tank trailer demand within the past 12 months, particularly for aluminum transports, was driven by:

  • relatively light replacement purchases by some fleets in the first half of the decade.
  • a current robust economy.
  • railroad capacity constraints.
  • expanded crude oil production in North America.
  • rapidly accelerating biofuel production.
  • the federal mandate and accompanying methods for handling ultra low sulfur diesel (ULSD).

Mark Hunsley at Polar Service Centers says that carrier capacity has been in line with freight demands. “This has allowed most carriers to charge the rates they deserve for the investment they must make in their operations.”

Says Bill Harris at Heil Trailer International: "The industry finally bounced back in 2005. Aluminum tank trailer sales (based on Truck Trailer Manufacturers Association total market data) improved 30% year-over-year. Over the past two years, our industry has benefited from consumer confidence and US economic growth, which includes new highway and building construction, a hot housing market, and fairly stable costs. When paired with pent-up replacement demand and a healthy trucking industry, trailer manufacturers of all types benefit.”

Others in the industry say that with construction having been strong, asphalt tank trailers also have been in demand, surpassing some expectations. Estimates are available that shipments for the trailers are almost 50% stronger this year than they were in 2005.

Tank truck carriers are seeing little business slowdown and are ordering still more new equipment, as reported by John Conley, National Tank Truck Carriers president. “Several things have happened,” he adds. “For a time, carriers were hoping the prices of trailers would go down, but now they realize that the price is what it is going to be. As they find the need to increase their fleets, they will have to look at those costs and price their own services accordingly.”

Conley notes that new Environmental Protection Agency rules for reducing sulfur in diesel to 15 parts per million may result in an industrywide mandate for dedicated ULSD trailers. Some petroleum terminals already are insisting on dedicated trailers, which is one reason for the increase in tank trailer orders. In addition, some retailers may demand dedicated trailers.

“I think the ULSD issue is still up in the air, as far as all shippers requiring dedicated equipment,” Conley says. “As this thing shakes out, we may find that ULSD can be switch-loaded with gasoline as long as the trailer is emptied during delivery. Even more protection would be offered if the trailer could be fully drained dry at the terminal before the ULSD is introduced. However, dedicated trailers are a carrier's best defense, if a problem of ULSD contamination arises.”

He also notes that because of increases in the volume of transmix, a blend of more than one fuel in the pipeline that would be above the 15 ppm limit, carriers may have additional opportunities to haul that as well.

Jarboe says that most of Beall's customers aren't sure how they are going to handle ULSD deliveries. “Many are concerned that they won't have the volume to dedicate specific units for this product and are waiting to see what is going to occur,” he says.

At Polar Corp, ULSD does not appear to be a big factor in petroleum trailer sales, but ethanol is having a significant impact due to the backhaul aspect of the product, says Hunsley. “Each trailer involved in the movement of ethanol is more highly utilized,” he adds.

Harris notes that “many of Heil's customers are considering dedicated trailers for ULSD, and both ethanol and bio-diesel interest will increase the need for more tanks as well. Heil is developing product options and exploring ways to increase production capacity if dedicated trailers become the popular approach.”

Toja at Economic Planning Associates agrees about the increased ethanol production and its subsequent effect. “There is little doubt that the explosive growth in ethanol production is leading the charge in demand for tank trailers,” he says. “As the federal government and various states continue to push for the elimination of MTBE (methyl tertiary butyl ether) in favor of ethanol, aggressive investments are being made to increase ethanol productive capacity as well as in the equipment to haul the finished product. And, with the Department of Energy squarely behind the E85 (85% ethanol, 15% gasoline) plans by General Motors and Ford, the move towards ethanol is approaching a frenetic pace.”

Conley also notes that ethanol isn't moved through a pipeline, which means there are more opportunities for tank truck carriers to handle the product, loading at ethanol producer locations and/or from barges and rail tankcars. “We are finding that some carriers have been able to increase equipment productivity by hauling ethanol, but more equipment will be needed as more ethanol is produced and has to be trucked longer distances.”

According to the Department of Energy, ethanol production jumped from 1.3 billion gallons in 1997 to 3.9 billion gallons last year. As of May 2006, ethanol production was running at an annualized pace of 4.5 billion gallons, Toja says. “And, the outlook is for far stronger growth over the next few years. As of May of this year, the United States had 97 ethanol plants in operation with a total capacity of 4.5 billion gallons per year. Thirty-five additional plants are under construction and nine existing plants are being expanded. These new installations and expansions are expected to add over 2.2 billion gallons of annual ethanol production.”

On the tankwagon side of the road, David Burke of Boston Steel & Manufacturing voiced surprise at the strong demand for vehicles and also predicts the ULSD requirements for dedicated tanks may shore up sales. He agrees that the new engine requirements play a large role in purchasing decisions. “That will be costly and mechanically nerve-wracking. There has been increased demand for lube oil tanks, waste oil collection tanks, and equipment refuelers. It stands to reason that 2007 may see a softening of demand due to pre-buying trucks/chassis to beat the new expensive and unproven engines,” he adds.

As for the future for the US manufacturers, the economy appears steady, with some room for softening. Jarboe says he expects strong demand to continue through 2007 at Beall. “Because of the squeeze on new equipment, used equipment has been in high demand, and the market is unable to satisfy the increased needs. We don't see any pending federal requirements that would have a serious impact on tank trailer specifications in the near future.

“However, we are watching the actions in the Middle East and believe that they could have a serious impact on the US economy. If the situation deteriorates further than it is today, we're sure all aspects of our economy will be affected to some degree. We can only hope that our leaders will be able to help cool off the tensions in the Middle East.”

Another market issue impacting trailer sales is the imminent introduction of low-emission diesel engines that call for exclusive use of ULSD. “Our customers are concerned about the new 2007 truck engines, and have been pre-buying their power units requirements in order to avoid purchasing the new, unproven engines.” says Jarboe. “Because of the pre-buy on trucks, many have delayed their trailer purchases in 2006, but we expect they will enter the market in the second half of 2007 with their new trailer requirements.”

Cannon says Brenner is predicting 2007 will be a “reasonably strong year, but we see storm clouds on the horizon that include softening in the US economy, rapid escalation in metals and other costs, and prohibitively long backlogs for aluminum tank trailers, which may negate the ULSD, ethanol, and crude oil factors.

“Furthermore, the continued scarcity of hazmat drivers suppresses expansion of our industry and its triumph over other modes of transportation. In addition, the US DOT is studying the roll stability of tank trailers, and this activity may spawn regulations affecting our industry.

“The primary factors in the US economy that are likely to influence the tank trailer market are housing starts, auto production, and crude oil prices. With further weakening of the housing market, largely attributable to interest rate hikes, some reduction in volumes of liquid product shipped will result. If consumers turn to more economical small cars, many made overseas, in place of SUVs and light trucks, or defer purchases due to budgetary constraints, liquid bulk shipment originations will suffer. Finally, if crude oil prices remain high or escalate further, gasoline shipments may weaken, while crude oil activity in North America may increase.”

Harris points out that Heil collects relevant market data from its strategic partners (authorized Heil Trailer International distributors) as well as subscribing to many economic reports, including ACT (Americas Commercial Transportation) Research data. “All of it indicates continued growth in tank trailer demand this year and continuing into 2007,” he says. “We think new trailer and replacement demand will account for approximately 20% growth in the North American tank trailer market through 2007. It will continue in 2008, but at rates in line with the GDP (gross domestic product).

“Issues like ULSD, driver availability, and highway congestion are challenges, but should not hurt demand. In fact, some of these issues will increase tank demand. Heil is also developing light-weight components to increase payload to help alleviate driver availability pressures and highway congestion — challenges we all face.”

At the same time, Harris says that while economic growth may be slowing slightly, the demand for gasoline, crude oil, cement, plastics, chemicals, sand, and food should continue to grow at a healthy rate for the next three to four years, barring a catastrophic event. “Look at what the demand for crude oil has done,” he adds. “That sector has been able to re-invest in new, more productive equipment. Our crude oil trailer numbers reflect it. And it is not just trailers. The manufacturing sector continues to reflect this demand overall.”

O'Donell at Stuart Tank echoes those sentiments, but predicts that the economy may begin to level off in 2007. “With the increase of new orders the last three years, the plants were not able to catch up with enough labor force, components, and raw materials,” he says, adding that the continuing need for raw materials and oil worldwide are likely to increase future costs in the United States.

Hunsley notes that tank trailer demand for new trailers and repairs on the existing fleets has been robust for the last couple of years at Polar. “We think the demand will remain strong for the next couple of years. Carriers have not been able to get all the trailers they have wanted for the last year. They have spent heavily on tractors and will now be more focused on trailers. We believe the carrier operations will remain quite profitable for the next couple of years and they will also be attempting to upgrade their aging fleet of trailers.”

In Canada, Dennis Marcus of Comptank Corp has a different view of the tank truck industry as the owner of the fiberglass reinforced plastics (FRP) tank trailer manufacturing facility and Harold Marcus Ltd in Bothwell, Ontario, a bulk trucking business. Both companies are surging ahead of expectations, and he foresees the current situation to continue through 2007-2008.

“Our biggest problem for the FRP trailers is the labor-intensive process required to build them, which adds to the time it takes to bring them to market,” he says.

However, one situation that has arisen promises to produce more demand for the FRP trailers, which are typically used to haul caustics. Some US cities are looking at banning railroads from shipping chlorine gas used in water treatment through their boundaries. If the bans become common, there is likely to be 14 times more demand for sodium hypocholorite (bleach), a product that can be substituted for chlorine and is hauled in frp tank trailers, Marcus says.

Meanwhile in the United States, Toja is offering statistics that predict a 27.5% annual increase to 10,200 units for 2006 and 10,500 units in 2007. “In the long term, growth in demand for tank trailers will ease somewhat, but still maintain high levels from an historic perspective,” he says. “From 2008-2011, we look for shipments of tanks to be in the range of 9,000-10,000 units each year.

“During the next few years, higher volumes of manufacturing activities will boost demand for a variety of industrial chemicals and gases. Improving financial performances among the liquid food and beverage processors will facilitate the investment decision to replace aged equipment in certain fleets. The expanding consumer sector will lead to greater demand for gasoline and motor oils while public construction growth and a revival in factory output spur growth for tars, waxes, and lubricants. Increased scrutiny of certain aged equipment involved in transporting of industrial chemicals, gases, and liquid fertilizers will also support demand for new equipment.”

Another view of the future comes from NTTC's Conley who notes that the Department of Transportation is studying various issues in the industry, such as rollover protection on tank trailers, efforts to reduce rollovers, and transferring some regulation development for specifications to non-government agencies. He also commented on the wetlines issue that was, at least for now, put to rest earlier this year when the Pipeline Hazardous Materials Safety Administration (PHMSA) announced termination of the HM-213B rulemaking.

Conley isn't so confident that politics couldn't bring wetlines back in the future. “There's no spike driven through the heart of the wetlines issue. We probably haven't heard the last on that subject.”

Overall, though, Conley points out that the tank truck industry depends on “people who drive and eat, and that's something we are going to do forever. Many of the products we need will continue to be hauled in tank trailers.”

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