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 March 2020
- As economies react to the Covid-19 pandemic, North American Class 8 truck orders declined to an unprecedented level of 4,000 units in April 2020.
- New trailer orders declined 55% for March 2020 over March 2019.
- Class 8 used truck sales in March 2020 decreased 12%, while the average price was down approximately $7,000 over the same period in 2019.
- Truck tonnage for April 2020 decreased 11.3% over 2019.
Gordon Brothers by the Numbers
Class 8 Orders Decline significantly:
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 Research (ACT). April 2020 order activity was the lowest since 1995, with FTR and ACT showing April 2020 to be 44 and 46 percent below March 2020 numbers and 73 and 72 percent lower than a year ago, respectively. Total Class 8 orders for the 12 months ended April 2020 totaled just 160,000 units, as compared to approximately 344,000 units for the same period one year ago. U.S. Class 8 retail truck sales in March 2020 totaled 7,400 units, representing a decrease of 52 percent from March 2019.
While orders are expected to increase in May to approximately 10,000 units, future Class 8 order activity is highly dependent on the speed and strength of the economic recovery. In a May 5, 2020, post, ACT’s President and Senior Analyst Kenny Vieth noted “April 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.” Vieth added that, “From a seasonal perspective, April is a relative neutral Class 8 order month, and as such, seasonal adjustments adds little to actual data. On that basis, April was the weakest Class 8 order month since September of 1995, which actually produced a negative net order number.” Fleet operators were extremely cautious heading into 2020, placing small orders and not extending orders beyond the first quarter. Despite moderate order activity reported by some original equipment manufacturers, total orders continue to fall below expectations.
FTR reported on May 15, 2020, that orders of new trailers hit a historic low of just 300 units for April 2020, a drop of 98 percent over April 2019. Throughout 2019 and early 2020, the trailer industry had been struggling with record low orders and excess inventory, which the coronavirus pandemic exacerbated. Some trailer manufacturers including Wabash National Corporation suspended production to balance the lack of demand.
A pullback in trailer orders was expected for 2020 after more than 650,000 trailers were produced in 2018 and 2019. By comparison, trailer orders for the trailing 12 months ended April 2020 totaled just 162,000 units. Don Ake, FTR vice president of commercial vehicles commented on the decline “Fleets remain in a severe wait-and-see posture until they can evaluate the damage done to the freight markets from the pandemic,” adding, “Since the recovery from the economic crisis is highly dependent on the status of the health crisis, there is a huge amount of uncertainty in the trailer market. Buying activity appears to be on hold until the fleets can see a clear path forward.”
Used Class 8 Truck Prices Fall: Class 8 used truck sales in March 2020 decreased 12 percent, while the average price was down approximately $7,000 as compared with 2019 figures for the same period. Sales of used vehicles hit 18,000 compared with 20,500 a year earlier, according to ACT, which conducts a monthly survey of a sample of dealers, wholesalers, and auctioneers as well as select fleets to determine average price, age and mileage, as well as estimated industry volumes. Year-to-date sales through March 2020 totaled 52,500, representing a decrease of 24 percent compared with 2019 sales of 68,900. Additionally, the average price also dropped 15 percent to $37,975 compared with $44,658 in 2019. 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.”
Prior to the onset of the pandemic, based on 2019 sales and 2020 projections, the heavy-duty truck market was expected to see a “modest rebound in 2021 followed by growth into 2023,” according to Vieth. Vieth’s assessment, issued in late November 2019, explained that for Class 8 sales over the next four years, a “regression to the mean” would take place. Statistically speaking, this term describes the tendency of extreme outcomes to return to normal after an unusual event, which in this case were remarkably strong truck sales in 2019. He added that with the U.S.-driven “trade war as a major caveat to forecast expectations, our underlying view is that the economy will experience slower growth but not recession in 2020.” That forecast called for heavy-duty truck sales to start to rebound in 2021; however, the pandemic has impacted the market such that it is difficult to gauge the outcome until nationwide stay-at-home orders are lifted and the majority of businesses reopen.
Truck Tonnage Index takes a dive: 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. After increases in February and March 2020, American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index decreased 11.3 percent in April, coming in at 104.9, down from 118.4 in 2019. On a sequential basis, April 2020 was down 12.2 percent from March 2020, when the index registered 119.5 (in calculating the index, 100 represents 2015 levels). ATA Chief Economist Bob Costello noted in a statement, “April’s monthly decline was the largest in 26 years when there was a labor strike in April 1994.”
However, COVID-19 has benefited some segments of the trucking industry and will likely continue for the next several months. Provider of multi-modal transportation services C.H. Robinson reported volume increases of 30 to 40 percent for retail food products and 15 to 20 percent for healthcare-related products and produce in March. Dry van load-to-truck ratios (a measurement of relative demand in the industry) increased 66 percent for March. Additionally, regulations related to the number of hours a driver can work were eased in April by the Department of Transportation in order to streamline deliveries of critical medical supplies.
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. ©2020 Gordon Brothers, LLC.
Reference sources: federal reserve economic data, heavy duty trucking, business insider, motor & Equipment Manufacturers Association, american trucking association, freightwaves, ftr, transport topics