Trucking Industry Insight (Fall 2023) 

Trucking Industry Insight (Fall 2023) 

This insight focuses on a number of topics that pertain to the trucking industry as a whole, including the movement toward zero-emission vehicles, the possibility of further activity in the acquisitions market, the Yellow Corp bankruptcy filing, the strike by the big three autoworkers, and the truck parking shortage. It also includes a brief summary of trends in used equipment values.

Hot Topics 

Commercial Vehicles Move Toward Zero Emissions: According to the results of a study of the U.S. commercial vehicle market recently released by ACT Research, the number of zero-emission and decarbonization vehicles will reach 25% by 2030 and 50% by 2040. 

Regulations play a key part in the earlier years of the projections. “We forecast a relatively low adoption rate from 2024 through 2026, reflecting the fact that Business Enterprise Value sales of commercial vehicles are still in their early years,” said Ann Rundle, vice president of electrification and autonomy with ACT Research. “This begins to change in 2027, in part due to the cost increases for diesels because of the increased stringency of U.S. EPA’s 2027 low Nitrogen Oxides Control regulations. In addition, by 2027, eight states will have joined California in adopting advanced clean trucks, resulting in moderate growth in adoption rates.” 

By 2030, ACT Research is forecasting a 25% adoption rate of zero-emission vehicles, since by then the remaining nine states that signed the Memorandum of Understanding to adopt California Air Resources Board advanced clean trucks will have enacted those regulations. It is also assumed that improved battery technology will negate battery replacement costs and charging infrastructure utilization will significantly increase, decreasing the total cost of ownership. “By 2040, we are forecasting that adoption of zero emission vehicles will account for just slightly above 50%; essentially half of all commercial vehicles will be zero emissions, primarily battery electric vehicles,” Rundle said. 

Trucking Industry Poised for Further Mergers & Acquisitions: Rising interest rates, a cool freight market and generational trends could spur further activity in the acquisitions market. The freight market isn’t what it used to be. Following months of overcapacity and a weak peak season outlook, experts say the environment is ripe for more mergers and acquisitions. 

In the past 2-plus years, the trucking industry rapidly expanded to take advantage of the pandemic fueled buying frenzy, which saw shippers paying historically high rates to get goods to market. Now smaller carriers, especially those who sought to cash in on record rates and took on debt to buy equipment, are struggling to make ends meet in a weak economy. “Now you’ve got a lot of small and medium-sized companies whose profitability has dropped off monetarily,” said Peterson Hawkins with Lilium Group, a private equity firm. As businesses in this situation seek a way out, larger carriers with cash on hand see a buying opportunity. “It’s kind of a perfect storm for a lot of acquisitions,” Hawkins said. 

Generational trends are also influencing the acquisitions market. “Baby boomers are desiring to exit their companies,” said Billy Hart, managing partner for M&A consultancy Bluejay Advisors, noting many carriers lack a succession plan. “They want to monetize what they can and be done with it.” Blujay Advisors’ analysis suggests M&A volume will slowly increase in the coming quarters with the second half of 2024 returning to a more robust deal market. 

Despite weak rates and a soft economy, some of the nation’s largest carriers have expressed a desire to expand. Executives with Schneider National and Hub Group both indicated during recent earnings calls an openness to continue their respective growth strategies through acquisition. 

Trucking Company Giant, Yellow Corp, Declares Bankruptcy: On August 6, 2023, Yellow Corp, a major trucking company based out of Nashville, filed for bankruptcy after having received $700 million in debt relief from taxpayers during the COVID-19 pandemic. Their bankruptcy filing has raised concerns for taxpayers who have been financially burdened by the company’s misuse of funds. The bankruptcy also poses a threat to the economy, with the cost of certain goods likely to increase significantly. The company’s closure means that 30,000 workers have lost their jobs. 

Yellow Corp’s CEO, Darren Hawkins, said, “It is with profound disappointment that Yellow announces that it is closing after nearly 100 years in business. For generations, Yellow provided hundreds of thousands of Americans with solid, good-paying jobs and fulfilling careers.” Though his statement painted Yellow Corp in a positive light, many taxpayers would disagree with the CEO’s glowing assessment of the company’s reputation in recent years. 

The freight company, which had been in business for nearly a century, has brushed off accountability for their failures by blaming union negotiations and other extenuating factors for their inability to make payments. Yellow Corp had been in a longstanding battle with the Teamsters union, which represented 22,000 of their 30,000 employees. Just months ago, the union sparred with Yellow Corp after the company failed to pay pension and health insurance funds. The union threatened a strike, but ultimately allowed Yellow Corp more time to make the payments. Though the company claims to have been doing just fine until recently, Yellow Corp has been visibly struggling to stay afloat for quite some time. The company that was once an industry leader in the U.S. started showing signs of trouble in 2004. Yellow Corp began taking in billions of dollars in debt and never fully recovered from the financial loss. Over time, Yellow Corp was faced with lawsuits and floundered to survive. 

Big Three Auto Workers Go On Strike: On September 15, about 13,000 U.S. auto workers stopped making vehicles after their leaders couldn’t bridge a giant gap between union demands in contract talks and what Detroit’s three automakers are willing to pay. This marks the first time in the union’s 88-year history that it walked out on all three companies simultaneously as four-year contracts expired. The strikes will likely determine the future of the union and of America’s auto industry at a time when U.S. labor is flexing its might and the companies face a historic transition from building internal combustion automobiles to making electric vehicles. If the strike lasts a long time, dealers could run short of vehicles and prices could rise, impacting a U.S. economy already under strain from elevated inflation. It’s tough to say just how long it will take for the strikes to cut inventories at dealers and start hurting the companies’ bottom lines. 

This strike is far different from those during previous UAW negotiations. Instead of going after one company, the union is striking at all three. However, not all of the 146,000 UAW members at company plants are walking picket lines, at least not yet. Instead, the UAW targeted a handful of factories to push company negotiators to raise their offers, which were far lower than union demands of 36% wage increases over four years. GM and Ford offered 20% and Stellantis, formerly Fiat Chrysler, offered 17.5%. In addition to general wage increases, the union is seeking restoration of cost-of-living pay raises, an end to varying tiers of wages for factory jobs, a 32-hour week with 40 hours of pay, the restoration of traditional defined-benefit pensions for new hires who now receive only 401(k)-style retirement plans, pension increases for retirees and other items. 

Starting in 2007, workers gave up cost-of-living raises and defined benefit pensions for new hires.  Wage tiers were created as the UAW tried to help the companies avoid financial trouble ahead of and during the Great Recession. Many believe it’s time to get the concessions back because the companies are making huge profits and CEOs are raking in millions. Top-scale assembly plant workers make about $32 per hour, plus large annual profit-sharing checks. Ford said average annual pay including overtime and bonuses was $78,000 last year. 

Truck Parking Shortage Continues to be Major Problem: Experts estimate that truckers across the country need at least 40,000 more parking spots. It’s also estimated that there’s only one parking space available for every 11 trucks. The shortage of parking spaces has created a big a safety issue. Truck drivers frequently have to park on the shoulder of a highway, oftentimes even near exit ramps. Approaching motorists typically don’t expect to see an 80,000-pound machine stopped on the side of the road. As a result, they could easily hit that truck. At times, some drivers have been severely hurt or even killed after being attacked because they had to park in a high-crime area with no security. Most people have no idea this problem even exists. 

There are a number of reasons the truck parking crisis has become so bad. More goods are being shipped, so more trucks are needed to ship them. The number of parking spots simply isn’t keeping up with the demand. Also, many areas have strict regulations on overnight truck parking.  This issue is having a major impact on the industry. Truckers’ mental health is affected as the stress associated with trying to do something as basic as parking their vehicle is coupled with the tight timeframes they are operating under. They’re also at a higher risk of crime. Trying to find a parking spot also wastes a lot of time, which has a trickle-down effect on the supply chain.  Goods aren’t getting where they need to be when they need to get there. This leads to wasted money as well, impacting the entire economy in the process. 

There seems to be an assumption that the parking ought to be free when in reality, parking costs a lot of money to build. The argument that’s being advanced right now is that it’s the federal government’s responsibility to ensure sufficient parking. The basis for that argument is that this is a question of interstate commerce and highway safety since trucks carry the lion’s share of the goods that move in the U.S. Both federal and state organizations are attempting to address the shortage through regulations and public rest stop enhancements. States like Wyoming and Iowa are adding additional rest stops and signs denoting available parking spaces along the freeways crossing their states. 

Trends in Used Equipment Values 

According to the most recent reports issued by Sandhills Global, ongoing increases in inventory have led to decreased auction values across the heavy-duty truck and semitrailer categories.  These increases have also resulted in wider spreads between asking and auction values. Key trends in certain used vehicle values noted in the reports are as follows: 

U.S. Used Heavy-Duty Trucks 

Increases in the inventory levels for used heavy-duty trucks paused in August. However, an upward trend is expected to continue. Asking and auction values maintained a downward trend that began in the second quarter of 2022, with sleeper trucks falling at a faster pace than day cabs in August. Asking values fell 3.72% month-to-month and 20.93% year-over-year following consecutive months of decreases. Auction values declined 2.43% month-to-month and 28.57% year-over-year, also following consecutive months of decreases. 

U.S. Used Semitrailers 

Used semitrailer inventory levels were up 3.55% month-to-month and 59.96% year-over-year after several months of increases, with the dry van and reefer semitrailer categories leading the way. A downward trend continued for both asking and auction values, with dry van semitrailers exhibiting the most significant month-to-month value decreases in August. For the same month, asking values were up 0.05% month-to-month and down 23.41% year-over-year. Auction values fell 2.87% month-to-month and 27.22% year-over-year following months of decreases. 

When rising inventory level trends occur, auction value decreases usually follow. The Sandhill market reports show clear trends that sellers would be wise to track. Truck and trailer sellers, in particular, should pay close attention to the market as inventory levels are up and values are heading lower. 

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