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Commercial Trucking & Trailer Trends

INDUSTRY INSIGHT

Date March 2020

Trucking Industry Projected Values
 

Current Trends

  • Class 8 U.S. retail truck sales for January 2020 dropped below 16,000 for the first time since January 2018, marking a decrease of approximately 22% over January 2019.
  • Despite moderate order activity reported by some original equipment manufacturers, total Class 8 orders of 181,000 units fell below expectations for the 12 months ended February 2020.
  • Preliminary trailer orders for December 2019 were at their lowest since August 2019 at 16,500 units. December trailer orders were down 17% from November and down 41% year-over-year.

Gordon Brothers by the Numbers

Synopsis

Industry facing bankruptcies and layoffs: On December 9, 2019, the Celadon Group Inc., operator of one of the largest truckload carriers in the United States, filed for Chapter 11 bankruptcy. The company plans to cease full operation with the exception of its North Carolina-based Taylor Express division, which will continue to operate as the company explores a going concern sale of its operations, according to recent reporting from Heavy Duty Trucking magazine.
 

In combination with industry challenges, Celadon had also faced significant costs associated with a multi-year investigation into the actions of former company management, which ultimately led to the federal indictment of two former executives in an alleged $60 million fraud scheme. At the time of the shutdown, Celadon was operating a fleet of approximately 3,300 tractors and 10,000 trailers. It is anticipated that, in the event of a sale of the Company’s fleet, it is more likely that much of this equipment would end up at carriers in Celadon’s large book of business, so the actual sold quantity may be much less. Conversely, if a significant portion of these assets went to auction or otherwise directly to the secondary market in the current weakening state of the industry, the quantity of trucks and trailers that would be offered for sale would most likely have a negative impact on not just auction sale values, but market values as well.
 

Celadon is not the only company that has folded recently. In the first half of 2019, approximately 640 trucking companies went out of business, more than three times the number for the same period in 2018, according to industry data from transportation analyst Broughton Capital cited by Business Insider. The backlash on drivers and other industry workers has been severe as thousands have lost their jobs since the trucking recession began in early 2019.
 

Other troubling developments include confirmed layoffs by Daimler Trucks North America (including 900 jobs at two Freightliner plants in North Carolina), a reduction and planned reduction of personnel by Volvo Trucks North America and its sibling Mack Trucks at three plants by a total of over 700 employees, and reports that Navistar International Corp. is cutting production 15 percent at plants in Ohio and Mexico. All of these actions are being taken with the manufacturers citing the slowing of what was a very strong truck market as they try to right-size production at their facilities. ACT Research, an economic forecasting company, has forecast North American Class 8 production to plunge by more than 100,000 units to 224,000 compared with 2019, which is below the typical North American replacement level.
 

As a result of the shift in the market, data tracking the first 10 months of 2019 exhibited that four- to six-year-old trucks were selling for 10.7 percent less than during the same period in 2018. Moreover, some industry analysts believe the decrease is understated and could be over 26 percent, as sale prices in early 2018 were inflated because of tax breaks.
 

Class 8 truck sales robust but misleading: Based on 2019 sales and 2020 projections, the heavy duty truck market will be set up for a “modest rebound in 2021 followed by growth into 2023,” according to ACT Research President and Senior Analyst Kenny Vieth. Vieth’s assessment, issued in late November 2019, explained that for Class 8 sales over the next four years, what will take place is a “regression to the mean.” 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.” The forecast then calls for heavy-duty truck sales to start to rebound in 2021.
 

However, Vieth cautioned that “the far years of this forecast are influenced by the prospect of new emission controls in 2024, triggering a 2023 pre-buy, followed by a 2024 payback. “This regression-to-the-mean for 2020, after near-record production in 2019,” he advised, “has been our forecast since early 2018, so our subscribers have had nearly two years of yellow-light signals on the upcoming correction.” Class 8 sales for the month of November 2019 “failed to sustain October’s encouraging start to the order season,” said Tim Denoyer, ACT Research Vice President and Senior Analyst in a December 3, 2019, press release. Preliminary North America Class 8 net order data show the industry booked 17,500 units in November, which was down 20 percent from October.
 

Additionally, Class 5-7 orders fell 8 percent from October, to 15,300 units. ACT Research also reported that combined North American Class 5-8 intake for November fell 15 percent over October and 38 percent year over year on a nominal basis.
 

Truck tonnage index higher year-over-year: Trucking serves as a barometer of the U.S. economy, representing 70.2 percent of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods. American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index increased 3.3 percent in all of 2019, about half the annual gain in 2018 (6.7 percent), for the 10th straight annual increase. The SA Index increased 4 percent in December 2019 after falling 3.4 percent in November.
 

Compared with December 2018, the SA index increased 3 percent, which was preceded by a 2 percent year-over-year drop in November. “Last year was not a terrible year for for-hire truck tonnage, and despite the increase at the end of the year, 2019 was very uneven for the industry,” said American Trucking Association Chief Economist Bob Costello. “The overall annual gain masks the very choppy freight environment throughout the year, which made the market feel worse for many fleets. In December, strong housing starts helped advance the index forward.”
 



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