Tank fleets will benefit from improving economy

July 1, 2002
A STRENGTHENING economy should buoy US tank truck carriers in coming months. However, key market sectors remain weak, and consumer confidence is shaky.

A STRENGTHENING economy should buoy US tank truck carriers in coming months. However, key market sectors remain weak, and consumer confidence is shaky.

Tank truck carriers still are recovering from the economic impact of the terrorist attacks in New York City and Washington DC on September 11, 2001. Most fleets faced a surge in roadside inspections at an estimated cost of $70.13 every time a vehicle was stopped.

Fleets face additional security-related costs in the future. It will cost as much as $1,500 a year per driver to provide enhanced security and facility access training. Security equipment, such as GPS systems, could add around $1,500 to new equipment purchases.

This was part of the economic assessment delivered by Martin Labbe, president of Martin Labbe Associates, during the 54th National Tank Truck Carriers annual conference in San Francisco, California.

He predicted that petroleum shipments will increase over the summer, and processed food shipments are expected to rise. However, shipments of industrial chemicals will be flat to down. The greatest decline in chemical shipments is expected to come at the end of the year.

Labbe recommended a number of protective steps for tank truck carriers: Minimize debt by the end of the year, establish a product-exchange protocol, create sound activity-based cost profiles, and minimize long-term contract exposure.

Looking back over the past year, Labbe explained that a number of factors helped soften the impact of the recession. Perhaps most importantly, shippers removed $130 billion in inventory over the past year and a half.

This was beneficial because less adjustment was needed in response to the recession, and it helped profitability. More funds were available for productivity investment. Inventory reduction also gave shippers greater ability to isolate distribution alternatives, according to Labbe.

All of this helped limit the downturn to a relatively shallow recession that started in March 2001 and wound up with a recovery beginning in January 2002. Consumers exited the market for a very short two months — November through December 2001.

The economy has been growing since March, but the process hasn't been smooth. Labbe pointed out that little or no slack is left to squeeze out of inventory. In addition, truck fleet productivity has improved about as much as it can at current rate levels.

While consumers are back in the market, confidence remains weak. The consumer is the key to a healthy US economy, according to Labbe. Many consumers took a hit in the stock market over the past year, and there was a significant decrease in wealth.

While household debt is being restructured, total debt-to-income is a growing concern. Household debt averages 22%, Labbe said. Any rise in interest rates could hurt consumers and may force them to stop buying.

Consumer concerns aside, tank truck carriers are benefiting from the improvement in the US economy. Inventories must be replenished, and various sectors served by tank truck fleets are seeing growth — petroleum distribution and agriculture, among others.

“Housing will be strong, and we see increased demand for construction materials, such as asphalt,” Labbe said. “Chemical demand is growing overall, but we do see problems for some of the sectors that consume chemical products. The electronics industry is in trouble, and we believe there will be little or no growth in the automotive sector.”

In the face of the challenges, managers need to maintain a tight rein over tank fleet operations. “You need to walk away from bad business,” Labbe said. “Let the competition have it. Make sure that you get compensated for your increased security costs.