Outlook 2003: Great Expectations

“I’m still making about the same as I was 20 years ago – $1 a mile after paying the brokers.”

Owner-operator Vernon Miller

It isn’t the rosiest of forecasts, but many trucking economists and owner-operators expect 2003 to be better than 2002 – if diesel remains affordable. And that’s a big if. From

January until mid-September, diesel prices rose nearly 30 cents a gallon, putting increased pressure on truckers who haven’t seen freight rates increase in years and have been hamstrung by an ailing economy. Slow freight and high fuel prices hurt a lot of owner-operators in 2001 and 2002.

But if fuel remains where it was in December, hovering between $1.40 and $1.50 nationally, many owner-operators could do well. Experts say freight shipments are on the rise and capacity – the number of available trucks – is shrinking. That supply-demand combination should favor owner-operators. Trucking analysts see a slow economic rebound of between 2 percent and 5 percent, with most growth occurring in late 2003. If their predictions are correct, a floodgate of freight could open up in the second or third quarter, and demand for trucks and owner-operators will spike, making 2003 a banner year for those who have survived more than two slow years.

The overall outcome of 2003 “all depends on fuel prices,” says owner-operator Larry Pager, of Chandler, Ariz., who hauls cars for Reliable Carriers. Diesel experts say a lot of factors could influence the price of fuel, not the least of which is war with Iraq.

If war is averted, crude oil prices should drop, says Roger Simons, president and CEO of Simons Petroleum. For now, that seems unlikely, say fuel experts. Diesel supplies have been low for months.

Even if the United States experiences a mild winter, U.S. prices are already reflecting the demand from European motorists who have fallen in love with diesel engines. However, if Iraq and the United Nations come to terms and sanctions are lifted, the long-term picture for cheap crude is brighter.

The increased freight activity many economists expect in the latter half of 2003 could be a double-edged sword, says Simons: “Our economy is ready to take off, but with such a low amount of diesel inventory, when it takes off, it’s not going to take it long to drive diesel prices up.”

That would make the problem of inadequate fuel surcharges even more critical to owner-operators, such as Dennis Jones of Tylertown, Miss. He gets a little fuel surcharge for running a dedicated route hauling imported lumber from New Orleans to Memphis, Tenn., and empty intermodal containers back to New Orleans. But he says what he gets is not nearly enough to compensate for his costs.

While fuel surcharges can be elusive and fuel prices are volatile and hard to predict, the freight outlook appears to be on a positive, relatively stable trend. Transcore, parent of TruckersEdge.com and DAT Services, by late November had seen 20 percent more loads posted into its system than a year ago. Most of those gains come from existing customers, a sign General Manager Joel McGinley sees as a general upswing in the freight market.

Owner-operator Steve Rush expects strong freight and good rates will enable him to beat his 2001 net income with $65,000 to $75,000 in 2002, and he anticipates even further gains in 2003. “I’ve got some pretty good accounts, so I think my income will be pretty good,” says Rush, 37, of Alexandria, Va. He hauls specialized wood from Louisiana to Virginia and the Carolinas for Nashville-based Tennessee Steel Haulers. “We’ve always had some real good-paying rates.”

Considering the many carrier bankruptcies and the thousands of owner-operators who have left the business in the past few years, freight experts say the industry’s overcapacity is over. Some carriers are already raising rates. UPS, for instance, announced a 3.1 percent increase in commercial ground rates. “There’s a lot of demand out there for the truck capacity,” McGinley says. Transcore has seen its load-to-truck ratio rise from 1.5 to 2.2.

Other freight experts and economists say there’s still plenty of capacity in the system and don’t expect much of an increase in shipments until the third and fourth quarters of 2003. Bob Delaney, vice president of Cass Information Systems, says there’s still not enough freight in the system. “Industrial production has been down for four straight months,” Delaney says. “Retail sales have been soft in the second half of this year. Excess capacity is out there.”

Cass Info’s Freight Index has shown consistent growth from January – rising from 0.937 in January to more than 1.060 this fall, before falling back to 0.999 in October. “If the economy picks up and the freight comes back, carriers should do well,” Delaney says.

Global Insight economist Ken Kremar agrees. “We’re assuming that a lot of uncertainty in the economy will be behind us by the third quarter,” Kremar says. Businesses can delay investments for only so long, he says. “A lot will have to do with how consumers feel about themselves. If the consumer is unhappy, it’s not a good thing for economy.”

Truckers should keep an eye on consumer confidence as well as orders for durable goods, Kremar and Delaney say. Both economic indicators, if up, can mean a banner 2003 for savvy truckers. The optimism is there, Kremar says, but, “I still think there’s excess capacity,” he says. “It varies a lot by segment and industry.”

Some owner-operators are more than ready to see a strong increase in demand for their services that will be reflected in rates. “I get paid the same as 11 years ago,” says Jones, an owner-operator of 12 years who has his own authority and operates three trucks as JFT Inc. He doesn’t expect rates will go up in 2003.

The cautiously optimistic forecast for 2003 has owner-operators hoping for a better year. For some, like owner-operator Vernon Miller, 2003 almost has to be better than 2002. After paying for diesel and other operating expenses, Miller says, he expects to realize virtually no net income for 2002. He has been relying on his wife’s income to get by.

This year will be no better “unless we get fuel prices down and freight up,” he says. “I’m still making about the same as I was 20 years ago – $1 a mile after paying the brokers,” says Miller, an owner-operator off and on for 10 years who is leased to Boyd Truck Lines of Carthage, Mo.

If some of the transportation economists are right, struggling owner-operators such as Miller and Jones will see at least some improvement this year. “Shippers seem upbeat about economy,” Transcore’s McGinley says. “Their overall sense is that the economic shakeout is somewhat over, the bottom has been hit, and we’re moving up.


Dennis Jones of Tylertown, Miss., like many owner-operators, says the fuel surcharge he recieves is not nearly enough to compensate for his costs.

FUEL SURCHARGE PLAN HITS ROADBLOCK

Don’t expect fuel surcharge legislation, which died in committee last year, to be resurrected when Congress convenes this month.

The chief opposition to the Motor Carrier Fuel Cost Equity Act has been Republicans, who now control both chambers of the legislative body, says Todd Spencer executive vice president of the Owner-Operator Independent Drivers Association.

“We’ll keep it on our agenda,” he says, but it is unlikely the bill will be introduced in this Congress. However, “If we have severe diesel shortages, that could have a big impact on support.”

The bill, which had support from the Truckload Carriers Association, required that a minimum surcharge based on mileage or percentage of revenue be paid to the fuel buyer once fuel exceeds $1.15 per gallon.

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