Trucking Industry Insight (Summer 2024)

Trucking Industry Insight (Summer 2024)

This insight focuses on several topics that pertain to the trucking industry as a whole, including the recent decline in Class 8 truck orders, concerns regarding operational costs, a new U.S. House Bill to expand parking capacity, and the onslaught of layoffs experienced within the industry.  It also includes a summary of trends in used equipment values.

Hot Topics

Class 8 Truck Orders Take a Downward Turn: According to FTR Transportation Intelligence (FTR), after three months of year-over-year increases, Class 8 net truck orders in June fell 12% to 14,800 units and were down 37% from the previous month.  Class 8 orders for the past 12 months have now totaled 273,700 units.

June’s orders are lower than normal market results, following a strong five-month period where orders were averaging 25% higher on an annual basis.  During the first three months of the year, orders averaged around 18,000 units per month.  In the last three months, they have slowed to just under 16,000 units per month, which is a normal seasonal decline.  Despite the slowdown, FTR said that production slots for Class 8 trucks are still being filled at a “steady, albeit slowing, pace.”

As to the decline in June orders, FTR said it was in line with seasonal expectations.  The year-over-year decrease is the first one to date in 2024, and FTR believes it is “relatively insignificant because it is modest and because of the strong order performance over the previous five months.”

While all OEMs had order decreases, FTR said that its preliminary data shows that vocational market demand dropped more significantly.  The market is still performing at or above replacement levels for incoming orders, said Dan Moyer, senior analyst, of commercial vehicles at FTR.  “Despite stagnant freight markets, fleets continue to invest in new equipment.”  Moyer added, “Order levels are in line with historical averages and seasonal expectations, and market fundamentals remain little changed based on these preliminary orders.”

Trucking Fleets List Operational Costs as Top Priority: In a June 27 survey conducted by Shell Fleet Solutions and NAFA, the trucking industry cited total cost of ownership as its top concern for 2024.  The survey found that 89% of respondents viewed cost of ownership as the primary concern, followed by safety at 86% and efficiency management at 82%.  “Overall, the top results are what we would expect based on conversations we have with our customers and the current landscape of the fleet industry,” said Jim Perkins, director of Shell Fleet Solutions U.S.  “Reducing overall costs, finding ways to be more efficient and fleet safety all scored high in the survey.  These are the priorities and concerns that affect fleets daily.”

The commitment to sustainability and electric vehicles also had a strong showing on the survey as more than half of all respondents said they will invest in initial or additional EVs over the next year, a sign that the fleet world is actively pursuing decarbonization efforts.  The momentum towards decarbonizing the transportation industry sustainably isn’t going away anytime soon, which brings its own set of challenges for fleets.  The top three barriers fleets face are expenses, time, and technology.

The survey also found that more than 71% agreed that economic and political factors are a top concern for their fleets this year both nationally and globally.  Those factors include supply chain disruptions, inflation, recessions, and sustainability mandates.  “We believe this shows the issues affecting fleets from the pandemic are still a factor,” Perkins said, “whether it’s supply chain issues, inflation, or various local, state, and federal mandates and policies that affect fleet operations, such as emissions standards.  “While there have been improvements in those key areas, many of our fleet customers are acutely aware of the costs of doing business.”

“Many fleets would like to see a full-circle sustainable solution, from energy source to EV implementation,” said Chris Nolan, global key account manager at Shell Fleet Solutions.  “But there are fleets where EVs don’t make sense right now, or they may need solutions like hybrid fleets.  Whatever their sustainability need, we aim to find the right solution for fleets across our portfolio of products.”  The survey noted more than a third of fleet managers would find external support and advice helpful in the transition to new technologies and vehicle types.

U.S. House Bill Includes $200M for Truck Parking: On June 27, a U.S. House of Representatives subcommittee approved a transportation bill that includes $200 million for truck parking operations nationwide.  The Federal Highway Administration has long identified the limited availability of truck parking as a “national safety concern.”  According to the U.S. Department of Transportation, 98% of truck drivers regularly struggle to find safe parking spots.  This translates to drivers spending an average of 56 minutes each day searching for parking, effectively reducing their annual pay by $5,600.

ATA President and CEO Chris Spear highlighted the critical nature of the parking shortage, noting that it places an enormous burden on drivers who often end their shifts uncertain about where they will sleep.  Spear emphasized that the $200 million investment will help expand parking capacity, reduce stress on drivers, improve freight efficiency, and enhance road safety for all motorists.

The truck parking problem is intensified by the nation’s economic demands, which rely heavily on a robust trucking industry to transport goods.  In response, last September the Biden administration announced $80 million in grants aimed at improving highway safety, including measures to expand truck parking.  Additionally, Pilot Travel Centers has committed to adding 500 parking spaces across the country.  The new transportation bill reflects the critical need for safe and accessible rest areas for the men and women delivering America’s freight.  This legislative effort is a significant step towards addressing the longstanding truck parking crisis, providing much-needed support to the nation’s truck drivers.

U.S. Freight-related Firms Hit with Layoffs: On June 18, Bath & Body Works Logistics Services announced the layoff of 85 employees from a distribution center in Columbus, Ohio.  The distribution facility provides logistics and shipping services to clothing retailer Express which recently filed for Chapter 11 bankruptcy and announced its plan to close 100 stores.  Since that time, Express’s volume has remained low and unpredictable.  Consequently, Bath & Body Works Logistics Services needed to permanently reduce its operations.  Other companies recently announcing layoffs include Averitt Express, ShipBob, and Henry Avocado Corp.  The affected workers at Averitt Express are among a total of 218 employees being laid off at freight-related companies in Florida, California, Ohio, and Texas.

The current layoff onslaught isn’t due to the impending technological revolution.  Instead, they’re often caused by the five factors explained below:

Manufacturing Slowdown – According to a Reuters report from last December, U.S. manufacturing is stubbornly subdued, contributing to slow hiring and increased layoffs.  This slowdown in manufacturing is reducing the amount of business for truckers and encouraging board members to enact layoffs.

Business Stoppages – Last year, Yellow laid off its 30,000 workers in the U.S. as it ceased operations.  Business stoppages such as this are notorious for laying off thousands of individuals in the trucking sector.  It’s one driving factor that very few have the power to control, arguably making it one of the most disastrous.

Over Hiring in 2018-2019 and Post-pandemic – Trucking notoriously hires and fires swathes of individuals.  The sheer amount of hiring seen from June 2018 to June 2019 and the later post-pandemic purchasing uptick reached all-new heights.  As such, companies across the industry mitigate the negative impacts of past over-hiring endeavors by laying off employees to reduce operational costs.

Market Weakness – Some companies, including one of the U.S.’ largest trucking conglomerates, Knight-Swift Transportation, are laying off employees due to less-than-desirable financial results and weak forecasts for the next 12 months.  While unfortunate for individuals impacted by the layoffs, it’s helpful for companies who need to cut costs during challenging monetary periods.

Mergers – Mergers and acquisitions can have an adverse impact on employees of the previously separate companies.  Upon merging/acquiring, there becomes an overabundance of drivers in one region, resulting in layoffs to achieve balance and harmony among the remaining workers.  This factor appears to be more prominent in less-than-truckload companies like Conway.

Trends in Used Equipment Values

According to ACT Research, the average retail sale price of used Class 8 trucks in May was $58,380, down 15.5% year-over-year and 1.5% from the prior month.  Mileage decreased 2.1% from a year ago, and 0.5% from the prior month.  “We anticipate the price outlook will soften in our next update, owing to a weaker-than-expected freight market,” said ACT Research Vice President Steve Tam.  “Prices are expected to remain stable through most of 2024, transitioning to year-over-year growth in the fourth quarter.  Sequential growth most likely will take place at the end of 2024.”

Commercial Truck Trader is an online marketplace for new and used commercial vehicles.  The number of units for sale on their website continued the trend of inventory buildup in the heavy-duty segment, growing 11.8% from May to June.  “As more inventory continues to populate the secondary market, we’re going to see persistent downward pressure on pricing,” said Charles Bowles, director of strategic initiatives at Commercial Truck Trader.  “Oversupply generally results in lower residual values and higher dealer competition for active buyers.”  “The bottom line is that the heavy-duty segment will continue to suffer from downward pressure on pricing as long as freight rates remain low and interest rates remain high,” Bowles said.  “There’s too sharp a margin squeeze on carriers, and this cycle will continue to push more units into the secondary market as carriers exit the game.”

Irontrax continues to see a decline in the pricing of all late-model used trucks (sleepers and day cabs) and trailers with higher mileage, however, those with lower mileage are still holding their values.  It appears the secondary market is not going to overpay for equipment.

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