Commercial Trucking & Trailer Trends
COVID-19 Industry Brief
EFFECTS OF THE CORONAVIRUS ON THE Commercial Trucking & Trailer INDUSTRY Updated June 16, 2020
- Market Dynamics: The commercial trucking and trailer industry has been in a difficult period over the last several years and had been contracting through 2019. Recent data from transportation industry firm Broughton Capital indicated that through the first three quarters of 2019, nearly 800 carriers went out of business, more than double the trucking failures in 2018. In February 2020, used Class 8 truck sales dropped 15 percent in volume, and average prices dropped 10 percent on a month-over-month basis, which was the 10th consecutive monthly drop in average price levels, indicating that the sector was weak going into the pandemic period.
- Positive COVID-19 Impacts: COVID-19 has been a boon for select segments of the trucking industry and will likely remain so for several months. Although back hauls are down, rates are up in 63 out of 100 markets according to U.S.-based provider of transportation information DAT Solutions, with spot rates up 6.1 percent since February 2020. Fortune 500 provider of multimodal transportation services C.H. Robinson reported volume increases of 30 to 40 percent for retail food products and 15 to 20 percent for healthcare and produce in March. Dry van load-to-truck ratios (a measurement of relative demand in the industry) increased 11 percent week over week in the last week of March and were up 66 percent for the full month. In addition, regulations related to the number of hours a driver can work were eased in early April by the Department of Transportation in order to streamline deliveries of critical medical supplies.
- Negative COVID-19 Impacts: Shipping companies with a heavy concentration in oil and gas, retail, and automotive industries have been materially negatively impacted by the COVID-19 business closures and stay-at-home orders. In a May 5, 2020, post, data analytics and forecasting firm, ACT Research’s (ACT) President and Senior Analyst Kenny Vieth noted that the frozen economy led “to a sharp drop in freight volumes and rates, as well as more empty miles from fragmented supply chains further impacting carriers’ profitability…” Although March was actually a strong month for trucking with the index measuring trucking volume inching up, there was a divergence among freight types, with freight to grocery stores and big-box retailers strong, but freight volumes way down in other supply chains, like that for gasoline, restaurants, and auto factories. It is expected that the April trucking levels were even lower as the impact of lower oil prices spread through the oil and gas industry and the full impact of the pandemic-related business closures were felt.
- New Truck Production: According to ACT, as reported by Transport Topics, heavy-duty truck orders plunged 50 percent to 7,800 units in March from 15,783 in the same period in 2019. North American Class 8 orders took another plunge in April to an unprecedented level of 4,000 units, according to recent reporting from FTR Transportation Intelligence (FTR) and ACT. April 2020 order activity was the lowest since 1995, with FTR and ACT showing April to be 44 and 46 percent below March numbers and 73 and 72 percent lower than a year ago, respectively. ACT’s forecast as of April 7, 2020, was that Class 8 North American production will plunge to 134,000 vehicles in 2020 compared with 344,600 in 2019. In addition, multiple truck makers shut down production in late March and early April due to COVID-19 concerns, which has delayed some deliveries.
- Logistical Issues: Although logistical issues are still present in various parts of the country and in ports, easing of shutdowns and the restart of the North American economy are expected to help select segments of the trucking industry in the latter portion of the second quarter and into the third quarter of 2020.
- Used Trucking Trends: Class 8 used truck sales in March 2020 decreased 12 percent with the average price being down approximately $7,000 as compared with 2019 figures for the same period. This represented the 11th consecutive month of year-over-year price declines. “The industry is hard pressed to move units now,” ACT Vice President Steve Tam said. “That is due in large part not only to the economic hand we have been playing for the last year, but even in this March data, I think you are seeing a little bit of the impacts of COVID-19 creeping in.” Used trucking prices had been on a decline in 2020, but the reduction in new truck production and uncertainty in the direction of the economy may eventually benefit the used marketplace.
- Oil & Gas Sector Impacts: Weighing against the positive news related to higher utilization in certain sectors is that fleets across the oil patches are underutilized and will likely be further idled over the next few months. It is uncertain as to when the oil and gas sector will rebound.
- Valuation Outlook: After weighing all factors, Gordon Brothers believes that equipment values for this segment in the near term will be negative to stable given current market conditions.
Date June 2021
- As economies reopen, North American Class 8 truck orders have increased to levels not seen since 2018.
- New trailer orders more than tripled between March 2020 and March 2021.
- Class 8 used truck sales reached their third highest rate in March 2021, and auction values are soaring for newer, lower-mileage units.
Gordon Brothers by the Numbers
Class 8 Orders Rebound:
North American Class 8 orders exhibited stronger than normal trends in the second quarter 2021, because of both increased demand and ongoing supply chain delays for new trucks. As a result, major carriers continue to order at higher rates than usual to meet their new equipment needs by year end.
According to FTR Transportation Intelligence (FTR) and ACT Research (ACT), April 2021 orders came in at 33,500 to 34,600 units. These levels are a massive improvement from April 2020, when the pandemic drove order activity to its lowest level since 1995. In contrast, the number of orders for April 2021 was at its strongest monthly rate since 2018. While April 2021 orders were slightly lower than March 2021, activity was almost 700% higher than April 2020. For the rolling 12-month period through April 2021, Class 8 truck orders totaled approximately 403,000, as compared with $160,000 in 2020.
Despite strong recent sales, the well-publicized ongoing supply chain difficulties, anecdotal reports of partially built trucks and slowing production have presented headwinds. “It continues to be a situation of fleets not being able to take delivery when they would prefer to take delivery — as opposed to fleets not wanting trucks,” ACT Vice President Steve Tam recently told freight transportation publication Transport Topics.
According to Tam, there has been inflation within the truck manufacturing supply chain and increased pricing for scarce new trucks due to supply and demand. This has provided truck makers with “a golden opportunity to justify and pass on to truck buyers the upward pressure they see on a myriad of scarce components, (such as) lumber, resins, rubber, steel, semiconductors and the rest.” All major Class 8 truck manufacturers posted double-digit gains except for the smallest, Western Star, according to Transport Topics.
Freight growth remains steady as the country emerges from the pandemic, and fleets and major carriers are anticipating they will need additional capacity through the end of 2021, according to FTR officials. Because the supply of new trucks is limited, carriers continue to order at healthy rates to secure new equipment by the end of 2021. “Fleets see the need for more trucks extending out the entire year,” said Don Ake, FTR vice president of commercial vehicles “Orders remain elevated, as carriers evaluate their needs in Q4. This indicates they expect freight conditions to continue along at healthy levels right into 2022.”
Ake cautioned filling these orders might be challenging. “The supply chain is stressed right now, limiting the number of new trucks that can be produced,” he said. “With orders continuing at this pace, it is possible that the supply chain will not be able to catch up with the fantastic truck demand for months. It’s almost as if conditions are too good.”
More than a year ago, ACT President Kenny Vieth noted in the Fleet News Daily newsletter “April (2020) represents the first full month of COVID-19 impacts on the trucking industry, and given broadly halted economic output leading to a sharp drop in freight volumes and rates, as well as more empty miles from fragmented supply chains further impacting carriers’ profitability, a negative order number was within the realm of possibilities.” Indeed, April 2020 was the weakest Class 8 order month since September 1995 when net order numbers were briefly negative.
While fleet operators were extremely cautious heading into 2020 because of prior weakness in the industry, sentiments had flipped completely in the second quarter of 2021. Some operators questioned whether the situation could become much better for the trucking industry.
North American net trailer orders for March 2021 reached 29,910, which is more than triple the volume of trailer orders in March 2020, when the pandemic was first taking hold. Additionally, March 2021 volume was 12% higher than February 2021, helping to offset the seasonal decline the industry typically sees in March.
March 2021 marked the first year-over-year increase in build rate since April 2019. According to ACT, in March 2021 the order backlog for van and reefer trailers reached into the latter part of the first quarter of 2022, with 9.7 months marking the lengthiest backlog since 1994.
Additionally, the flatbed and vocational markets are currently seeing “solid orders” as manufacturing and industrial sectors improve. Flatbed orders from November 2020 through March 2021 were more than double what they were for the same period a year ago.
Used Class 8 Truck Sales Hit Highs: According to ACT, Class 8 used truck sales in March 2021 rose to the third-highest price ever on a monthly basis, as demand surged, and supply remained scarce. The average price for Class 8 used trucks hit $52,388 in March 2021, compared with $43,791 in 2020, an increase of just under 20%. Additionally, the March 2021 price increased 6% over February 2021 sales. Pricing has climbed as the order backlog for new trucks extends into 2022, and freight demand and rates remain exceptionally high.“We are expecting sequential prices and year-over-year increases as the year progresses,” Tam told Transport Topics. “We will be having the opportunity to reach the all-time high in this cycle at the rate that we are going.”
The all-time high for used Class 8 trucks occurred in 2015, when the average price hit $55,000. The next highest, almost $53,000, came at the end of 2018. Tam said wholesalers and dealers are seeing prices climb for used trucks. ACT reported used Class 8 sales numbers reached 23,800 in March 2021 compared with 18,000 a year ago at the beginning of the pandemic, and sales of new trucks have been equally strong.
Chris Visser, commercial truck senior analyst at J.D. Power Valuation Services, noted that April 2021 auction pricing for the newest available sleeper tractors continued to shoot into the stratosphere. Many in the industry share his opinion that there are just not enough of these trucks to meet demand. He tracked model year 2018 trucks that were priced at $69,556 on average in March 2021. That cost was $19,627, or 39.3%, higher than February 2021.
Annual Equipment Market Survey: Now in its 31st edition, the Equipment Leasing and Finance Association’s (ELFA) “What’s Hot, What’s Not: Equipment Market Forecast 2021” report is a benchmarking tool that provides industry perceptions of 15 equipment markets based on a survey of ELFA members. Survey results and responses on economic conditions allow companies to compare their progress with that of others and identify opportunities for future success.
Carl Chrappa, senior managing editor of The Alta Group, LLC, and author of the report, noted the 2021 survey scores for several asset classes are very high when compared to prior years. In particular, the construction industry received high scores, indicating that equipment leasing and finance companies feel comfortable with the current market for those assets.
Medical equipment and trucks and trailers were tied for second place in the 2021 survey. Chrappa remarked the second-place finish marks a “huge rebound” for this market, which ranked second to last in the 2020 survey.
Valuation Outlook: After weighing all factors, Gordon Brothers believes equipment values for this segment in the near term will be positive to increasing, given current market conditions.
Note: THIS PUBLICATION IS PROVIDED FOR INFORMATIONAL MARKETING PURPOSES ONLY. THE MATERIAL CONTAINED HEREIN SHOULD NOT BE REGARDED AS ADVICE, NOR RELIED UPON TO MAKE FINANCIAL, OPERATIONAL OR OTHER DECISIONS; NOR SHOULD IT BE USED AS A SUBSTITUTE FOR AN ASSET APPRAISAL. ACTUAL RECOVERY VALUES MAY VARY FROM TRANSACTION TO TRANSACTION AND THE RECOVERY VALUES REFERENCED HEREIN ARE FOR REPRESENTATIVE TRANSACTIONS WITHOUT REGARD TO SPECIFIC KEY FACTORS. THIS MATERIAL MAY BE REDISTRIBUTED ONLY IN ITS ENTIRETY, INCLUDING NOTICE OF COPYRIGHT. ALL RIGHTS RESERVED. ©2021 GORDON BROTHERS, LLC. REFERENCE SOURCES: U.S. BUREAU OF TRANSPORTATION STATISTICS, TRANSPORT TOPICS, HEAVY DUTY TRUCKING TRUCKINGINFO, FOR CONSTRUCTION PROS, FTR TRANSPORTATION INTELLIGENCE, EQUIPMENT LEASING AND FINANCE ASSOCIATION, AMERICAN TRUCKING ASSOCIATIONS, ACT RESEARCH, THE ALTA GROUP.