TANK trailer manufacturing was feeling the effects of a weakening economy before the nation suffered heinous terrorist attacks on New York and Washington, DC. Now, the situation is even bleaker, say industry representatives. However, they remain confident in this country's ability to recover.
“The September 11 events have certainly affected us all and were a very monumental tragedy,” says Bob Foster of Heil Trailer International, Chattanooga, Tennessee. “The effects on each of us will be many and dramatic, always reminding us of this terrible day.
“Our tank trailer industry was already in recession, as many have already closed plants and some declared bankruptcy. Others are close to it, I hear.
“This tragedy will likely make it worse for the entire truck and trailer industry unless our nation gets back to normal activities quickly. We have already seen what has happened to our airline and travel industries. The result of all this is that the weak will fall by the wayside and the strong companies with strong parent companies will hunker down, continue to make improvements in facilities and be stronger when things improve. The same is true for all other industries. These events have made it even harder for the small to survive, as we all fight for less business.”
Like the airline industry, the transportation shutdown that immediately followed the attacks took its toll on the tank truck industry. It was especially acute when border crossings were delayed.
“There is definitely an overall slowdown in activity because of the events of last week,” says Joe Collien of Brenner Tank LLC, Fond du Lac, Wisconsin. “We are hearing a number of customers say that they are having trouble with delivering loads to and from Canada because their tanks are tied up at the border. The number of layoffs announced by the airlines and Boeing, combined with the stock market plunge, are making everyone a little more jittery and hesitant to place orders.”
Peter Toja, of Economic Planning Associates, Smithtown, New York, a firm that tracks trailer production, points out that the short-time implications for the nation's economy are more dismal than they would have been, but he predicts a slow recovery for a rebound in 2002. Nevertheless, immediate projections are difficult to come by. “It's too soon to tell,” he said September 21.
Dan Jarboe of Beall Corporation, Portland, Oregon, says, “So far, our customers have had a wait and see attitude. Before September 11, things were beginning to pick up in the western part of the United States, but they have once again slowed down.
“I have talked with each of our sales groups and they feel 2002, even with the disasters in New York and Washington, will be the same or better than 2001. Our customers have been on hold regarding transportation purchases, or they are buying only what they absolutely need to solve the problems of today. For the most part, they are going to worry about next month when it gets here.
“Conversely, we still have customers that are talking about purchasing new equipment and some are even signing orders. Things are slow but not stopped. We still feel 2002 will be a better year overall than 2001 for the tank trailer market.”
On the positive side, Toja notes the infusion of federal emergency funding to assist devastated areas and the airlines, as well as a 50 basis points easing in interest rates and an increased liquidity infusion, both from the Federal Reserve System.
Production Downturn
Last year, industry spokesmen predicted a rebound for tank trailer sales in 2001. Even before the national tragedy, their forecasts were sideswiped by a continued downturn in chemical and plastics production, reduced shipments of raw materials, a vacillating economy, increases in fuel prices, and hikes in insurance rates.
The good news at the beginning of September was that despite a 48.3% decrease in sales of all types of trailers in the first quarter of 2001, the demand for tank trailers was more positive, according to Toja.
The exact number of tank trailers produced over the years is imprecise, but estimates for the market in 1999 and 2000 are available from the United States Census Bureau. According to that information, 7% fewer new tank trailers were registered in 2000 than in 1999: 5,767 to 6,175.
Of those estimates, flammable liquids trailers accounted for 2,033 in 2000 while 2,047 were registered in 1999. Chemical and acid tank trailers totaled 2,764 in 2000 and 2,959 in 1999.
All other types of tank trailers numbered 970 in 2000 and 1,169 in 1999. Because the Census Bureau lists dry bulk trailers with hopper-type trailers, it is difficult to determine the exact situation for that category. Industry spokesmen have noted that some dry bulk transport has increased, but other segments, such as plastic pellets, has been on the downside.
“Two of the three major sectors of the tank truck industry, petroleum and food grade transportation, appeared to be holding their own in the down economy,” says Cliff Harvison, National Tank Truck Carriers president. “Moreover, transporters of cement and asphalt were expected to benefit from Washington's aggressive funding of state highway construction and maintenance projects.
“Unfortunately, the chemical sector was in the doldrums, and it is likely this will continue until we see a rebound in the markets for automobiles and other hard consumer goods. Just as the carriers are slaves to production cycles, it's axiomatic that our allies in the supplier sector are slaves to the carriers' volume and profitability levels.”
Market Volatility
Toja says tank trailers have not exhibited the volatility seen with other trailer types. “They don't seem to succumb to the same cyclical pressures,” he adds. “Because of liquid products — petroleum, food, beverages, fertilizers, and pesticides — the cycle is spread out over a variety of customer markets.”
Nevertheless, the slowdown of the economy since the second half of last year was so wide spread that it was hitting all of those markets. Even though some carriers were receiving increased orders from shippers, they were finding it difficult to meet the demand because of a lack of equipment. Despite the fact that carriers might need new equipment to provide the service, and regardless of lower interest rates, they hesitated to buy new tank trailers because of the vacillating economy.
New tank trailer sales began dropping off in mid-to-late 1998 because of a slow down in the manufacturing sector, plus an improvement in the efficiency of the railroads in transporting bulk materials, says Dave Fellows of Delafield, Wisconsin.
“It is my opinion that a substantial portion of general chemical manufacturing has in the last several years shifted overseas and is now being imported as finished plastic products,” says Fellows. “The trend is continuing because of lower foreign costs and easier environmental regulations.”
Carrier Problems
Another negative factor arose when Matlack Inc, a Wilmington, Delaware, carrier, declared bankruptcy. The carrier's failure is expected to flood the market with used trailers, according to Jack Olsta of The Jack Olsta Company, Huntsville, Texas. “The remainder of this year, and all of next year, could actually get worse for the chemical side of the market with the liquidation of the Matlack fleet,” he says. “More than 1,000 trailers are a lot for the market to absorb. This will hurt movement of already over-priced, existing inventories.”
Fleets are finding it difficult to obtain financing for trailer purchases. “Even though the prime rate has decreased, the companies buying new units are having a more difficult time arranging for financing of the equipment,” says Jarboe. “Even companies that are very solid are spending more time finding the money as compared to one year ago.
“Some financial institutions have exited all together while others are putting restrictions on age of the used equipment that they will finance. We are having trouble finding institutions that will handle tanks that are 10 years old. They seem to feel that vans and tanks have the same useful life. We know that is not the case, but the financial institutions are not experts on our type of equipment and they don't want to get burned.”
Foster notes that the stainless steel tank trailer market has been flooded, yet Heil's dry bulk trailer production is fairing better than last year.
He reports that Heil has expanded into many niches and markets over the past year. “We continue to increase production and output,” he says. “Our petroleum sales are very strong. Being a part of Dover, a Fortune 300 company, we have the resources to continue our growth even in slow times. We also can use our global presence to make improvements in products and market penetrations worldwide.”
Collien notes that Brenner is primarily a stainless steel manufacturer and that those sales have been flat this year, particularly in the chemical sector. On the other hand, foodgrade sales have been fairly consistent.
“We feel that we will not see a real improvement in our industry until the surplus of equipment that is in the market is eliminated,” says Collien. “Until then, rate increases will be difficult to get, and in some cases rates will decline. Carriers are simply not making any money right now and until that changes, things will continue to be slow for us.”
Jarboe notes that Beall's petroleum trailer business has held up better than either the chemical or foodgrade sectors of the market. “Our overall business is down, with construction trailers being the hardest hit as compared to 2000,” he says. “The pneumatic bulk business also is down, which reflects the general market conditions that we have experienced in the west. Chemical and foodgrade trailers are hardest hit.”
Jim Jungles of Polar Corporation, St Cloud, Minnesota, points out that the downturn is reminiscent of 1982 when there was a steep reduction in tank trailer sales. “The demand today is more like it was then.”
Although fuel costs are currently down and carrier profitability should be improving, few were purchasing new trailers in 2001, says Jungles.
Mergers, Acquisitions
Another influence on the market has been the mergers and acquisitions of manufacturers and carriers. Most recently, WestMor Industries LLC of Morris, Minnesota, has purchased Kleespie Tank & Petroleum Equipment Inc. Earlier, the manufacturer, Brenner, was acquired by Peterson Industries, Sturgeon Bay, Wisconsin. Enterprise Transportation Company, Houston, Texas, purchased the carrier, Boncosky Services Inc, Lake In The Hills, Illinois.
“We have had numerous consolidations in the industry and that has created excess used inventory that the surviving companies are trying to sell off,” says Jarboe. “This sell off is being done by auctions; and they are flooding the market with equipment that will certainly depress stainless trailer sales for 2002 and probably to some extent 2003.”
“It has been common practice for several carriers doing business with the same shipper to have more tanks than needed for their share of the business in the hope that they can get a bigger share,” says Fellows. “When several of these carriers merge, the surplus is obvious, and they don't need any new tanks.”
Nevertheless, the clouds are parting on some of the used tank trailer market, says Olsta. “Demand for late model petroleum trailers is as strong as ever. The trend seems to be moving to five-compartment petroleum trailers, which allow for more flexible loading options. Crude oil trailers and other related oil field equipment, such as sludge and saltwater vacuum trailers, are in high demand.”
At the same time, Olsta notes that the used chemical trailer market has been affected by the sharp price reductions occurring with new equipment. Chemical equipment that was leased three to five years ago is saddled with residual values very close or equal to the cost of new equipment. “Unfortunately, the stainless steel chemical business has not hit bottom yet so we can expect the problem to continue through the end of the year.”
Dry bulk trailers used for hauling plastic pellets are parked at terminals and dealerships all around the country, says Olsta. The trailers were in great demand a year or two ago when the railroads were experiencing problems in the Gulf Coast area. Still, with the railroads improving service, and the downturn in consumer spending, this segment has a severe over-capacity problem.
Michael O'Donell of Stuart Tanks Sales Corporation, Elkhorn, Wisconsin, says that overall sales in 2001 have been off as much as 40%. Much of the drop has been in stainless steel tank trailers used for chemicals. Large-cube pneumatic trailer sales also have experienced a slowdown.
“Foodgrade, petroleum, and small cube cement trailer sales are lower than the last few years,” O'Donell says.
International Production
As the United States feels the pinch in its tank trailer market, north of the border Canadians are wrestling with similar problems, especially when a majority of the manufacturer's market is in the US.
Jacques Tremblay of Tremcar, Iberville, Quebec, Canada, says the Canadian economy has suffered, but has tracked about six months behind the US trend.
The majority of Tremcar production is in stainless steel trailers used in the chemical and foodgrade markets. About 35% of the business is for US carriers.
Chemical trailer production has experienced the leanest year, while foodgrade trailer sales have remained more stable. Tremcar also manufactures dry bulk aluminum trailers, but Tremblay says that market is slowing down, as well.
Denis Marcus sees both sides of the story as the owner of both Harold Marcus Ltd, a Canadian carrier, and Comptank Corp, a Canadian trailer manufacturer of fiberglass-reinforced trailers. The companies are based in Bothwell, Ontario. “Everything is quite spotty,” says Marcus. “There will be weeks when the transportation business is real slow, and then again it will get busy. It's very, very competitive. Shippers are switching carriers for $50 (Canadian) a load.”
About 90% of the Comptank business is in the United States. “Two years ago we built 48 trailers, this year 26,” he adds. “This business goes hand-in-hand with the trucking business.”
Alain Chatillon of Tankcon FRP, Boisbriand, Quebec, Canada, also notes that the Canadian market has been stronger than that in the US. Tankcon is another manufacturer of fiberglass-reinforced tank trailers.
“We have seen order decreases, but not near those experienced in the US,” he says. “It may be because the market is small so that we tend to see less investments in plants.”
Although Tankcon's US business is down recently, the company had its best year in 2000. “Some carriers are replacing rubber-lined trailers,” he points out. “Even if the economy doesn't grow, they are replacing worn down rubber-lined trailers with fiberglass trailers.”
South of the border, the tank truck industry appears to be improving. Although Latin America is experiencing difficulties with slowing economies, high international debt, and currency problems, Heil has continued to grow there, says Foster.
Polar Corporation has some business in Latin America, “I don't see it quite as slow as it is up here,” says Jungles.
Jarboe notes: “We have a salesman working in Mexico and he is finding the area receptive, but they haven't purchased anything yet. They are trying to figure out when the new weight laws are going to be enforced. Hopefully, in the near future we will have some concrete information.”
Before September 11, many were counting on a rebounding economy to improve the outlook. Today, though, the projections await further world events.
Excise Tax
Aside from that, there are some other federal actions that would make a difference. Duane Acklie, American Trucking Associations chairman, has highlighted government policies that could help or hinder recovery for the trucking industry. He said a reduction of the 12% excise tax on new vehicles would spur equipment investment in the industry; that hours-of-service reform in its present form would cut industry productivity by at least 15% and increase truck-involved crashes; and that individual state-mandated boutique fuels will exacerbate periodic shortages of diesel fuel and result in price spikes that are devastating to truck operators.
Boosting Sales
“There are some factors that could spur demand for tank trailer production,” says Fellows. “Publication of the Research and Special Programs Administration regulations on wetlines could boost petroleum sales. And an improvement in free trade with Europe and Asia for agricultural products could help foodgrade, particularly dry bulk tanks.”
Olsta notes that the longevity of plastics trailers reduces their trade cycle. “It could be three to five years before the surplus of used equipment has been depleted,” he says.
He points out that tank trailers used in conjunction with construction projects have a two-fold situation — expansion in this market is largely tied to government building contracts while federal environmental policy restricts growth.
Federal action, whether on the international scene, or in domestic affairs, is expected to come at a fairly slow pace. Just how the tank truck industry will be affected, and respond, remains unknown.