Editorial: Fed Rate Cut Is Good News for Trucking

The Federal Reserve’s decision to reduce interest rates by another half-percentage point last week was welcome news to trucking executives, who know all too well how flat the domestic economy has become.

The Fed’s action, the second such cut during January, came as one Wall Street analyst was reporting that 3,670 trucking companies failed during 2000, 35.5% more than failed in 1997, the previous record year for trucking busts.

Those hard times were driven by high interest rates, skyrocketing fuel costs, higher insurance charges and a softening economy.

Several analysts told Transport Topics that the Fed’s priming the economic pump should foster a recovery that will be perceptible to the trucking industry by the middle of the year. Trucking generally is on the receiving end of changes in the economy long before other sectors are affected.

We applaud the Fed’s action, as well as its statement that it was prepared to cut rates further if necessary to spark a recovery, and we laud Fed Chairman Alan Greenspan’s support for cutting taxes.

The economy needs the help, and so does trucking.

The cuts in interest rates should also help revive the truck manufacturing industry, which has been in a serious slump since the middle of last year.

ot only have the weakening economy and the resultant drop in shipments hurt truck sales, finance companies have virtually abandoned the truck market because of high loan default rates, mostly by owner-operators and small- and medium-sized companies.

Freightliner CEO James L. Hebe’s warning of the potential impact of falling used truck prices on large fleets needs to be considered to head off a potential financial crisis or a major and unwanted shift in fleet operations.

He said most fleets count on receiving about 50% of the original purchase price back when they buy new equipment — it’s really only worth about 25%, Hebe said, and that’s what Freightliner is going to start giving them if things don’t change quickly. That means the fleets will either have to come up with the 25% differential in cash, or will have to keep their trucks longer. But that would mean the fleets would have to reopen their maintenance shops, since most fleets only do light work today, owing to longer warranties and increased reliability of new equipment.

Neither scenario is in the best interests of trucking, and we need to work together to find a workable solution. The Fed’s actions are a good beginning.

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