Cautiously upbeat

18 April 2008

David Ferebee, LoneStar Transportation Co.

David Ferebee, LoneStar Transportation Co.

While economists have been assessing economic trends and indicators and creating forecasts for 2007 for virtually every sector of the economy, there's not much ink given to the business of specialized transport. Often lumped in the categories of general transport or construction, this industry is intertwined in several different business sectors, including energy (oil, gas, coal, hydropower, nuclear and wind), manufacturing, distribution and, of course, construction.

In order to assess the prospects for the business of specialized transport, American Cranes & Transport called on three industry professionals who are in the trenches of specialized transport every day. Following is a roundtable discussion about how their companies performed in 2006 and what the future holds for their respective businesses and this business sector as a whole in 2007.

Our panel members include David Lowry, president, Bennett International Georgia; David Ferebee, vice president sales and marketing, LoneStar Transportation Co., Inc. and Jerry Thomsen, president, Trail King.

Looking back, how do you describe 2006 in terms of your company's performance? What were some high points you can point to?

Lowry: 2006 was a good year for Bennett and our related companies. I believe that this stems from our diversification in the different segments of the transportation business and our commitment to our equipment, investing in new equipment and our commitment to our customers. We spent a lot of effort this year raising the bar on customer service and safety.

[Everyone in the industry] struggled with high fuel costs in some aspects, but the actual customer ended up paying the bill through fuel surcharges. We had good growth in 2006 and I think that comes from diversifying ourselves - gaining market share - and our commitment to our customers. In the good times, we want to make that commitment to the customer and be there for them and hopefully they will remember us if and when things slow down.

Ferebee: I would say that we had a solid year in 2006. Business was good. I think if there were high points it would be that we felt like we were able to strengthen our position with several of our key accounts because of the lack of capacity in the market. These customers could count on us for the service.

Thomsen: If I had to describe 2006 in one word, it would be “awesome.” Overall, it was a great year, with our company setting an all-time sales record.

One of the more interesting things about 2006 was that almost all the markets we serve were very strong and upbeat. Typically, one or two of the markets might still be a little off, [even during times of economic upturns]. But in 2006, pretty much every market we serve was on an upswing and demand was strong.

As a result, the biggest challenge we faced during 2006 was getting product out the door at a rate that could keep up with demand.

That's why we completed a 24,000 foot expansion in Brookville, PA and why we are building a new 160,000-square-foot facility in West Fargo, ND... two events that must surely be included on our list of high points for the year.

How do you envisage 2007 as compared to your company's performance in 2006?

Lowry: From our aspect, I see it as being a good solid year in the niche markets that we serve. The commitment we have made to our customers to take care of them during the good times hopefully will stem over if things do tighten up and we'll be able to maintain our share of the market. If [the economy does slow,] we have made substantial investment in equipment, capital expenditures, and in our people, and we are staged for if things do tighten, the way analysts predict, we should be able to diversify more and go after more market share. We are doing a lot of training now in how to handle business and go after extra market share. We also need to be able to hold our costs. We have to protect our bottom line and the way to do that is hold our bottom line costs and improve our value added services, continue to improve on our safety culture and the like. But truly, I see 2007 as being another solid year from the aspect of our market.

We will probably see the competition weaken. We have a very low debt ratio and good positive cash flow and we are positioned to take advantage of that, and ultimately that's where we will be if in fact there is an economic slow down.

Ferebee: Several of our accounts are speculating that 2007 will not be as good as 2006, although we expect another solid year. We do tend to have some element of caution as we approach the New Year. The economic outlook dictates that we do proceed with some reservation as to how strong it will be.

Thomsen: In 2007, we are expecting a little bit of slowdown in the light construction sector, brought on by an anticipated slowdown in the home building market - a topic we've seen widely discussed in the media lately. But the heavy construction - the road work, the specialized transport - we envision that market to continue to be very strong. So, even though light construction may be a little slow after coming off a record year, we're still pretty excited about [the prospects for] 2007.

Based on industry surveys, AEM, CIT and other construction industry-related organizations are predicting a slight downturn in 2007. How does your company brace for these forecasts?

Lowry: These organizations are probably not far off in terms of their predictions. They know better than we do. We do read and look at the same analysts predictions. Our company has been around for 30 years and we've been through some good times and whole lot of bad times. The thing we see is to take advantage of opportunities in slow times and be ready to seize the opportunities that do pop up and to continue to diversify take advantage of the opportunities that present themselves.

And then there are these recent political changes happening right now. None of us know where that will take us. There is the possibility of some advantages, such as alternative fuel methods and things like that. We must continue to keep a sharp eye out for that and take advantage of the opportunities as they arise, and be ready to handle the changes ahead. It's some times hard for folks to handle change and sometimes even harder to recognize opportunities that might arise as a part of the change.

Ferebee: Based on those projections, we always make sure that our assets remain flexible. So if we need to deploy them in another market that we serve we can do so. For instance we expect the price of oil to remain strong and therefore the petrochemical industry to remain strong.

We have every reason to believe in our international business as well, particularly that in and out of Mexico, will remain solid and strong for 2007.

Thomsen: We are fortunate... we serve such a wide variety of markets that a slowdown in one or two specific markets does not have a huge effect overall. Nevertheless, we strive to be ready for any possibility, primarily by being prepared to shift our production balance toward the more robust markets as they emerge. Presently, the markets we see as being very strong are the specialized market, the wind energy market, and oil-related industries. Road building will also continue to be fairly strong. In general, we think the heavy construction and energy-related specialized fields will be strong in 2007.

And there's another positive we might look for in 2007...

Last year, in anticipation of the new emissions laws, a lot of companies bought new trucks. Th at meant that the commercial fleet hauler probably devoted a larger than usual portion of their capital to trucks. This year, with more of their capital available for other purchases, I think we might see them spending more on trailers in the coming year.


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