Carriers in pre-buy mode

Booming Class 8 truck sales through the first two months of 2006 is an indication to many that a “pre-buy” is underway by many fleets seeking to avoid paying higher prices for 2007 trucks due to the advent of more stringent emission rules.

“In advance of the tighter emission standards that will be implemented in 2007, we are planning an aggressive equipment program that will replace approximately 2,100 tractors during 2006,” said David Parker, chairman, president & CEO for Chattanooga, TN-based truckload carrier Covenant Transport. He said Covenant expects to finance approximately 300 tractors through operating leases, while purchasing the remaining 1,800 tractors.

“From a fleet perspective we expect to concentrate on replacements instead of adding units during 2006, although we may add company units to match any owner-operator attrition,” said Parker, noting that Covenant’s fleet continues to be one of the youngest in the industry with an average tractor age of 1.4 years. “We do not plan to grow our total fleet size until profitability improves.”

According to Ward’s Auto, Class 8 retail truck sales in January reached 19,229 units, which represents a 5.3% increase compared to January 2005. This is consistent with expectations of heavy truck OEMs, which have generally anticipated truck sales in 2006 will be stronger than 2005.

Paul Vikner, CEO of Allentown, PA-based Mack Trucks, said the OEM’s new truck order volume more than doubled this February over January. He expects Mack’s order boards to be filled up for the year by May.

Yet not all fleets are racing to get new trucks this year. Some, like Indianapolis-based truckload operation Celadon Group, are more focused on reducing the average age of their equipment to save on maintenance costs – even if that means buying ’07 trucks.

“Our average tractor age is approximately 2.1 years and our goal is 1.5 years based on a three-year trade cycle,” said Steve Russell, Celadon’s chairman & CEO. “We believe carefully managing the average age of our fleet allows us greater flexibility in addressing the cost and reliability issues involving tractor engines designed to comply with stricter emissions requirements in 2007 – and that generally lowers our operating expenses.”

The fuel economy losses many fleets experienced due to emission rule changes in 2002 are making them leery of ’07 technology. On the other hand, most OEMs believe ’07 trucks are going to largely remain “fuel neutral” in terms of the impact emission control restrictions are going to have on truck operating parameters.

“It is our intention to keep our fleet as new as possible, in advance of the federally mandated engine emission standards that are expected to increase operating costs for newly manufactured trucks beginning in January 2007,” said Clarence Werner, chairman, president & CEO of Omaha, NE-based truckload carrier Werner Enterprises.

Werner said his company’s net capital expenditures in 2005 were over $100 million higher than 2004, due to that decision to reduce the average age of its truck fleet. But he expects 2006 net capital expenditures to return to more normal levels, with lower than normal expected truck purchases in the first half of 2006.

As planned, he added, the average age of Werner’s truck fleet declined to 1.23 years as of Dec. 31, 2005 compared to 1.58 years as of Dec. 31, 2004. The percentage of its truck fleet operating with post-October ‘02 engines is now 89%. “We continue to experience approximately 5% lower mpg with the post-October ‘02 engines,” Werner said.

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