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Heavy Duty Truck & Trailer Executive Summary

April economic news was better than expected with first quarter GNP growth measuring .6%. Though it technically showed that the economy was not in recession those elements related to trucking continued to decline. Residential construction and home sales, automotive production as well as heavy truck production all continued to slow. The Purchasing Managers Index (PMI) was flat at 48.6 continuing to indicate a contraction of the manufacturing sector. Key indicators measured by the Federal Reserve and the Conference Board remained generally declining but at a rate less than expected. The outlook for the second calendar quarter is mixed but shows some signs for improvement indicating the economic slowdown may not be as deep as feared.
Factors affecting carrier profitability continue to remain negative. High fuel cost and reduced ton miles of highway freight (down 3.2% from a year ago) have hit the bottom line. Publically traded carriers such as Werner, J.B. Hunt, Heartland and Knight all showed reduced earnings. Many carriers are forecasting an improved earnings outlook as shippers are accepting more of the fuel costs through additional surcharges. Additionally the “over the road” fleet has contracted over the last year to more reflect demand. Several hundred smaller fleets and several thousand independent contractors exited the industry in the first calendar quarter. This with actions taken by major carriers to downsize has led to much higher utilization and pressure on shippers as some are beginning to see issue with availability of trucks to move their freight. This improved utilization and tighter availability has led some carriers to begin to raise rates on some lanes.
The extended downturn in truck orders has taken its toll on heavy duty tractor and trailer manufacturers. Freightliner, Volvo and Wabash announced layoffs in April. Paccar continues to downsize through attrition. Navistar remains the only OEM who is adding workers and increasing build rates. The outlook for increased new truck and trailer orders for the balance of the year is not promising. Several major fleets interviewed said they would only make small or no purchases in 2008 , many project returning to a 3 ˝ to 4 year replacement cycle in 2009. Class 8 truck build is forecast at 170,000 to 185,000 for 2008. Early projections estimate the build for 2009 could range from 250,000 to 300,000 units. Overall issues for trucking appear to have stabilized and appear to be looking up for 2009


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