The new year will be a tough one for the North American trucking industry, according to ACT Research. In this MTD exclusive, Steve Tam, ACT’s vice president of research, explains why. The good news? The situation is “nowhere near as dire” as what the industry experienced nearly 10 years ago, during the depth of The Great Recession, according to Tam.
MTD: 2018 was, by most accounts, a strong year for trucking in terms of tonnage, freight rates, new truck orders and other metrics. What is the current state of the North American commercial trucking industry as we near the end of 2019?
Tam: Comparing 2019 to 2018, the industry saw declines in most areas. While the numerous metrics vary, freight volumes were down year-over-year by an average of 3% to 4% each month in 2019. The decline in freight is largely the result of lower manufacturing activity. Despite the fact that demand was lower, truckers continued to add capacity to the fleet. Too many trucks and not enough freight led to an environment of freight rate erosion. Depending on which sources and data one follows, the contract freight decline was also in the neighborhood of 3% to 4%, with spot rates falling in excess of 10%.
Combined with lower demand and profits test by lower rates, truckers placed considerably fewer orders in 2019. For perspective, more than 400,000 orders were placed in 2018, twice the number needed to keep up with replacement. Through November 2019, OEMs have taken orders for fewer than 135,000 trucks.
MTD: Right now, there are more tractors in the U.S. market than what is needed to haul freight. How will this impact new truck orders next year? Will we eventually see a situation similar to what occurred nearly 10 years ago, when fleets parked – and in some cases, began to cannibalize – their equipment?
Tam: The industry is clearly staring excess capacity in the face and is just now taking the first step in the right direction to deal with the situation. Orders are expected to increase moderately as 2020 progresses. But probably not more than a few thousand units per month over 2019’s average monthly intake will be required to meet the forecasted demand of 190,000 units. Some parking of trucks and cannibalization of parts may take place. It is important to keep in perspective that the excess capacity is estimated to be in the low to mid-single digit range.
MTD: What will the trucking market look like during the first half of 2020? Where do you see the North American trucking industry six months from now?
TAM: 2020 is going to be a challenging year for the trucking industry. On the equipment manufacturers’ side, output will likely fall throughout the year as truckers work hard to rationalize capacity.
“The pace of the recovery will be determined by this, in conjunction with dynamics in the freight market," he says. "Currently, they are expected to parallel what we have laid out for the truck industry, both in terms of magnitude, as well as timing.”