Excess Trucks and Equipment Piling Up in U.S. to Unusual Levels as Bankruptcies Increase
By Dan Calabrese, Special to Transport Topics
This story appears in the Nov. 10 print edition of Transport Topics.
With more than 2,500 U.S. fleets having already declared bankruptcy in 2008, excess equipment has piled up as rarely before.
One unusual development through much of 2008 is that many of those used trucks are being sold through auctions to buyers in Russia and Eastern Europe, where, until very recently, their rapidly expanding economies were creating more demand than European manufacturers could handle.
“[Our] market outside the U.S. went from 10% being exported to 30% being exported” during 2008, Rob Whitsit, senior vice president of Ritchie Bros. Auctioneers, Vancouver, British Columbia, told Transport Topics. “That, however, was earlier in the year. With recent events, that ‘out of the U.S.’ market has declined.”
The recent events include the U.S. credit crisis, which is making it more difficult for companies to borrow money they need to remain in business. Fears of a U.S. recession have had ripple effects among stock markets worldwide.
Despite the slowdown, there are several reasons Russia and other Eastern European countries still will look to buy U.S. used trucks.
“It’s all about the dollar,” said Donald Broughton, an analyst covering commercial transportation for Avondale Partners, Nashville, Tenn. “The dollar’s weakness has made our trucks more attractively priced than they would otherwise normally appear to be.”
Broughton estimates 127,000 heavy-duty tractors have been idled in the United States this year.
Russia’s average nominal gross domestic product has been 7% for the past nine years, according to the International Monetary Fund. (Nominal GDP reflects the prices of the day, as opposed to real-value rankings that adjust for inflation.)
Nations including Poland, the Czech Republic, Hungary, Romania and Ukraine have also been growing at strong clips.
Even though the IMF recently reduced its forecast for Russia’s GDP growth for 2008 and 2009, the country’s economy remains largely driven by goods and services for the domestic market, which will prompt continued demand for transportation assets.
Meanwhile, in the United States, high-profile bankruptcies of large carriers such as Jevic Transportation, Alvan Motor Freight and Performance Transportation Services, along with smaller ones like Active Truck Transport, have resulted in auction companies being flooded with trucking equipment.
Ritchie Bros. handled the recent sale of assets from PTS and Alvan, an effort that added up to more than 2,000 vehicles, including specialized car carriers, truck tractors, trailers and forklifts. Such auctions have attracted both prospective end-users and professional importers with waiting buyers in Eastern Europe and beyond.
In its recent quarterly earnings statement, Ritchie Bros. said more than $500 million worth of equipment was sold using the company’s Web site during the first nine months of the year, an increase of 23% from a year earlier. That included 93,000 customers from almost 180 countries.
“We’re uniquely positioned to reach buyers from around the world and help our customers sell their equipment quickly, efficiently and for global fair market value,” said Peter Blake, Ritchie Bros.’ chief executive officer. “With so many companies facing liquidity challenges right now, our value proposition is more compelling than ever.”
According to Jonathan Holiday, transportation exchange manager for online truck auction company DoveBid, Los Angeles, bankrupt carriers aren’t the only ones offloading their excess transportation assets overseas.
“We’re seeing movement of trucks from some of the largest transportation companies — some that may have gone bankrupt and some that are not even bankrupt,” Holiday said. “And we’re talking about tractors, trailers and tankers that are being sold in Eastern Europe and especially Russia. We’ve seen that especially in the last six months.”
Holiday said DoveBid recently sold a package of 300 units to a Russian buyer from a bankrupt transportation equipment company.
“I’ve got to believe it’s because the economy in Russia has im-proved . . .” Holiday said. “The economy’s growing and they’re getting a lot for a little.
According to Gary Beecroft, a consultant with Ireland-based transportation consulting firm CLEAR, Eastern European buyers are buying both old and new trucks, depending on their needs.
“Growth in demand for transport in this region is both national and international,” Beecroft said. “For in-ternational transport, modern equipment is required, whereas for national use, used ve-hicles are often im-ported from [the United States and Western Europe]. Demand for used vehicles in [Eastern Europe] is driving the new market in the West as fleets replace early.”
Beecroft added that a lower operational cost base affects the demand for trucks.
“Investment in these countries, which have a lower cost base than Western Europe, has boosted in-dustrial output, and, as a consequence, the demand for transport,” Beecroft said. “Companies in the East are willing and able to invest heavily to establish market leadership in the growth phase of these economies.”
Not all trucks going into Eastern Europe are used vehicles coming from the United States. New trucks from Western Europe and China are also a factor. But Hans-Åke Danielsson, press manager for recent Volkswagen acquisition Scania, a truck manufacturer based in Södertälje, Sweden, said Western European truck makers face disadvantages.
“The reason for the increased import to Russia of trucks from China and [the] U.S.,” Danielsson said, “is a combination of the high transport demand and long delivery times of Western European trucks due to lack of production capacity within the superstructure — body builders — as well as the fact that there is a lack of used Western European trucks to import.”
Nonetheless, Scania recently announced deals to sell 300 trucks to Ukrainian buyers and 146 to buyers in Russia. Volkswagen reported in August that it has sold 32,900 trucks to Eastern Europe this far in 2008, a 30% increase compared with the same period in 2007.
Similarly, Germany’s MAN AG announced it expects to sell 100,000 trucks for the first time in 2008, with demand in Eastern Europe and Russia playing a significant role. MAN reports that its truck sales in the former Soviet Union have increased twelvefold in the past five years.
Volvo Chief Executive Officer Leif Johanssen said earlier this year that the growth of the company’s truck sales in Eastern Europe is offsetting the slow North American market.
But even with the strong presence of European truck manufacturers, used trucks from the United States remain highly attractive to Eastern European and Russian buyers — largely, Broughton said, as a result of excess U.S. capacity.
“The bankruptcies are what’s producing the inventory and, of course, putting pressure on the valuation of those trucks and what the prices are,” Broughton said. “So, if you’re in the used-truck business and you’re looking at more and more trucks coming at you, the value of those trucks is under pressure and you’re looking for alternatives to move those trucks. Selling them offshore is proving to be a viable alternative — certainly a much more viable alternative than it has in previous cycles.”
How long will the trend continue? Sources interviewed for this story said they expected key factors to be the value of the U.S. dollar, oil prices and the continued growth of Eastern European economies.
DoveBid’s Holiday said as oil prices decline, Russia’s economy will slump and fewer U.S. carriers will go out of business. Still, he and others projected the growth of Eastern European economies to abate any time soon.
“There are huge investments in infrastructure and in production in the new EU member countries and in Russia,” Scania’s Danielsson said.
“The last six years, we have seen a doubling of the foreign direct investments in these countries,” he said. “In 2006, a total of 56 billion euro was invested in the region. New EU funds of around 170 billion euro are earmarked for the new EU member countries, and more than 50 billion euro into roads and motorways.
“The private consumption also drives demand for transports, and in the coming years the consumption is expected to reach 3,500 billion euro,” he said.
Danielsson added that he expects brisk economic growth in the Eastern Bloc for the next 15 to 20 years.
