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Commercial Trucking & Trailer Trends

INDUSTRY INSIGHT

Date May 2019

Projected Values
 

Current Trends

  • Class 8 sales for 2018 were the fourth highest ever at 250,545
  • Class 8 truck sales were up 24% for Q1 2019 and are expected to be up approximately 5% to 264,000 for the full year
  • The secondary market for Class 6, 7 and 8 trucks is stable; Class 8 sales are down but pricing is up as there continues to be a lack of inventory in the marketplace
  • New trailer orders declined in Q1 2019; however, orders are anticipated to be strong for the year overall
  • The secondary trailer market is currently stable

Gordon Brothers by the Numbers

Synopsis

Truck Tonnage Index higher year-over-year: The American Trucking Association (ATA) reports that the Truck Tonnage Index increased 3.8 percent for first-quarter 2019. Despite the overall gain, the first-quarter tonnage rate was negatively impacted by bad weather throughout much of the United States, which also stretched into the spring. The 2018 index increased 6.7 percent over 2017, which was the largest annual gain since 1998. The ATA expects truck tonnage to moderate throughout the rest of the year, as 2019 is not expected to match the historical growth rate that was seen in 2018. Trucking serves as a barometer of the U.S. economy, representing over 70 percent of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods, according to the ATA. As such, factors are indicating that the freight boom that began in 2018 may begin to moderate or slow in the latter part of 2019.
 

Shipment index raises monitoring interest: The Cass Freight Shipment Index, which measures North American freight volume and expenditures for all domestic freight modes s derived from $28 billion in freight transactions processed by Cass annually for hundreds of large shippers. Many freight transportation and logistics executives and analysts consider the Cass Freight Index to be the most accurate barometer of freight volumes and market conditions, with many analysts noting that the Cass Freight Index sometimes leads the ATA Index at turning points, lending to its value. The Cass Index listed April 2019 shipments down 3.2 percent annually at 1.194. This marked the fifth consecutive month that annual shipments were down, following a 1.0 percent decline in March and a 2.1 percent decline in February. This negative trend began with a 0.8 percent decrease in December, which marked the first annual shipment decline in 24 months; January was only slightly better at -0.3 percent. It is important to note however, that December and January shipment readings were up against prior year all-time highs, coupled with stabilizing patterns in nearly all underlying freight flows.
 

Although they are not yet negative in their outlook, Cass feels it is prudent to be alert to the continual stream of incoming data points related to freight flow volumes. Freight shipments and expenditures in April were mixed, with a negative annual trend remaining firmly in place.
 

Medium- and heavy-duty truck demand continues to rise: North American Class 8 truck orders fell sharply in the first quarter of 2019 compared to last year amid continuing, albeit slower, economic and freight growth and a heavy backlog of Class 8 orders. Nevertheless, U.S. Class 8 retail sales in March came in above 22,000 units for the first time in 2019, with the majority of truck manufacturers showing gains. Although aligned with the improving Class 8 retail landscape of last year, 2019 remains on pace to outperform 2018. For the month of March 2019, Class 8 truck orders were up 17.8 percent at 22,834 compared to orders of 19,384 in March 2018.
 

Echoing several manufacturer executives and analysts, the numbers speak to a primary issue for Class 8 manufacturers’ production capacity, which is expected to continue to be an issue for the entirety of 2019 as manufacturers face the same issue as in 2018, which was a boom year for production and sales; can they produce even more units in 2019 to keep up with demand? There is increasing concern around inventory gluts throughout supply chains of businesses that can hurt truck freight volumes. The total business inventory/sales ratio based on seasonally adjusted data at the end of January 2019 was 1.39 compared to the January 2018 ratio of 1.36, according to the U.S. Census Bureau, citing the latest available data. Insiders feel the optimal range is 1.30 to 1.35, or approximately what it was in late 2014. Although concerns exist, the equipment purchasing boom has presented many benefits for fleets and operators and has improved used equipment values, as some trucking companies are not willing to wait for the lead time on new vehicles.
 

Trailer market showing momentum: The top-25 truck trailer manufacturers built more than 366,000 trailers in 2018; 51,000 more than in 2017, continuing a trend of peak-level production, topping 300,000 units for the fourth consecutive year, and surpassing 360,000 units for the first time in the Trailer/Body Builders Magazine survey, which originated in 1993. Container chassis (trailers designed to hold and transport shipping containers) production comprised 15 percent of total trailers in 2018, up from 10 percent in 2017.
 

Although new trailer orders have declined overall in the first quarter of 2019 due to a historically high backlog brought on by the bumper year in 2018, the decline was expected. With the large trailer order backlogs carrying into 2019, most of the top-25 are predicting a repeat of the 2018 build rate for at least the first six months of the year. Lead times continue to remain quoted as a number of months, and cost increases have been implemented slowly by many manufacturers to help spur industry growth, but the uncertain future is preventing many from being able to predict and quote orders into 2020 as some customers are requesting. Beyond that, many manufacturers feel there are too many political and global variables impacting the industry to predict too far into the future with a degree of certainty.
 

Tariffs more noteworthy than ever: Despite the overall favorable outlook for major trucking and freight companies, the possibility of a long-term trade war has made an impact on the industry. Tariff announcements have led to caution, and many investors have expressed concern that tariffs could hamper growth and raise consumer prices in the United States, while hindering foreign trade relationships. Trade groups have continued advocating against tariffs on vehicle parts. Officials in the transportation industry have warned that if the Trump administration follows through on the threat of tariffs on imported truck and automobile parts, as well as imported vehicles, the effects could be devastating for U.S. jobs.
 

At the administration’s request, the Department of Commerce began a Section 232 National Security Investigation of automobile and truck parts in May 2018. The agency delivered its recommendations in mid-February 2019, and some transportation industry members believe those recommendations likely include placing tariffs on fully assembled vehicles or on parts, in particular parts related to electric, automated, connected, or shared vehicles. On May 17, 2019, the White House issued a proclamation delaying the imposition of additional tariffs on imports of automobiles and automobile parts into the United States for six months. Any support for a recommendation on tariffs (as high as 25 percent on parts or imported vehicles) places concerns on U.S. manufacturers, dealers, employees, and customers. Many across the industry feel any decision proposing quotas or tariffs should be avoided.