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Biden Touts His Economic Plans After Cummins Announces $1 Billion Investment: During an April visit to a Cummins facility in Minnesota, President Biden hyped U.S. manufacturing after the company announced an additional $1 billion investment. The company intends to invest the money in Indiana, North Carolina and New York, as it continues to work on the development of low- to zero-carbon engines. More than half of all medium and heavy-duty trucks in the U.S. currently use Cummins engines, and this investment will be used to upgrade facilities aimed at decarbonizing shipping vehicles across the country.
Biden tied the announcement in with his Investing in America plan, a set of policies that aim to boost manufacturing in the U.S. with a focus on clean energy.“Instead of relying on equipment made overseas in places like China, our supply chains will be again made in America,” Biden said in Fridley, Minnesota. “Companies and utilities across the country will use those products to make clean hydrogen, and trucks made in America with zero emission engines will be powered by clean hydrogen.”
Cummins announced its initial investment in electrolyzer manufacturing at the Fridley facility in October 2022, two months after Biden signed the Inflation Reduction Act. Electrolyzers are needed to create clean hydrogen, used to power certain vehicles, and in steel production. “When Cummins first manufactured hydrogen electrolyzers they had to make them overseas, these are the machines that make clean hydrogen renewable energy used to power our economy from clean cars to trucks to steel to cement manufacturing,” Biden said. “Now thanks to the Inflation Reduction Act with tax credits for renewable energy, Cummins is going to manufacture these electrolyzers here in America for the first time.” According to the White House, since Biden’s inauguration companies have committed to similar investments totaling more than $2 billion in Minnesota.
Oil Market Braced for Higher Prices: As of April 3, the benchmark price for most fuel surcharges had dropped for a ninth consecutive week. The Department of Energy/Energy Information Administration average weekly retail diesel price on that date was $4.105 a gallon, a decline of 2.3 cents. The price is now down $1.236 a gallon since its most recent high of $5.341 a gallon on October 24. The price is also down $1.705 a gallon from its all-time high of $5.81 on June 20.
However, on the same day the decline was posted, future prices across the oil complex soared on the unexpected news that the OPEC+ group, which includes OPEC and a group of non-OPEC oil exporters led by Russia, had agreed to cut output by 1 million barrels a day. Those reductions will go into effect in May and last through the year. Goldman Sachs, which had recently reduced its target price for global benchmark Brent crude by the end of the year in response to the troubles in the banking sector, moved it right back up following the OPEC move. Their forecast for December is now set at $95 a barrel, up from $90 previously.
In response to the news, Francisco Blanch, head of commodity and derivatives research at Bank of America, was quoted as saying, “Any unexpected 1 million barrel per day change in supply or demand conditions over the course of a year can impact prices between $20 and $25 per barrel. OPEC is no longer afraid of a major U.S. shale oil supply response if Brent crude oil prices trade above $80 per barrel, so cutting volumes to push oil prices higher does not carry the same risks it did five years ago”.
Diesel prices have lagged Brent prices as there is growing concern about a recession that could hit the demand for diesel fuel. As an industrial fuel, diesel is often hit harder by a slowdown than gasoline. Weak trucking markets are potentially contributing to the decline in diesel prices, and that weakness is showing up in demand figures.
EPA Proposes Tougher Emission Rules for Heavy-duty Trucks: The EPA wants electric trucks to make up a quarter of new sales by 2032 as part of a new proposal. On April 12, the agency unveiled sweeping proposals to significantly accelerate clean vehicle requirements and shape the direction of truck manufacturing. Starting with model year 2027, heavy-duty vehicle emission requirements would become more stringent, moving the industry beyond what was finalized in a 2016 Phase 2 carbon dioxide emissions rule. The agency also proposed new emission standards for model years 2028 through 2032 that would get progressively tougher by requiring 25% of all new long-haul tractors to produce zero emissions for model years 2032 and beyond.
Virtual hearings on the heavy-duty proposal were slated for May 2 and 3 and possibly May 4. The proposals quickly drew concerns from the trucking industry. “While these standards are directed at manufacturers, it is fleets, the customers and end-users of this equipment who will ultimately determine their level of success,” said American Trucking Associations CEO Chris Spear. “The Phase 3 standards must take into account the complex challenges and operating conditions facing motor carriers as we manage the transition to a zero-emission future.” Spear added the ATA was “extremely disappointed that EPA has chosen to reopen the Phase 2 regulation,” which was agreed to and finalized in 2016. He said the organization will remain engaged in the regulatory process to ensure the agency has realistic timelines for regulation that’s technologically feasible and will not cause additional inflationary pressures.
Owner-Operator Independent Drivers Association President Todd Spencer voiced similar concerns saying, “Today’s announcement is a blatant attempt to force consumers into purchasing electric vehicles while a national charging infrastructure network remains absent for heavy-duty commercial trucks,” noting concerns that include EV costs, charging time, availability, mileage range and safety. Meanwhile, the Truck & Manufacturers Association said the organization and its members “remain fully committed to collaborating with EPA and other stakeholders.” However, the group suggested the current proposal wasn’t ideal, saying it will seek to provide data and insights to create a rule that helps accelerate the adoption of heavy-duty zero-emission vehicles. Peter Voorhoeve, president of Volvo Trucks North America, suggested more support beyond OEMs is needed to properly scale production. He believes that finding ways to expand charging infrastructure and keep costs down for consumers will require collaboration with utilities, tech companies, government officials and more.
Trends Driving the Demand for Truck Leasing:A range of market conditions, including economic and regulatory developments, are driving greater demand for leasing among both private and construction fleets. Among the challenges faced by the trucking industry are stiffer greenhouse gas rules from the EPA and the gradual but steady rollout of battery-electric trucks across all vehicle weight classes. “Fuel and equipment prices due to interest rates, ongoing driver and technician shortages, and a possible economic recession have many in the industry on edge as they navigate through the early parts of 2023,” says Hadley Benton, executive vice president of business development for management-services provider Fleet Advantage. “These issues are major drivers in encouraging these organizations to inject more leasing into their operations and equipment portfolios.” The driving factors for the growth in leasing are low-risk financing, flexibility, and reduced cost of ownership.
Equipment-acquisition executives have identified four key trends that are driving fleet concerns about acquiring and maintaining trucks:
- Regulatory Developments – Companies such as Ryders can reduce the burden of compliance by identifying actions that can be taken to meet compliance requirements. For example, Ryder Fleet Services helps lease customers navigate regulations by establishing best-practice safety programs and implementing safety technology like dash cams and driver training programs. In addition, lessors have been at the forefront of leveraging data from mandated electronic logging devices to show customers how the data can inform scheduled and predictive maintenance.
- Tighter Emission Rules – The upcoming more stringent emissions rules from the EPA will be front and center in devising effective strategies for equipment acquisition over the next few years. Companies will have to be more strategic, especially as they increase their ability to get truck allocations from OEMs. Trucking will likely see a pre-buy effect ahead of the new rules, but this time there will be more options to consider to meet the rules, from diesel and clean diesel to CNG and gasoline power, as well as electric vehicles.
- Battery Electric Trucks – Leasing companies have a great opportunity to work with fleets on alternative power solutions. Most private fleets run Class 6-8 power, and while there is interest in electric, because there’s a major cost differential, they’re sticking with internal combustion engines. There also needs to be significant growth in charging infrastructure, it’s nowhere close to charging thousands of trucks at once. In addition, the residual values for electric vehicles have yet to be determined. At Fleet Advantage, they believe the best approach to realistically bridge today’s clean-diesel technology into tomorrow’s alternate fuel options is by leading with the appropriate environmental, social, and governance roadmap, supported by strategic asset-management partners to determine truck procurement strategies with optimal life-cycle management.
- Finding and Keeping Truck Technicians – Technician recruiting and retention have never been more important than they are today. For some fleets, outsourcing maintenance may be the answer to this challenge as large leasing companies address the problem. Recruiting includes targeting different demographics, including U.S. Army soldiers preparing to transition to civilian life, as well as high school students who are paired with experienced mentors as part of their school’s automotive/diesel program. Fleet Advantage identified one study that found 177,000 new diesel-tech entrants are needed between 2022 and 2026 to meet both new demand and to make up for those retiring or leaving the profession.
Trends in Used Equipment Values
In March 2023, the sales volume of Class 8 trucks increased notably with most trucks sold showing higher-than-average mileage. As a result, depreciation accelerated.
The average pricing for three- to seven-year-old trucks for March was as follows:
Model year 2021: $87,000; $35,200 (28.8%) lower than February
Model year 2020: $64,317; $15,783 (19.7%) lower than February
Model year 2019: $50,411; $4,607 (8.4%) lower than February
Model year 2018: $36,368; $4,771 (11.6%) lower than February
Model year 2017: $25,456; $3,759 (12.9%) lower than February
The extreme drop in the average for model-year 2021 trucks may be exaggerated due to very low volume. Three-year-old trucks are definitely depreciating, but a more detailed assessment will not be possible until more of these trucks cycle through the used market.
With that in mind, late-model trucks averaged 14.3% less money in March than February, and 47.4% less money than March 2022. In the first quarter of 2023, late-model sleepers brought in 46.6% less money than the same period of 2022. Monthly depreciation in 2023 is currently averaging 8.1%. The newest model years available in the marketplace are bringing about 25% more money than the strong pre-pandemic period of 2018, assuming average mileage per year. If values are adjusted over time to 2023 dollars, that difference drops to about 5%.
In addition, the definition of “low mileage” is narrowing, with a notable price premium given only to trucks with less than 300,000 miles. With new trucks more readily available, the demand for lower mileage used trucks has diminished. Also, fleets and owner-operators continue to offload their highest-mileage equipment, as excess capacity is no longer needed.