Results from Transport Capital Partners’ (TCP) Fourth Quarter 2012 Business Expectations Survey found that carriers will continue to be very conservative in replacing their fleet equipment over the next 12 months.
Although there is an increase in carriers planning to replace 11%-25% of their tractor fleets (in line with a four-year trade cycle), 60% of the smaller carriers (under $25 million in revenue) and 45% of larger carriers indicated they were going to replace under 10% of their tractor fleets. In essence, smaller carriers will be relying on older equipment that has higher maintenance costs and is more susceptible to problems that could lead to poor CSA road inspection reports.
“We believe as profit margins improve that there will be significant demand for new fleet assets to replace the aging equipment in today’s fleets,” says Richard Mikes, TCP partner.
The survey also found that almost half of the carriers do not plan to add any capacity in the coming year, the highest percentage since this question was initially asked in August 2010. Smaller carriers were more adamant than larger carriers in their reluctance to add capacity in the next year—60% compared to 43%.
This clearly reflects the apprehension apparent in rate and volume expectations, according to TCP. “Capacity additions have been constrained for some time and linked to shippers’ desire to add dedicated capacity to assure service,” Mikes says. “Overwhelmingly, new orders have been for replacements, particularly with increased maintenance costs and breakdowns experienced with post-2007 EPA engines by carriers.”
With rates remaining stable, costs going up, and an inclination to not add capacity, it’s not surprising that over half of the carriers surveyed report they are not getting an adequate rate of return to invest in newer, more expensive equipment. A slight majority of the larger carriers (51%) say they are getting enough returns to justify reinvesting in equipment, compared with only 40% of the smaller carriers.
“Well-managed carriers with adequate profit margins will continue to grow and gain market share,” says Steven Dutro, TCP partner. “Carriers with declining profits and aging fleets should consider if, and when, they should reinvest in their business, or if the time has come for an exit.”