MorrisAnderson

State of the Industry

• 2011 was a very strong bounce back year for transportation and 2012 appears to be continuing that trend. There are still potential curves in the road.  Demand in the industry has grown significantly during 2011, but fuel prices exceeded any on record, ending the year up 15%.
• Truck tonnage continues to rise.  2011 tonnage was up 5.9% over 2010. Tonnage has risen every month since December, 2009. In addition to tonnage increasing, rates have also increased with 5% to 10% projections for the year.
• Sales of Class 8 trucks reached levels not seen since 2007. 2011 Truck Sales surged by over 155% from 2010 to 171,000 units compared with 110,000 in 2010. Fleets had slowed purchases in 2007 as the new emission regulations were put into place.  The industry downturn continued with the recession in 2008 and 2009. New orders soared to 305,000 units in 2011.
• The new federal safety rating system is now being fully integrated into hiring practices. Now that the federal government has defined how they will rate fleets for safety, companies are creating a workforce to maximize their scores. These new criteria are part of the reason that turnover is reaching levels not seen since 2008. Turnover for large truckload fleets reached 89% in Q3, 2011, after decreasing to 39% in Q1, 2010.  Turnover also increases as drivers become more comfortable that they will be able to find a new job.
• The price of fuel continues to be a concern as fuel prices set record highs. With the price of crude exceeding $100 per barrel, diesel fuel exceeded $4 per gallon often during the year and finished December, 2011 at $3.78 per gallon. More importantly, with large week over week fluctuations, the attention to fuel surcharges is at its highest.

6- to 12-month Outlook

• The economy has stabilized and the Fed has indicated that they do not plan on increasing rates for the foreseeable future (especially during an election year). Concerns over the European Debt Crisis still exist.  
• As long as the economy is not derailed, we would expect the industry to show significant gains throughout the year. Tonnage should remain strong and Truck Supply will significantly lag demand.  There is currently a 100,000 truck backlog for production.
• If fuel prices begin to lower, this will have a double positive impact on the industry. Fuel surcharges will lag the decline so companies will be able to reap the benefit, opposite to the detriment that has been incurred during the 2011 fuel price increase.  Additionally, a drop in fuel price will spur the economy increasing tonnage and demand.
• At this point, it does appear that 2012 will be a strong year for trucking, following up on the 2011 success.