TANK TRUCK carriers hauling bulk commodity cargoes may struggle to stay busy through the rest of 2007. A sluggish US economy gets the blame.
However, sluggish doesn't mean recession, according to Martin Labbe, Martin Labbe Associates, who presented his annual economic forecast at the NTTC annual conference. He predicted an overall growth rate of around 2% for the year and said slower growth should be seen in a positive light.
“This could still be one of the best years on record,” he said. “Slow growth is still growth, and a recession seems unlikely. Through the end of the year, we should see growth of 1.5% to 2%. Just that much growth will add $240 billion to $250 billion to the US economy.”
A number of factors have contributed to the economic slowdown. Credit has tightened in the housing market. Profits have declined, and some industry sectors may show quarterly losses. Commodity prices are increasing.
Projections show that prices could approach $3.50 for a gallon of gasoline within the next year. Nearly 20% of consumers reportedly have reduced purchases of goods other than fuel. Consumers have begun holding back on big durable goods purchases and are buying lower-priced alternatives.
Higher fuel prices have increased the cost of fertilizer and pesticides. Processing costs are rising, and shipping costs may experience the steepest increases. Manufacturers of primary goods are being hit hard by rising energy costs.
Labbe cautioned that there is a growing threat of creeping inflation throughout the US economy. Cost increases are added to each product at each stage through the supply chain, and that could add up to a significant inflationary rise.
Despite the looming challenges, the tank truck industry remains in good shape. Slower economic growth will affect bulk commodity shipments. However, Labbe sees no widespread decline in overall shipments for the year, although there will be occasional adjustments.
Industrial chemical production should grow by about 2.1% in 2007. Fuel shipments will be up around 4%, and agricultural production should grow by about 3.2%
Substantial short-term growth is projected for bulk shipments of fertilizer, pesticides, and ethanol. “Demand for these products is unlimited at this point,” Labbe said.
Demand for fertilizer and pesticides has soared as a result of record plantings of crops, such as corn, that are used for food products and the surging production of ethanol that is blended with gasoline.
Ethanol production is being driven by federal and state mandates that call for increased use of renewable fuels. These fuels not only benefit the environment, they also help reduce US demand for imported oil.
Labbe suggested that the biggest challenge will be to ensure that food supplies don't diminish as the ethanol production rises. He said that corn probably won't be the longterm ethanol feedstock for a number of reasons.
Corn yields about 370 gallons of ethanol per acre, and there are about 1600 bushels of corn per acre. The goal is for gasoline to contain 25% ethanol by 2010. Gasoline demand will be about 223 billion gallons by 2010, which means farmers and ethanol processors will have to supply at least 55.8 billion gallons of ethanol. Another 42.9 billion gallons of ethanol will be needed in the production process. All of this calls for 266.7 million acres of farmland dedicated to just ethanol.
That's a lot of ethanol and a lot of farmland. Labbe said he doubts the ethanol production targets can be achieved without other feedstock sources. Switchgrass may be the best option, because it can provide four times the ethanol of corn. However, the technology needed to turn switchgrass and other biomass alternatives into ethanol is still in the development stage.
The tank truck industry itself poses another challenge. Labbes estimates that the industry would have to transport 21 million truckloads of ethanol a day to meet the 2010 targets. That works out to about five million tank transports.
That's all very good economic news for the tank truck industry.