GLG News by Jay Thompson

Implications: Truck registrations are important to contrast against freight predictions for planning purposes by shippers, transport companies, industry suppliers, investors and other interested parties. These numbers tell how the trucking companies are planning for the near future. Last month, we authored an article looking at vastly lowered truck build forecasts. This is a look at reality…

Analysis: New truck production numbers are pretty well known, as are dealer inventories. Licensing / registrations shows us the minimum planned capacity (i.e. reality) for the next year, since license plates run for 12-months. One can always add trucks on a prorated basis throughout the year for the remainder of the fleets licensing term (therefore the minimum comment), but that does not effect the overall numbers much.

Government “mandates” (like emission rules) messes with the normal supply-demand equation almost everywhere they are placed. While a number of trucks that were purchased in the 2007 pre-buy stayed on sales lots, another significant number went straight to trucking company parking lots because there was a weakening marketplace and there was still life in trucks running in the fleet. The bottom line for analysts was that it was tough to correlate new truck build versus new / transferred base plate registrations – so real capacity numbers were flaky.

For all practical purposes, those trucks that were on dealer lots and parked at trucking companies are pretty much all in service now - and we have a more normalized flow (for another short period). Dealers are also not ordering non-end user specified trucks, so that they can minimize floor-planning costs. That means trucks built are pretty much flowing into service.

Polk data shows that we are way off in registrations - driven downward mostly by Class 3-7. This makes sense because the majority of those trucks are used a variety of applications that are impacted by both consumer spending and available financing: e.g. Class 3-5 - grocery / bakery stable while landscaping / phone / cable businesses way down; Class 6 - rental / stake-bed (construction material) way off, municipalities in financial trouble and beverage OK; Class 7 - dead construction dump truck industry, utilities cutting costs, work trucks where financing is tough and fuel delivery trucks doing OK.

In Class 8, it was noted that this was the first month-over-month increase this year and since December of 2006 and new registrations equaled the previous years’ numbers. All this says is that sales of new trucks are way down and flat - no surprise. Of course, the September registrations noted are somewhat of a quirk - and nothing of consequence should be read into it. In September of 2007, we were just seeing the end of the prebuy trucks being registered - getting into the fall freight season. All these annualized numbers fall in line with revised expectations.

Trailer registrations follow production levels and make sense due to trailer ratios, stretching out trailer life, etc. The roughly 37,000 per month used truck transactions have actually been up notable as a percent of new - and makes sense due to a variety of reasons (lower values, easier financing, non-’07 engines, etc.). It being the lowest since the last quarter 2006, isn’t surprising because of all the implications of the ’07 prebuy - too many to go into here.

Polk says September is the worst month for Class 3-8 since February 2003. If I recall history correctly, in February 2003 we were trying to overcoming the effects of the Internet bubble-related recession and September 11th, along with the corporate scandals (Enron, Arthur Anderson, WorldCom, etc.). The Dow had trended down three years to about 7,700. There was a record number of used trucks on the market and a wait-and-see attitude about buying trucks with the October 2002 implementation of those “pull-up” emissions changes.

Does history repeat itself? Sure - just change the names (e.g. housing / oil “bubbles,” Wall St. greed, credit, etc.), dates and numbers - and put it in today’s environment. Thank God for NO 9/11!

Implications: The Dow Jones Industrial Average and the S&P 500 are down about 40% from a year ago. The Dow Transports are down 25%. In spite of this, there are some transport companies doing OK as noted in the source article - and deserve some comments as to why - and cautions….

Analysis: Transportation is a leading indicator of the general economy - and things look flat! In the transport world, we have already swallowed the big pills of the dead auto and home building / improvements segments. The other notable segments that are slowing are electronics and other “nice-to-have” purchases. Then there are the basic needs and food, along with lower cost purchases that continue to do OK.

I have a bias, as I have always favored refrigerated trucking companies. Maybe it’s because the first company I owned was picked up in the ’90 recession  - and was hauling beef (food) and Coors (beer). Therein lies the look at all of this from that perspective, but we all know that people eat - even in slow economic times. We also drink beer. PS - I also picked up a flatbed company back then - OUCH!

The Dow Transports include trucking / logistics companies CH Robinson, Conway, FedEx, JB Hunt, Ryder, UPS and YRC Worldwide. All of these are doing better than the rest of the market with the exception of YRC Worldwide, which our colleague Mr. Schultz has recently written about. FedEx, UPS and Conway all have lowered expectations. JB Hunt has slipped a little, but will do well with their Intermodal focus. Ryder is being hurt with dedicated auto business, but other private fleet business is continuing. These all are indicators of the "lowering of the type" of consumer purchases occuring.

The one in the Index herein notes that CH Robinson is doing well (up 10%). Well, I know the math is correct, but exactly a year ago we had that big jump in diesel that really hurt truck profits, so it’s not necessarily a good reference point. My look says that the stock has stayed relatively flat - and that is still good! The other big winner noted is Marten Transport (up 50%). I like Randy and his business (my bias again), but he was hit with the same fuel price hits exactly a year ago. A closer look shows that the stock trend is really flatter - again a great feat in today’s environment. A similar story can be made with Werner. With both CH Robinson and Marten, remember that people eat (and drink)!

On the LTL side, Arkansas Best numbers are somewhat misleading, as they were compared to the same fuel hit a year ago, where it’s really off about 40% from norms. Old Dominion Freight Lines is a similar story, although off about a third. The ones with lower cost modes (and products) are continuing to do OK.

The point of all this is that analysis that are based on numbers can be misleading. Of course, that is some of what led to many of our problems today. Investors doing true analysis versus numbers analysis and herd mentality are the winners. There are some good deals in the market (flat IS good), but we need to look at each with more insight.

Implications: The Mexican cross-border pilot program is slipping into nowhere land - and it will continue to cost us money. Nobody says much about the program with our number one trading partner - Canada. They certainly do about our number two partner - Mexico. But it is not about business - it’s politics!

Analysis: Cross-border trucking operations work pretty well, as long as it is between the US and Canada. As one who helped start a refrigerated company in the US in 1990 that is still running beef to Ontario, Quebec and Nova Scotia today, I can say it works well!

There is a third of the for-hire tonnage that comes across versus that goes domestically in Canada, but revenue is almost on par. That is because cross-border freight goes further per trip and pays well. Just ask all the Canadian carriers running down here - and try to get US drivers to go up there. Canadian trucks running down here are as safe as ours and it’s a great niche. The slowing auto industry (e.g. Ford) however is hurting them too.

The border to the south is a different story. Some have the flow figured out better than others using their own sister companies (Celadon-Jaguar and Swift-TransMex) and those using outside Mexican carriers pulling their trailers (Schneider National, Landstar System, Conway Truckload and others). Most do not, which results a considerable cost penalty of 10-30% - depending on freight-type.

The referenced article and the actual DOT report (you can click the link)offers some interesting data on the pilot program. The 25 Mexican carriers and their 100 trucks in the pilot program are considerably safer than the US fleet. Driver out-of-service violations were one-half of 1% and vehicle violations were 9% - and NO fatalities. This compares to US-domiciled trucking fleets at 7% for drivers and 23% for vehicles. Of course, if you know you are going to be inspected - you do things the best you can. The conclusion was that there was not enough data.

A dirty little secret is that there have been some 850+ Mexican carriers operating 1,700 trucks in the US that were grandfathered in from the 1984-1992 time period. These trucks have violations that are half that for drivers at 3% and on par for equipment at 23% - as compared to US-domiciled fleets. Even the 7,000 carriers with “old” trucks operating in the commercial zones had low number for driver violations at 1% and on par for equipment at 22%.

As one who is active across the border, I can say that most Mexican carriers don’t wish to go through the expense of passing all of the criteria in the process if the program is short-lived. Plus, they can’t get drivers to do it (other than in the border commercial zones).

There is also the concern today whether the program will be nixed with the new administration. The Teamster-led opposition will get the pilot program killed - for sure now! A one prominent politician stated at one point in the Nixon’s almost-impeachment - sic “Don’t confuse me with the facts, my mind is made up.”

Politics trumps smart business decisions. But that is in vogue in DC for all businesses!

Implications: Truck idling versus Auxiliary Power Unit (APU) Return-On-Investment (ROI) got some real and negative feedback in a recently completed North Carolina State University / Volvo Truck EPA-funded study. Bottom-line is that the ROI is tough at best and from the study: “Previous avoided fuel use rates and emissions benefits from APUs may be optimistic.”

Analysis: Exactly two years ago today, we offered a missive regarding truck idle reduction and questioned the ROI of APU’s. In the implications we noted - “Without municipalities’ legislation and owners having to address driver comfort (retention), the financial ROI is cloudy.” That still holds true today, even worse with lowering fuel costs.

The study showed that real life operations showed about half the reduction in idling as quoted in many ROI selling points. This is due to several factors. One is that the amount of idling in good operations (especially those who may really purchase units) is lower than expected. Next the amount of idling varies by individual drivers. Then idling varies with team drivers versus single driver operations. Idling varies with types of operations - LTL, local, regional, etc.

As one who utilizes APU’s, we find there are other considerations including maintenance, weight (in weight-sensitive operations), other idle-reduction options from OEM’s, fuel-fired heaters, electric mattresses / blankets, truck stop electrification, cheap motels, etc. Driver incentive programs can actually work better than most things. The falling diesel fuel prices push the fuel cost savings and ROI timetable out further than some trade cycles, let alone even offering a breakeven point (depending on operations).

Their conclusions are telling: “…these findings underscore the need for careful evaluation of the appropriateness of incorporating APUs to reduce idling and, once selected, to provide incentives and training to increase drivers use. Payback periods may not justify APU use unless APU use and fuel costs are high, researchers said. They also concluded that driver incentive programs are needed to encourage low engine rpm, high APU use and reduce double dipping (running the truck engine and the APU at the same time).”

My concluding paragraph from 2 years ago still stands: “One must be able to intelligently discuss the right approach with the purchaser, which needs work. It’s down to selling the ROI and we all have a lot of work to do here! Unfortunately, one size does not fit all and we must be more sophisticated in addressing individual needs.” Shoot - we could have saved EPA most of that $500,000 they spent and a couple years time - and even given more conclusions!

Implications: The food, energy and Biofuels industries all heavily depend on feedstock. I agree with colleagues Mr. Moser and Mr. Timpano regarding food versus fuel, future feedstock’s, food security and sugar cane use for ethanol. After recently attending a Purdue (my alma mater) meeting wearing my Zenergy Bio Fuel - switchgrass, miscanthus  & Jatropha plantations - and old farmers hat, the numbers that were shared paint a sobering picture looking ahead. Government representatives and politician’s who drive the policies are definately not business people.

Analysis: While other GLG colleagues can speak to many more of the ins and outs of macro agribusiness issues, the chickens are coming home to roost in the dirt-kicking world. Along with the drastic rise in commodities, came increased input costs. While the last two year have been very good for farmers, it’s looking like a pretty ugly picture coming quickly.

First, an important parameter within the world grains discussion for food and fuel is the grain stock-to-use ratio. For corn, soy, palm, rapeseed and rice, it’s the lowest since the 1970’s. For wheat, it’s the lowest ever.

In looking at corn, 61% of the increased production over the last three seasons went to the feed, seed and industrial (FSI). The industrial piece was the vast majority of growth made up by ethanol production. Corn for ethanol per USDA was 1.1B Bushels in ’04; 1.3B Bushel in ’05; 1.6B Bushels in ’06; 2.1B Bushels in ’07; 3.0B Bushels in ’08 and est. 4.1B Bushels in ’09. This is out of a fairly consistent approximate 12B Bushel total corn use.

The bottom line for corn is that the US and World stocks are tightening and there is not enough for feed, fuel and foreigners. Corn is clearly linked to crude and gasoline prices and the yearly prices will be the highest on record - causing multiple food problems looking ahead. The good news is that the Renewable Fuel Standard will flatten corn demand, but drive it to cellulosic (a different missive). The question whether corn is a good source for any fuel is a valid one.

The Biodiesel side presents a similar picture. US and World stocks are very tight with 38% of the growth over the last three years in industrial use of oils was due to Biodiesel expansion. Soy went from 2 to 9% of the total; rapeseed went from 5 to 25% of the total and Palm from 16 to 23% (dampened by ecological reasons). Foreign buyers will have 13% less soy available to buy and yearly prices will be highest on record. South American growers (like our colleague Phil Corzine) will play a bigger role in the future.

The bad news - input costs are through the roof. Nitrogen costs are up 50%+; Phosphorous costs are up 75%+; Potash (Potassium) costs are up 100%+; corn seed costs are up 25%+; soybean seed costs are up 20%+; pesticides costs are up 20%+; machinery costs up 5%+; fuel is up 75%+ (this season) and insurance is up (follows crop prices). Total costs for this year - corn at $5 per bushel and soy at $11 per bushel. Last year it was $4 and $9. All of these price increases have helped the bottom lines of those industry suppliers.

The good news is that crop prices have been very good over the last couple seasons - following fuel prices. But now more bad news, grain prices are dropping with fuel prices. The corn futures prices are now south of costs, so 2009 will be ugly. Corn has been very profitable over the years, but looks to go a little negative next year. After negative years in ’05 and ’06 and goods ones in ’07 and ‘08, soy looks to go a little negative next year, too. For those interested, wheat has followed a similar picture to that of soybeans.

It reminds us from farming backgrounds of the typical historical profits - slim or upside-down! The net result will be lower production, but we still need to feed the world, too!

Implications: The forecast models used by the industry to predict equipment sales needs a readjustment. The forecasting models included diesel prices, metal prices, industrial production, manufacturer orders and personal income / spending, but they had not used at least one major factor - financing availability - until now. While it is not an active parameter in most models, look for it to be added (and played with) - ASAP!

Analysis: That old adage “good information leads to good decisions” is true - and vice-versa. Many were heading into 2008 with expectations that there was going to be a truck and trailer build rebound from the 2007 compliant engine pre-buy hangover, but some of us in these articles offered caution early this year. It was due in part to a tougher financing marketplace starting 3rd quarter 2007, but also including slowing freight, the number of used trucks on the market, excess truck drivers in the marketplace, etc.

In March of this year at the HDMA Heavy Duty Dialogue 2008 in Las Vegas, the best-known forecasters each came in fairly close to each other on Class 8 North America numbers: Chris Brady of Commercial Motor Vehicle Consulting - 233,500 trucks in 2008 versus 204,500 in 2007 and then 368,700 for 2009 and 290,000 for 2010. Martin Labbe of Martin Labbe Associates - 246,700 for 2008 with a “recession” caveat - “all bets are off.” Kenny Vieth of A.C.T. Research - 235,000 units for 2008 versus 211,000 for 2007 with 350,000 for 2009; 263,000 for 2010; 291,000 for 2011 and 309,000 for 2012. Stu MacKay of MacKay & Company - 220,000-240,000 for 2008 versus 152,000 in 2007 with 2009 at 280,000-290,000 trucks.

Then last week per the referenced source article, the predictions were dramatically revised downward. Bill Witte, director, Center for Econometric Model Research, Truck, Rail & Intermodal Freight and Transportation Environment and Eric Starks / Noel Perry with FTR Associates predicted a year of negative GDP growth and a market at about 150,000 units. As noted in previous articles, we agree that those.
 
As noted in my colleague Mr. Schultz in his recent article “Addition By Subtraction - Where Have All The Trucks Gone?” - many fleets are adjusting their truck buying schedules based on their company fleet downsizing. Others like Schneider National are not down-sizing, but keeping their company fleet size about the same and adding Independent Contractors in strategic locations. I must agree that capacity in all segments on the road has notably decreased with an exception of the refrigerated segment.

While parked trucks and trailers are noted in the source article and by Mr. Schultz in his, another underestimated number is the quantity of trucks parked in OEM / dealer “storage” lots. A survey of major manufacturers shows that their lots have about half the trucks they had after the 2000+ glut, but the number of trucks on guaranteed return programs today are dramatically less today than then. In other words, there are many more trucks parked at fleets and OEM / secondary-market dealer’s lots that will come back into service before new trucks - in part because of the changed financing world and lower financed cost. Then, those keeping trucks longer will be a factor. Additionally, exports of used trucks have been exaggerated.

To summarize, 2009 will probably be a little better than 2008 - but not by much. 2010 will be tough again. As one heavily into the financing world, I can say that we believe that easy financing is over - and with that goes the more aggressive trade cycles for the majority of the marketplace!

Implications: How quick can one get in and out of a Chapter 11 filing? Pretty quickly if one has their ducks lined up. It does say something about trying to roll up a bunch of companies, carrying a lot of debt - and then being faced with a trying marketplace.

Analysis: GreatWide Logistics Services - a Top 20 Logistics Company - jumped into our consciousness in 2000 when they started combining some 50+ companies to make the $1B+ company they are now. They have some notable successes with dedicated contracts at Walmart and Tyson Foods.

Landstar is the perennial asset-light business model with sales over double of Greatwide and good consistent profits. The asset-light model usually is one that can best handle a slowing marketplace.

GreatWide has considerable debt - noted in the filing $500MM to $1B - with about 25,000 creditors. The biggest unsecured creditor is USB with $90MM with Comdata (fuel) following with $2.5MM. Then there is Fenway Partners at $2MM, Pilot Truck Stops (fuel) at $1.4MM, Primera Insurance at $1.4M, then thousands of creditors owed thosands of dollars for freight, leased trucks / trailers, satellite communication equipment, etc. In the pleadings, they claimed that they filed due to high fuel costs, slowing freight and increased insurance collateral.
 
Centerbridge Capital Partners and the D. E. Shaw group has offered to buy Greatwide assets out of Bankruptcy, along with putting up some $70MM+ to continue operations. GreatWide have some good companies in their portfolio - and some of those had tended to prop up sister companies. Communication, cross-selling and relationships are critical.
 
Looking ahead, does this endear them to their brethren in the marketplace who sold them products or hauled their freight? It depends on how they are handled - but many have long memories. It will be interesting.

Implications: Daimler Trucks North America (DTNA) has made decision to eliminate their Sterling brand. This has some interesting implications, but it means little - in the big scheme of things.

Analysis: For us who have been around a while, the Sterling brand was still really the old Ford Louisville Line. Automaker Ford sold it a decade ago to Freightliner and it was renamed Sterling. Even so, the old Louisville line was very popular with many LTL carriers before deregulation - and even since, along within the construction / municipal segments.

Fast-forward to today and the numbers tell the story. Through 2007, Sterling’s Class 8 market share had stayed as high as 8% with Class 7 at 3.5%+ and Class 6 at 1.5%. This year their Class 8 share has dropped to 5%+ in part due to the soft LTL and construction markets. Their shares in other classes stayed about the same, but in the hundreds of units per month.

What does this mean? This is bad news for 2,000 union workers in Canada and Portland, Oregon where trucks are made. There are also currently up to 1,500 DTNA salaried personnel being offered early retirement or separation packages of which over a third are related to the Sterling closure.

Additionally, the Western Star branded trucks currently assembled in Portland will be moved to Freightliner’s Saltillo Mexico plant - virtually clearing out all of the Portland operations except for top management. They will probably heading for Ft. Mill, SC in the next few years.

Sterling will take final dealer orders for trucks in mid-January 2009 and cease production in Ontario in March 2009 - and in Portland mid-2010 when that union contract expires. Production is set to commence in Saltillo Mexico in February 2009 for the Freightliner Cascadia with others to follow. The overall plan is expected to cost about $600 million and save almost $1B by 2011.

Much of the Sterling line was competing with Freightliner brands with Class 6 & 7 market shares 10x that of Sterling’s. The Class 8 Sterling trucks that go into the LTL segment may get spread to Volvo and Navistar - and Freightliner. That won’t move the numbers much anywhere.

As expected, some dealers are grumbling as they will eventually loose more lucrative parts and service work for all brands.

Implications: The “Green” movement in the trucking industry should be an evolution, following normal equipment life-cycles. Mandates for new equipment have ended up being expensive with retrofits even moreso. The way to think about trucking companies wanting to become more green - is to think about it in terms of how we do it on a personal level with our cars, pickups, etc. We all want to do our part, but also want it to be cost effective, fair and make sense.

Analysis: Truckers and trucking companies philosophically generally have several goals, along with making money. One is to be safe. We don’t want to hurt anyone. Next, we want a good image. Clean trucks (and drivers) make customers happy - and DOT cops leave us alone. That includes not wanting stinky and smoky trucks. Along with that is to be legal / moral. Also, many probably don’t realize how helpful and spiritual truckers are.

In the big scheme of things, engine emission systems are not on the top of the To Do list. There are basic ones dealing with freight (traffic lanes / rates / surcharge), utilization (productivity-related approaches), information-technology hardware / software, fuel management programs, driver recruitment / retention, insurance (operations & people), DOT / DHS safety / security compliance programs (licensing, logs, etc), maintenance / repairs, Federal v. State v. Local rules / laws, etc. Then there are all of the issues with financing which leads to funding fuel, payroll and buying equipment. You can sense where emissions fit into all this - it varies.

Being ‘Green” also means using less fuel by slowing down / idle reduction, better routing planning, minimizing / recycling paper in the office, letting people work from home, better office lighting, light-weighting equipment / taking advantage of increased load capacity, minimizing deadhead, etc.

Emission rules generally followed build dates of engines. Mandates made by government entities of course led to these changes. The way most think about such are to start doing something, but it also has to be fair as compared to automobiles, pickups, motorcycles, lawn mowers, construction equipment, farm equipment, locomotives, boats, busses, fork lifts, etc. In congested areas where pollution is worse, we do see where city buses, government vehicles, refuse trucks, etc are cleaner for obvious reasons - and it makes sense.

When one looks at the trucking industry, most feel that the market will purge itself over time. It’s just like what happens in the auto industry. Technology / maintenance costs / fuel mileage changes how much we drive them. Engines don’t pollute until we start them and emissions are  directly proportional to fuel used. As trucks age, they are run less miles per year. After ten years, we see them showing up in places like farms, carnivals, local dirt-hauling, cross-border work, etc where usage is low. And trucking is rural. The contentious area today is that from the ports / rail terminals, which is being addressed quite expensively through programs - but is a good model to assess cost / benefit for future decisions.

Trucking emission rules have tightened so much - so quickly - that we believe we need to let the natural vehicle attrition cycle take place unless in extreme circumstances - and let the industry purge the system naturally. Most know that the ’02 mandated systems still don't function that well, but it didn’t put trucks on the side of the road when they fail. I remember all the old unique CARB engines from the ‘70’s-‘80’s that didn’t work, but at they at least ran OK when the emissions systems quit. More recent engines are more complicated and have yet to prove themselves - and we hope problems subside. We believe that current systems aren’t the best answer - and updated approaches to come soon will be better for any retrofit.

Finally, tightened emissions rules are ultimately good for our health and well-being. It must however be done fairly across the board. Trucks have gotten much cleaner in steps - and we can get to a cleaner world in the normal cycle. Trucking companies will continue to do their part to be “Greener” without government programs (no more - please!). If anything, we need incentives for other more pressing matters. For the millions of vehicles on the road today, I really question the true cost / benefit - and ability to do it fairly.

Implications: New logistics, load planning and other supply-chain approaches are being taken to lower cost. Those doing it the same old way are being squeezed. As our colleague Mr. Schultz notes, freight has slowed and trucking company failures continue. Load makeup is changing and some are actively addressing it. Then there is all of the supply-chain safety and security issues on the table - and being green, too.

Analysis: There is considerable discussion (debate) in the manufacturer-shipper world about how to take more money out of the supply chain. There is also a trend away from the "Big Four and other 40,000-foot / we have the right process" folks to more down-to-earth logistics providers like FedEx Supply Chain Management, UPS Supply Chain Solutions, Caterpillar Logistics and Exel. The other interesting trend is actually toward those who not only have planning systems and warehousing, but also have assets (trucks / trailers) to move it for several reasons - like Ryder, Penske, Con-way, Schneider, JB Hunt, Greatwide, other Intermodal carriers, freight forwarders, etc.

Freight salespeople and load-planners with a real understanding of their customers can make money - while saving shippers, too. As load makeup changes, smart load-planners adapt by engaging shippers / receivers to maximize trailer space and weight capacity. We see this done constantly in weight-sensitive segments such as refrigerated, but can be done otherwise with schedule / route readjustments like being done in the auto industry. Asset-less providers are less able to effect such change.

It’s also not a surprise that when carriers change package-size cost criteria, as customers adapt to minimize cost. Some shipping less weight per package also recognize that there is savings to be had by being more flexible versus time-certain schedules. We do see real discounting anyway, which comes right off the bottom line. Another key issue is trust and relationships in all of this. When shippers find out from contemporaries that logistics-providers weren’t really looking out for them, they look around (and many are doing such).

Separately, I like the “cost-of-green” analogy from the standpoints of cleaner engines and the coming carbon-credit schemes. We all pretty much know about the added costs of cleaner engines, catalytic converters, maintenance etc. This is estimated to be at least a couple of percentage points cost against revenue. When we add in what offsetting carbon emissions will cost once mandated, plan for at least a thousand dollars per truck per year (120,000 miles per year divided by 6 miles per gallon = 20,000 gallons per year times 20 pounds CO2 per gallon diesel converted to tons = 200 Tons CO2 per year. At $5 per ton = $1,000 per year). These costs are also being looked at as a sales tool as an additional “green” surcharge to try to offer.

Also, I’d love to see a freight recovery. But the consumer is telling us they’ll eat at home, get by on less and cut other expenses (like gas). Those into basic food and consumables for daily life will always do OK in such an environment. A mid-2009 recovery sounds optimistic to me…

Implications: As per the referenced article, new truck orders worldwide (not just in the US) are falling - signaling a global slowdown. The forecasting models are being updated because the financing wildcard was not traditionally seen as a big factor - but with what? Freight, Fuel and Financing are the intertwined issues that have contributed to the past swings - along with EU / US Government regulations. Are we heading into a new (old) era? Probably for some.

Analysis: In looking at past / current housing Bubble(s), the oil price Bubble(s), and credit Bubble(s), it begs the question. Is the 25+ year run of churning new trucks going to be looked back upon as another Bubble? Will we go back to a more traditional financing / trade model for the majority of the market? We can compare it to similar questions within the auto industry and aircraft industries, but I guess it depends on the definition of a Bubble.

Investor-speak-wise, some say a bubble is something like rapidly rising equity prices within a sector where some investors feel it is unfounded. In common-speak language for us in fly-over country, I think it is more about behavior that lasts long enough for people to accept it as a new reality - when a rational analysis would show that things are too good to be true. Kind of reminds us of the lead-up to the 2000 truck glut in some respects.

Many things changed starting over a year ago - especially with fuel prices and financing. It’s no secret that big-time player - the secretive GE Capital - tightened lending, has a liquidity problem, and are trying to liquidate equipment via stepped up auctions today. Trucking companies otherwise have traditionally had choices in cheap financing including big banks, local banks, OEM financiers and others. A driver in all of this was the pouring of money into all types of credit - with trucking financiers getting their share, too.

The major companies we are talking to say their credit is OK - and their buying plans are more tied to freight levels -  and slowing. OEM financiers like Paccar Financial, Daimler Credit, Volvo Credit, Caterpillar Credit, etc. have plenty of cash and are lending too, albeit with tighter standards and higher rates - up 200-300 basis points today over 6-months ago.

Credit is tough to impossible for those without stellar credit scores or with poor plans. This is an issue with smaller transport companies around the globe - the majority of the marketplace!.

The result are “stunned” truckmakers around the globe with cancelled orders, less quoting and layoffs -  Volvo laying off 1,400 workers in Belgium and Sweden, Paccar’s Kenworth Australia “sacking” a hundred (1/3 of last years build rate) and more elsewhere.  

Many of us saw this coming. It’s an opportunity for those with good parts and service chains, as operators are gearing up to keeping equipment longer. Many in the industry don’t realize that fleets used to keep their trucks for a decade or longer. Some never changed from the old “keep-em-forever” ways. Higher equipment prices, higher maintenance costs and higher interest rates (even if one can get any financing) may be changing the Bubble.

Was it a Bubble? It depends what the definition of “is” - I mean Bubble is! Time will tell, but…….

Implications: The contentious LA / Long Beach Emissions programs have started without disruption. My colleague Mr. Schultz gives a good overview of the program, litigation, etc, so I’ll offer some numbers and a few comments and about what is happening on the ground today.

Analysis: The first step in the LA / Long Beach Ports Intermodal Emission program kicked in October 1. The net result was that it banned about 1,500 trucks that were older than 1989 from entering the ports. Looking at the numbers, container business through the ports is down 10% from last year due to a softening economy. This says that the estimated truck count last year of 16,800 can be covered with about 15,150, which is the number of access permits issued. This means that just from this perspective, freight would be covered.

Truth-be-known, some of these older units are still pulling containers, but from trucking company yards to their destination - as they have in the past. Fleets have made some moves in steps for years 1.) getting containers out of port; then 2.) getting container to receiver dock for appointment. One can use compliant trucks to pull the containers from the port to the trucking company or other staging yards in this flow. Otherwise, some had pulled their older trucks anyway early this year after peak holiday container flow and when freight started slowing.

Truck financing and rebate numbers versus the port Intermodal trucking financial model is a tougher issue. We think Daimler Truck Financing have approved a couple hundred new and late-model trucks now that will go into the program - with other OEMs with smaller numbers. We have been trying to help some - and credit is a problem (no surprise).

For those making truck payments today, the issue may be a monthly payment increase, but the bigger issue is the residual versus amount owed. Otherwise, the average pretax income for LA / Long Beach operators is about $30,000+ per year on a gross of $65,000+ (less fuel and all other operating expenses). Truck replacement net cost (truck cost less rebate) can end up as low as $25,000 or about $600 per month. Add in higher taxes / registration and subtract lower fuel and maintenance - and planning numbers come out an estimated $500 per month / $6,000 per year. This takes the net take home for operators’ drops down to $24,000 - ouch! One can see the issue - one that the Teamsters are playing loudly.

Looking ahead, it will be interesting to see how Knight Transportation and Swift get involved. It will offer them opportunities for both moving containers and selling compliant equipment to operators. The next step is January 1, 2010 where all trucks must be 1993 and newer emissions compliant.

Implications: A major industry supplier is back in trouble - and is an indicator of things to come. Accuride CEO John Murphy has resigned after 11 months at the helm. It shows how one plans for swings and also shows the importance of parts and service sales in smoothing them out.

Analysis: August new truck sales numbers are coming in less than some had hoped - and the outlook keeps softening for a variety of reasons. While August numbers in Class 8 were up for Daimler’s Freightliner, Navistar and Volvo’s Mack Division; YTD sales for all Class 8 are down almost 23% over 2007. Only Navistar Class 8 numbers are up (2%) YTD primarily due to their Prostar model being available just this year compared to poor sales last year. All other truck-makers and classes 4-8 are down, both monthly and YTD.

Accuride Corp companies include a major wheel supplier (90% of new steel wheels), wheel end parts (brake hubs, drums, rotors, etc.), truck body parts, seats, axles and other components. Accuride went through a turnaround after the 2000 swing and has done well over the last several years because of the dramatic sales of new trucks. Fast forward to today and they are back in trouble.

Part of the reason is obvious (sales), but another can be seen in one of the announcements - they named a new VP of Aftermarket. I can speak as a buyer of their products - in that they don’t have an aftermarket market or presence. We tried to buy some products from them - and it was impossible. They are also looking at moving more wheel manufacturing from Canada to Mexico - where they claim they have more business today anyway.

Others have been through this previously and they took action. Cummins now corporately has half ownership of most of their formerly independently-owned distributors, which has bolstered their aftermarket profits. Caterpillar parts sales are always a big plus. Paccar has long tied down parts sales to smooth out cycles, which can be seen in their quarterly consistent profitability. Freightliner has all the service points at TA Truckstops. It’s that old razor / razor-blade approach that Accuride is thinking about - again.

Implications: The Federal Government intervening in the investment world makes the monumental work done in New Orleans before and after Katrina look like small potatoes. Successful people and businesses focus on what they are good at. The devil is in the details on how it gets done, but government in action can be seen in both New Orleans’ evacuations. After the recent Gustav SNAFU compared to Texas’ Rita and now Ike, the issues within an asset-light model come to light. Too many Bosses in the chain - again.

Analysis: I don’t like governmental entities telling us how to do anything, because they don’t do much very well - except dealing with our national safety / security. It is the non-Washington crowd that gets stuff done. The Katrina mess was full of lessons. Full disclosure - we supplied trucks / trailers / personnel and assisted in getting busses, along with one of our managers losing his home during Katrina.

The referenced article shows some of the fallacies within business models. Landstar has an asset-light model, meaning they act as a facilitator for moves of freight (mostly) and also people (in this case). Landstar has numerous government contracts including military (big player) through to disaster relief  where they are moving freight - and they do that well. One key asset is their planning “systems” - which look good on paper - but it takes people and equipment to execute.

In the case of this article, Landstar had a contract to move people from New Orleans - again. How did a freight-focused group get the contract? Of course we know part of it - political connections. Should folks in the people moving business like FirstGroup America, Trailways, Coach America and the thousands of bus companies (or even American Bus Association - ABA) really be in the lead? The answer can be derived on your own, but here are some thoughts.

The Katrina mess was due to a mix of problems with FEMA through FAA  to Landstar who was to assemble busses. Why Federal Aviation Administration was administering people-moving program via ground is puzzling, but...

While they told each other and the people in New Orleans that all was in place, it was far from that. The stories are breath-taking, but the bottom line in that the other real players in the market with real busses came to the rescue despite FEMA or Landstar. One of my clients’ sent coaches at the request of local officials and ABA, but where they were sent with people on-board is another story. Getting money from the Government for that work was yet another story.

When Rita hit Texas, the local Texas authorities engaged their own plan with real bus companies - and the results were totally different (no news stories to speak of except that one with uncertified operator).

Fast-forward to Gustav this year and Landstar again unable to react in a timely manner - and the result was Louisiana Governor Jindel making the decision to use local buses with National Guard drivers in lieu of Landstar - albeit without needed planning systems. While Landstar said again that they “learned lessons,” the lawsuits will be coming.

The asset-light model looks look on paper, but one must still focus on what they are good at - AND lets remember that expecting the Federal Government to really do anything in business is “Risky Business!”

Implications: American Trucking Associations (ATA) economist Bob Costello says in the referenced article that the financial turmoil in the marketplace is not a variable in their model today - making it difficult to make predictions for the trucking marketplace. While much of their information is data driven, ours is more from addressing requests and problems - and then making predictions from surveys of small trucking companies. Our leading indicators include shipper credit / payables, trucking company financing, dealer sales outlook and input from traditional banks.

Analysis: We all hear what is going on with larger fleets, but small fleets make up the majority of the marketplace. The majority of their shippers are also generally smaller, but also freight comes from brokers. Our GLG article from 9/12 addressed some of the equipment financing issues - and those continue. Used truck financing availability is starting to exert downward pressure on used truck values and of course residuals and financing terms.

From a trucking company / shipper relationship standpoint, credit is being used as one reason for slowing payment for freight charges with some major shippers openly advising freight carriers that they are stretching out payables. Others are just doing it. Another discussion gong on at shippers has to do with high inventory levels and their cost. The implication for trucking company planning purposes is that they should plan for downward adjustments because of inventory carrying costs.

Dealer requests for providing trucking companies assistance in getting financing have increased. Part of the issue is to help explain poorer recent profitability (as we have noted previously), while other issues include just finding financing with doable terms. Rejections by the same-lender to same-customer jumped from the first of this year with some well-known banks just declining to quote.

While we are involved in ongoing queries, onsite visits with fleets at banks can be epitomized in the following. At a Bank of America bank meeting this week, with complete paperwork (unlike in the past) and a credit score of 700+, they offered really unworkable terms (75% of financed amount at Libor + 8). This particular trucking company is obviously cutting their planned replacement purchases by two-thirds.

Large fleets and Private Carriers will be less affected and will follow a more traditional decision process, while issues will increase in the current climate with the majority of the marketplace (smaller operations). Bob Costello is right in one sense - Trucking is definitely a leading indicator! More to come in future missives……

Implications: Trucking equipment financing is following that of auto-financiers - again. It has been disappearing! As predicted in the referenced article (and by this writer) from a year ago, it’s here! Without readily available financing for trucks and trailers, what does that mean for new sales for the next few years? Turmoil…

Analysis: Trucking takes - and flows - a lot of cash. As we have written in past GLG articles, the issues of freight, fuel and focus are important, but financing is essential for funding business variability - and for growth. A look at the current marketplace tells us to not expect anything to brag about for the foreseeable future.

Before deregulation, truck financing was pretty much an individual thing for each company. Afterward with the expansion of new fleets came financing packages modeled after that from the auto industry. This brought even more new creative credit products and competition. Along with these came problems through the ‘90’s - culminating in the 2001 industry cleansing.

While there are dozens of financing approaches today, it still mostly comes down to risk mitigation issues with terms / interest rates being the equalizers. We need to differentiate the new versus used market, as the financing for new drives numbers most people watch - and the used segment has even more interesting approaches we will cover at another time (I’m personally active in it, too).

In a general sense, fleet equipment financing options include approaches that depend on fleet size and type. There are Bonds used for some of the largest fleets like Swift, along with that for other rolled-up paper. Then there are some major banks like Bank of Montreal / Harris Bank and Bank of America / LaSalle who tie in receivables and equipment financing for other major fleets like Yellow-Roadway, Schneider National and US Xpress. Hedge Funds / investors are also active in larger packages, similar to Bonds.

Private fleet financing can be segregated by that funded through the parent company such as Sysco, Walmart, Pepsi, Tyson Foods, etc. Also within the private fleet segment (such as Sherwin Williams) are those leased through the likes of Penske and Ryder. There are then OEM Financiers like Paccar Financial, Daimler Finance, Volvo Credit and Navistar Financial who finance 20-30% of their own new.

The majority of the marketplace is still financed by more traditional means. These include GE Capital, GMAC, Ford Credit, Financial Federal (public), other larger banks (e.g. BB&T, Chase, US Bank, Wells Fargo, Key Bank, WaMu, etc.), small / medium banks and other investor-owned financiers. Credit scores and down payment numbers have been raised significantly from these entities, so in no uncertain terms, credit is tough!

Fleets who have financing available to them are being cautious - and will base decisions more off of the freight marketplace. There are others doing more lease equipment for an asset-medium approach. Additionally, fleets are growing logistics / brokering and utilizing more Independent Contractors.

We all know that banks have a lot of cleaning-up to do first from housing - then credit cards - before credit for assets loosens up. Stable home prices will clarify a lot in the credit markets - and the bottom will set the stage for future lending. Housing will not only be a factor in our freight recovery, but also for truck lending. We don’t expect this to be done until at least mid-2010. Our current surveys and work lead us to predict a credit void that will affect new sales numbers at least until then.

2009-2010 truck sales numbers will disappoint many, as we have been lowering our predictions due to credit alone - let alone other factors. Dealers are trying hard, but… Some are predicting numbers more like 2008 for 2009 - and we are trending that way. We’ll cover more later.

Implications: With falling diesel fuel prices, what does that mean for trucking failure rates? Additionally, at what fuel price should we see the numbers settle down?

Analysis: There are many factors that contribute to trucking profitability / failures. Companies tip over when the weakest link breaks in a chain. The major issue is fuel prices as always - with the contributing factor of getting fuel surcharge to offset it. Closely associated with that is fleet fuel mileage as a result of equipment specifications and operations. Then there is the whole freight supply-demand issues that gets into freight rates and utilization - both notable. The rest of the numbers are smaller, but may contribute.

There is also the often discussed cash flow issue that comes about with increasing - and high - fuel prices. At current fuel prices, a trucking company floats about $7,000 per month per truck in fuel cost alone before getting paid for hauling the load a month later. This amount has almost doubled over the last year, which has created cash flow issues similar to that experienced when one is growing. A good line of credit or cash management program helps here. With lowering prices, this pressure is diminishing.

The diesel price issue versus fuel surcharge issue becomes more apparent when looking at actual numbers from fleets in trouble. We have seen numbers from several thousand trucks now and the numbers are fairly consistent. It has to do with the ability to get surcharge and having fuel mile per gallon above a certain level. It’s not an absolute number and single item, but a good set of criteria to follow.

A key issue is the level of fuel surcharge. Those not getting any fuel surcharge are long-gone. In early 2007 when fuel was $2.50 per gallon, one needed about $0.20 per mile surcharge which far exceeded the $0.05-$0.10 profits in a typical trucking company. At today’s fuel prices, one should be getting surcharge in excess of $0.50 per mile.

Most fuel surcharge is being pegged at 6 MPG for freight billing. What that means is that fuel surcharge is calculated to be the fuel price when the load was hauled minus what is included in the freight rate - all divided by 6 MPG. If you get less than 6, low lose. Greater than 6 MPG and one will do better. That is one of the reasons we see the push for fuel mileage (e.g. slowing truck down) - and 6 MPG is the often quoted target for obvious reasons.

In the real world, the average fleet running current speed limits get worse than 6 MPG - actually fleet averages are closer to the mid-fives MPG. What this means is that as fuel prices rise, fuel costs eat away at profits while getting full fuel surcharge - to a certain point. Under these circumstances and where typical fleet profits are about $0.04 per mile, this occurs at about $3.30 per gallon. The length of time one can continue to operate depends on available cash, lines of credit one can tap, etc. Higher fuel prices accelerate the process - as will getting worse fuel mileage.

One can compare fuel prices versus business failure history - and they correlate all to well. Until fuel prices moderate back close to the $3.30 per gallon level, expect to see failures / bankruptcies at elevated levels. Also expect to see continued focus on fuel savings of all sorts!

Implications: IdleAire and its “ATE designation” has been purchased by a group including Airlie Group, Kenmont Investments Management, SV Special Situations Fund, Whitebox Advisors, Wayzata Investment Partners and Wilfrid Aubrey, LLC. Their transition to a new management team is being handled by CGR Partners. The basic premise of the business, investment required and competition will make for a rougher road ahead.

Analysis: At the Great American Truck Show a couple weeks ago, the underlying theme was regarding fuel savings. While fuel efficiency is primarily affected by drag (speed / aerodynamics / etc.), the next major issue is idle reduction. Another benefit of idle reduction is emissions-reduction. We all get it, but the real question is how does IdleAire fit into the rapidly changing competitive environment?

We had written of their demise in the past with the current Truck Stop model, so it will be interesting to see how they retool their approach (perhaps just should do shore-power). For the longer-term, one should look at the trends of OEM’s with built-in heating / cooling systems. Additionally, the fast-changing entertainment / communication technology (e.g. satellite / Wi-Fi) makes even more options available to choose from.

Then there are many other idle-reduction technologies available, including (alphabetically):
---Bergstrom, Inc. - NITE HVAC system offered in Daimler’s Freightliner Trucks
---Cab Comfort (Division of Dometic Corp) - Battery-powered HVAC systems
---Caterpillar Inc. - Engine electronics and diesel auxiliary-power units
---Cummins, Inc. - Onan diesel auxiliary-power units
---Espar - Diesel-fired cab / engine heating systems (offered by Navistar)
---Frigette Truck Climate Systems Inc.- HVAC systems
---Paccar - HVAC heating / cooling system
---Phillips & Temro Industries (Division of The Budd Co.) - ZeroStart product-line
---Phillips Industries - Systems to deliver AC power into the cab/sleeper
---Pony Pack - Auxiliary power units integrated water, fuel, electrical & HVAC systems
---TruckGen - Diesel generators
---Webasto - Auxiliary heater systems & air conditioning systems (offered by Navistar)
---Xantrex - Inverter/charger systems that converts / transfers AC shore power

There are too many other options to mention from numerous other vendors, but one can get the picture. Buyers want OEM-based and installed solutions - and those will be the successful long-term approaches.

Implications: One of the often-cited risks in implementation of Selective Catalyst Reduction (SCR) technology has been Diesel Engine Fluid (DEF) - a.k.a. Urea - availability. That has been covered in past GLG articles - and continues to move along better than expected. The next major issues include whether truck-buyers will “pre-buy” current technology in 2009, wait until SCR engines are available, take the Navistar EGR new engine model approach or a mix thereof. However, the real elephant in the room for the majority of the marketplace is financing.

Analysis: Through collaborative efforts of US DOE / EPA, engine / vehicle manufacturers & dealers, the oil industry / their retailers, truck stops and trade associations, DEF planning is moving quickly toward implementation. An issue therein involves education, which we are actively involved in - and potential buyers are being swayed. Daimler’s Detroit Diesel / Mercedes Engine group has been a leader in these efforts with Volvo North America (including Mack) following closely. Paccar and Cummins are involved now too.

What this means is that one will be able to get DEF at fleet terminals, large / small truck stops, diesel fueling stations, truck dealer locations, independent truck repair garages, etc - all the way to local NAPA stores. The estimated range for a full DEF tank on a truck is 6,000+ miles or over two weeks in a typical over-the-road fleet. If one is running low, there will be 2.5 gallon jugs widely available, giving one 600+ miles to get more. Supply will be matched to the phase-in of engines with the manufacturers’ being the safety valve.

The debate is now more about the cost / benefit of waiting until 2010 to address the replacement of current trucks versus buying today or next year. This is because some of the fuel mileage projected improvements are notable. Rough math says that a 5% improvement with SCR equals 0.3 mpg or about $0.03 per mile at $3.50 per gallon fuel. For a half million miles for just the first cycle owners, this is a $15,000 benefit ($20,000 at $4.00 fuel).

Another benefit being assessed with SCR is the projected reduction in heat-related maintenance costs where estimates may be savings similar amounts to that from fuel - but those are still hard to tie down. It also makes for “green” fleets, which is a marketing benefit.

Of course the other major questions leading to pending truck purchases in any case are freight demand and financing. Part of the financing issue today is availability of credit compounded by the inability to qualify - due to the poor creditworthiness / profitability of fleets in today’s environment. That is for another article to come.

Implications: The keys to success in the logistics chain are relationships, information technology, operational productivity and managing costs. The dray cost structure is being pressured with not only the 25%+ ($35 container plus $15 infrastructure) surcharge to fund those programs, but also with security (TWIC) mandates, productivity technology, fuel cost, driver costs and more expensive trucks to do it. There are three areas of opportunity worth discussing that major fleets can address - freight, flow and equipment. The pending ATA legal action will slow all this, but that is a separate missive. This posting was developed with GLG Leader Stan McWilliams - looking at the multiple opportunities for fleets.

Analysis: Our logistics supply-chain can be complicated. The desired model is one that has one-party responsible for the entire chain - and optimally having the freight in their own possession from door-to-door. One should however utilize the most economical / productive mix, be it truck, rail, steamship, etc. The port dray moves are similar to those across the Mexican border - low miles (ave. 30), cheap ($100+) and high frequency (4-6 per day), and those from longer-haul rail terminals. California’s emissions rules are changing the fixed cost side of the equation dramatically, so other efficiencies are needed to help offset them.

The Los Angeles-Long Beach drayage market is serviced by 1,300+ motor carriers today with 16,000+ trucks. Over 90 percent of the trucks are Independent Contractors leased to the motor carriers - predominantly with Latino drivers. The ports have been openly trying to re-regulate and reduce number of fleets to just a hundred or so through various means. LA goes further to say to go with those with “deep pockets.” The compliance paperwork with the emissions program alone is substantial, so fewer fleets are better just from that perspective  alone.

While fleets like Gold Point, Southern Counties and Transport Services have 150+ trucks servicing the ports today, the average fleet is just 20 trucks. They need big fleet participation plus growth of the larger fleets servicing the port today to get the number of fleets down, and therein lies opportunity.

Over a year ago, the Teamsters saw it as one way to organize the drivers running in and out of the port, had actively lobbied for rules to game it in their direction, and had even helped start a trucking company to do it. That never progressed past one truck.

In June of 2008, the port held an invitation-only meeting with Swift Transportation, Knight Transportation, Frozen Foods Express, RoadLink, CalCartage Companies, Pacer Cartage, Horizon Freight System and Logistics Insight - each with hundreds to thousands of trucks. This is in addition to the others who had already applied.

The move by Swift Transportation and Knight Transportation is smart. For Swift, it’s more of the same like they do in Mexican cross-border operations and rail Intermodal. For Knight, it would be a regional model for taking containers to regional warehouses and then still doing trans-loaded freight outbound from warehouses. For Frozen Food Express (and Knight Refrigerated), the temperature-sensitive segment is an opportunity. For Pacer or for the not-listed likes of Schneider and JB Hunt, it would be similar to that they do today from rail terminals.

A benefit is that it addresses the goal of getting more directly at the beneficial cargo-owner. Instead of taking responsibility for the actual freight at a warehouse after trans-loading from the overseas container, they can take possession directly from the steamship lines. Where it was cost prohibitive to do such previously, the higher revenue / cost structure will make it more viable. They can then utilize their planning / productivity software, technology and processes to streamline it from there.

From a truck emissions standpoint, the first step set for October 1, 2008 bans 1988 and older trucks, which is estimated to be over 2,500 trucks. Following that 15 months later are those from 1989-1993 or an additional 2,300+. At the same time the TWIC (Transport Workers Identification Cards) are being implemented, which is a wild-card but some think that could be another couple thousand drivers. By 2012, all trucks must meet 2007 emission laws. This will upset the capacity / demand balance in itself.

Major fleets can easily flow in late-model fleet trucks that fit into the time window. Large fleets will also find a market for their used equipment with a good floor on residual values of trucks - along with selling / leasing used trucks to “partners” - taking advantage of some of the program numbers today. There are also a number of truck financiers trying to create packages too. The question will be costing out the doubling or tripling of the fixed cost of the truck from today’s $24,000 average, but that will show up in the dray rates.

Swift announced they will also put some Liquefied Natural Gas (LNG) powered trucks into place at the port. That business model is already being implemented at Southern Counties Express who is going LNG, for a cost of about $40,000 each after grants / programs. Major fleets such as Swift and Knight are eligible for one of the plans giving them $30,000 per truck for carriers who don’t rely on other more expensive plans. If they collectively place 2,000 units into the ports, they would be eligible for $60MM in incentives. Other plans available not going with truck replacement includes a one-time payout of $20,000, and another does $10 per dray ($10,000 limit).

Other specific things for Swift to consider are to: develop the container yard (CY) concept to flow (buffer) cans; begin to piggy back immediately on the this operation to other operations that are in close to port; aggressively market drayage operations now - 1st  in will reap the biggest rewards; integrate micro map into the drayage model to identify true drop and hook operations; make sure that personnel are trained properly in drayage - otherwise, assessorial charges will eat away the profit; make sure to develop a rate sheet and get it publicized; and utilize Interstate Leasing as a tool to finance equipment for Owner Operators - should begin contacting existing Independent Contractors at the port and buy them a truck.

We're watching to see how October 1 goes. This article co-authored by Stan McWilliams & Jay Thompson.