To say that the COVID-19 pandemic has had a disruptive impact on the North American trucking industry is an understatement. The month of April was particularly devastating for new truck sales as preliminary Class 8 orders plummeted. During that same month, trailer orders plunged 97%, dropping 99% from previous year levels.
Will things get worse before they get better? MTD recently caught up with Steve Tam, vice president of ACT Research, which tracks key trucking industry trends, for some insight.
MTD: Class 8 and trailer orders dropped drastically in April. Do you expect that most fleets will hit the pause button on their equipment replacement cycles while the industry continues to struggle? If so, for how long? And what knock-on effect will this have on tire orders?
Tam: The lower demand comes from two sources: reaction to current conditions and actions resulting from looking farther ahead. Today, fleets are not only curtailing replacements, but they also are putting (a hold) on plans for expansions. Our best estimate at this point is that capacity and freight activity will combine to restart demand growth in late-third quarter 2020 or early- fourth quarter 2020. That view is highly dependent upon our ability to get ahead of the pandemic. Thinking about the impact on the tire industry, less freight essentially means fewer trucks and miles, less tire wear, and by extension, lower demand for tires.
MTD: During the Great Recession, many fleets opted to park and cannibalize equipment rather than invest in new components, including tires. Do you think we’ll see this again?
Tam: In short, we think the possibility for cannibalization of truck parts exists. However, we believe this downturn and subsequent recovery will be of a shorter duration, which reduces the impact of any cannibalization that does take place.
MTD: During the early weeks of the COVID-19 crisis, the need to restock supermarket shelves and replenish fuel supplies, to cite two examples, enabled certain kinds of fleets to maintain high levels of activity. Which fleets or applications are holding steady now? Which ones are suffering?
Tam: Consumers’ early reaction to the pandemic was to stock up on essentials, which drove a bubble in certain types of freight. As expected, data coming from the spot freight markets since early-April suggests that phenomenon has all but disappeared, with load and freight rates dropping. Vocational markets are holding up better relative to the freight haulers, but all markets are experiencing declines.
MTD: Are there reasons for optimism as we prepare to enter the second half of the year?
Tam: We believe this cycle is different from previous cycles in that it will be a steady descent, followed by a rapid recovery.
“How the country and industry function on the other side remains to be seen, but it will not be business as usual anytime soon,” cautions Tam.