Tank truck industry breathing easier as economy continues in upward trend

Oct. 1, 2004
WITH THE economy improving in the United States, companies involved in the tank truck industry are heaving a huge sigh of relief after several years of

WITH THE economy improving in the United States, companies involved in the tank truck industry are heaving a huge sigh of relief after several years of a significant downturn.

“Overall, I'm very confident that the positive business climate for the tank truck industry will continue for the foreseeable future,” says Cliff Harvison, National Tank Truck Carriers president. “My optimism is based on today's realities. First, our customer base has accepted the fact that fundamental operating costs — such as fuel, driver pay and insurance — are highly volatile and beyond the control of any single carrier in the marketplace.”

Peter Toja of Economic Planning Associates reports that tank trailer demand jumped 24% to 1,550 units in the first quarter of 2004, and held that level in the second quarter. As a result, first half shipments of 3,100 units were running 47.6% above the comparable period of 2003.

“And, we expect good levels of customer market activities to keep tank shipments relatively stable during the second half of this year before shipments expand further in 2005,” Toja says.

Stainless steel tank production in particular should be in the range of 1,500 to 2,000 trailers in 2004, according to some estimates. That's quite an improvement over 2003 when less than 1,000 were built.

Demand for tank trailers in 2004 to date outpaced the level of last year, says John Cannon of Brenner Tank Inc. However, he points out, the demand has been tempered by rapidly escalating tank trailer prices, largely attributable to surges in metal prices and steel surcharges.

“While we cannot predict the attributes of the tank trailer market with absolute certainty, we expect demand for tank trailers will continue to grow moderately, absent significant further increases in metal prices and surcharges,” Cannon says.

As for expected tank trailer specifications, Cannon says he anticipates increased prevalence of vapor recovery lines on chemical tanks, more migration towards air-ride suspensions on all tank trailers, and more demand for roll stability systems.

Dan Jarboe at Beall Corp says: “Obviously our crystal ball is somewhat hazy from time to time, but I feel that 2005 is going to be a good year for the transportation industry in general and our segment in particular. The pneumatic and petroleum sides of the tank business are going strong and we anticipate this will continue through the entire year of 2005.”

He added that because of the increased demand with business growth and the pent-up demand, the company has seen lead times on new equipment move out and a shortage of good used equipment develop.

Stainless tankers are a different story, though. Lead times are extending out as far as five months for some tank builders.

“The stainless steel side of our business continues to be slower than the other segments of the markets, and we really haven't seen any signs that show real improvement in the next year,” Jarboe says. “Consolidation has reduced the need for new chemical units. We don't anticipate any real growth for 2005.”

David Burke at Boston Steel and Manufacturing reports a mixed outlook for truck-mounted tanks as a result of federal tax issues. While temporary tax incentives for customers boosted his petroleum tank truck business, the tax breaks are scheduled to end by 2006.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 included tax laws that provided a 100% deduction of most new and used non-real estate property assets for the year put in service. Up to $100,000 in value could be deducted (subject to some limitations) in 2003, 2004, and 2005. If Congress does not extend the allowance, the deduction amount will revert to $25,000 for tax years beginning in 2006.

“Business started to pick up about a year ago as a result of the tax advantages,” Burke says, “That really has been crucial to the economy, but I don't know what will happen when that ends.”

In addition to government action driving the market, Mother Nature entered the picture in January and launched an unusually virulent New England cold wave that boosted fuel oil sales. The combination of the tax breaks and weather influences enhanced Boston Steel business by about 20%, Burke estimates.

However, there is a good-news-bad-news aspect in the current increased tank truck sales — and that is the possibility that fleets will be overstocked with vehicles for the next few years, Burke agrees.

Added to that possibility is the reality of rising cost of raw materials such as steel and aluminum. “All raw materials have gone up precipitously,” Burke says. “The costs can't be passed along fast enough to keep up with the increases.”

If raw materials used in manufacturing are on the rise, so is the cost of crude oil. As long as the price stays on an upward trend, or remains unstable, carriers and manufacturers are caught in its web. Making bottom-line projections becomes almost impossible.

“The future is always uncertain in our business because a good portion is tied up with weather and an uncertain situation out of Washington,” Burke says. “We just try to react the best we can.”

At Jack Olsta Company, Taylor Craigen says: “We really saw a jump in orders in April and May of this year because people recognized that the economy was improving. This year's increase is significant, compared to the last three years. We've had some customers order specific equipment that they are planning to use next year.”

Part of the current increase in trailer sales is being driven by customers who previously were allocating capital to tractors rather than trailers in order to purchase power units before new engine emission requirements become mandatory, Craigen adds.

“There just hasn't been a lot of trailer replacement in the last three-to-four years.”

Jarboe also points out that another round of truck-emission reductions will kick in 2007, which will likely prompt prebuying in 2006. “They are already being talked about by our customers. The increased truck cost and weight resulting from the new regulations will probably help the truck manufacturers in 2006 to produce more units than normal, but will affect their production in 2007 because of the big push for 2006 models.”

In addition, while the industry was suffering from a down economy, carriers parked equipment to ride out the situation. As business improves, they have been refurbishing the idle tank trailers and returning them to service.

But now, even those carriers have all their vehicles in service and are in need of more because of increasing business, Craigen says.

“We felt positive this time last year and anticipated the recovery was primed for improvement — and this year it showed up,” Craigen says.

As for projections, Craigen expects continued growth. “Next year is going to be strong again,” he says. “We've already got sales into April of 2005. “In talking with carriers this year, most of them have said they are at full capacity.”

He points out, however, that there are some problems with a quickly recovering industry in that the demand for drivers continues to plague carriers. “Some fleets are turning down business because they don't have a driver to haul it,” Craigen says.

And he agrees that manufacturers are struggling with rising costs of raw materials, which results in price quotes having a short life.

During the next year and a half, higher manufacturing activity will boost demand for a variety of industrial chemicals and gases, Toja predicts. Improving financial performances among the food and beverage processors will prompt greater investment to replace aged equipment in certain fleets.

In addition, 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. The ongoing recovery in exports of pharmaceuticals, toiletries, and personal hygiene products also will support increased demand for new equipment while the rapid growth in ethanol production will boost demands for certain tank trailers.

“After a vigorous 31.2% gain to 6,100 units this year, we expect tank trailer shipments to advance 4.1% to 6,350 units in 2005,” Toja says. “Longer term, a strong level of domestic demand for petroleum products, liquid chemicals, and food and beverage will serve to propel demand for tank trailers.

“Added impetus to tank trailers will come from increased farm activities involving liquid fertilizers, pesticides, and herbicides, as well as an anticipated boost in mandated ethanol production and distribution. From 2006 to 2009, tank trailer shipments will be in the range of 6,500 to 6,700 units per year.”

Harvison says that in the past five years carriers have learned some bitter lessons, but have taken those lessons to heart. “For example, carrier management has been taken to the woodshed on per-load bidding — reverse auctions — you name it,” he adds. “By and large, today's tank truck management won't repeat those mistakes.”

In addition, Harvison says that the length and breadth of the marketplace finally has hit home because there is no marketplace incentive for private carriage, and in intermodal operations the railroads have proven themselves to be better partners than adversaries.

“Having said all that, this is no time for tank truck carriers to become fat, dumb, and happy, he says. “If we are to continue to provide superior price/service options, carriers must find new ways of recruiting and retaining drivers. In today's world, that means find the best talent available and pay them accordingly. Yesterday's tactics of honoring service with plaques, steak dinners, and belt buckles won't cut it today. Good drivers know that they are valuable, and carriers have little choice but to honor that value.”