ACT Research forecasts US trailer shipments to grow each year through 2016, then a slight decline through 2019

ACT Research forecasts US trailer shipments to grow each year through 2016, then a slight decline through 2019

TRAILER shipments in the United States are forecast at 256,000 units this year, with steady growth through 2016, according to ACT Research.

In his presentation, “Trailer Industry Outlook,” Steve Tam, vice president of ACT’s Commercial Vehicle Sector, gave what he called an “atypically flat forecast.” After 239,000 factory shipments in 2013 and 256,000 expected in 2014 (including 148,000 dry vans), ACT predicts: 259,000 in 2015, 275,000 in 2016, 270,000 in 2017, 269,000 in 2018, and 264,000 in 2019. Tam also added that “history says there is a 200k-220k year sometime in the 2017- 2019 period.”

Steve Tam, ACT Research

“Things have flattened out,” he said. “We’re just not expecting to see peaks and valleys.”

Which isn’t such a bad thing. Trailer shipments nearly doubled in 2011 (210,000), but that was after a year that featured just 126,000 units, including just 60,000 dry vans. Nobody wants that. In the current cycle, they’ll take “steady” any time.

Tam said freight is projected to grow, intensifying the capacity shortfall.

“There is plenty of aged equipment in need of replacement,” he said. “We’re still not where we need to be on that. Trucker pricing and profits are solid. Net profit margins are on par with a typical first quarter, despite challenges. All current market indicators confirm 2014 will be a good year for the trailer industry. That, from our forecast, continues on into 2016.”

On the macro level, he said North American economies are projected to move to a stronger footing because of:

  • Broader base of support.
  • Healthy consumer balance sheets. “We have a consumer who’s feeling pretty good right now. The optimism seems to be swelling.”
  • Strong corporate profits. “We’ve seen a nice turnaround in our industry, as well as in general. We have lots of cash available to us, so it’s a good time to be in this space.”
  • Rising domestic energy production. “It’s certainly added to growth.”
  • Manufacturing rebound.
  • Pent-up residential investment. “Despite some softness going on right now—I think it’s weather-related—I think we’ll get past that.”
  • Continued low inflation. “Thanks to our Federal Reserve and its policy. With really low inflation, banks have little incentive to loan money. They can’t charge high rates.”
  • Some caveats:
  • Reemergence of unproductive domestic politics. “We certainly have to consider the possibility of self-inflicted damage.”
  • Modest drag from slower emerging market growth.
  • Rising potential for geopolitical disruptions. “Any of you read Tom Clancy’s latest book, Command Authority? Russia basically shuts down gas flow to western Europe. Even fiction writers know what’s going on, so it’s pretty scary.”
  • Still slow job and income growth in the US.

GDP growth

Tam said the consensus expectation is for real GDP to increase to 3.5% by third quarter, fall below 3% in the fourth quarter, then stabilize around 3.5% for most of 2015.

“First-quarter GDP was 0.1%,” he said. “What the heck happened? We’re all sitting around saying, ‘We can’t get enough product to produce in our own industry, and you’re telling me the economy only grew at one tenth of one percent?’ We didn’t manufacture a lot of new stuff, but we sure shipped a lot of stuff we had in inventory, so that’s still freight. This is still considered capacity. That’s still growth.”

He said there is a positive freight market, with spot freight rates moving higher following the capacity-constraining changes to Hours of Service—signaling that there are fewer trucks and trailers for all the freight that needs to be hauled.

“Stronger economic growth in the second half of 2013 exacerbated already snug capacity,” he said. “The driver situation started biting around this time. Polar vortices impacted output in the first quarter, but impacted truck availability even more.”

He said the 25% year-over-year growth in freight rates is “absolutely stellar” but that’s “not sustainable” and “there is a real crunch in capacity that needs to be addressed.”

“There’s solid profitability for the Swifts, Hunts, and Werners of the world,” he said. “These guys were challenged by bad weather but are in a good spot. After three years of stagnant results, profits broke above trend in the first half of last year. Costs related to the new HOS regulations rose faster than revenues in the third quarter. First-quarter margins held up despite polar vortices.”

Talking about the driver shortage, he said the freight will get delivered.

“Freight determines driver demand, not the reverse,” he said. “There is no substitute transportation mode for heavy tractor-trailer combinations.”

He said that if freight and productivity are growing at the same rate, you don’t need more trucks or trailers.

Between 2010 and 2013, the ACT freight composite was 16.6%, dry van productivity 10.8%, net freight 5.8%, and CAGR 1.4%.

He said the ATA Truck Tonnage Index and ATA Truck Loads Index tracked well through 2009.

“A widening spread between tonnage and loads illustrates improved freight density,” he said, “as well as utilization. There was a rise in private fleet backhauls. Back in 2007, you were looking at 20% to 30% backhauls empty. They realized they were leaving revenue on the table. This year, it will be 20% in backhauls. They’ve taken excess capacity and put it to work. That’s important because private fleets account for half of freight haulage in this country, so it’s not an insignificant number. We’re starting to hear they’re not just looking for backhauls—they’re actually going out and selling private fleet as service and they’re going to throw their stuff on as backhaul.”

Tam said that despite 22% GDP growth from 2003-2013, there was an increase in the trailer population of just 12,000. Since the 2007 peak, the population has declined 7% (by 222,000), with dry vans down 12% (214,000).

“That’s a scary number, but going forward, it’s time to play catch-up,” he said. “In 2012, the fleet was growing for the first time since 2007. It confirms the feeling the industry has had about how tough of a road it had in the last few years.”

Replacement demand

He said scrappage and underlying replacement demand on the total trailer side are flat—about 220,000 a units a year for the next seven years, with dry vans accounting for about 132,000 this year and then declining steadily 118,000

in 2020, and reefers hitting a low of 28,000 in 2016 and rising every year to 33,000 in 2020.

He said there has been a constrained market on the used-trailer side.

On the new-trailer side, he said there has been a rapid change in sentiment brought about by stronger and more consistent freight, traction on freight rates and profitability, and improved confidence.

“Complete trailer orders were booked at 294k SAAR (seasonally adjusted annual rate). That’s a pretty strong market since October. Backlogs are expanding rapidly, from 3.0 months ending September to 5.2 months at the end of March.”

Since 2005, the ratio of dry vans to Class 8 tractors has remained in a very tight band: 1.96 to 2.01 trailers per tractor on the dry van side.

“We expect that to continue the next five or six years,” he said. “It adds credence to the trailer forecast.

“Dry vans were up 8% through March. Reefers were up 30%, and total trailers up 50% through the first three months this year.

“We see orders to go off a bit in May. This is a year-in-and-year-out pattern. This is how they order trailers. I will say you don’t see quite a pronounced pattern in production or shipments.

“Customers are a little more confident so they’re placing orders a little more in advance. Instead of three months ahead, it’s now five to six months. More importantly, it’s the strongest backlog we’ve had in a long time.

“One nice thing about this cycle is that it is not as dramatic as what we’ve seen in the past. There’s a less dramatic ramp for suppliers. It used to be a nightmare. ‘How will I build the next unit, because I can’t get parts or don’t have people or I was running the line as fast as we could run it?’ But we don’t see that rapid ramp-up this time. We’re calling this the trucking renaissance, if there is such a thing. It’s a flattening of the peaks and filling in of the valleys. This feels a lot better, not having to chase after both directions. The only thing I can do is keep my fingers crossed, and this is a renaissance. On the horizon, we have the EPA mandates on the truck side, which indirectly affect trailers. “

He said bulk trailers are starting to pick up after a relatively slow period of mediocrity. On the liquid side, things are normalizing.

“Domestic energy production creates a long tail of positive demand for tank trailers,” he said. “Energy is so big right now.”

Potential for 33’ Pups

The less-than-truckload segment of the industry has asked Congress to approve 33-foot pups, believing they would improve productivity and reduce traffic congestion.

Testifying before a hearing on the nation’s freight network, FedEx Ground CEO Henry Maier said projected benefits of allowing 33-foot twins are based on data supplied not only by FedEx, but also ABF System, Con-way, Estes Express, Old Dominion Freight Line, UPS, and YRC Worldwide.

“Industry-wide, that equals up to 1.8 billion fewer miles driven, more than 300 million gallons of gasoline saved and $2.6 billion in reduced costs annually,” he said. “Importantly, a reduction in truck trips would be environmentally friendly, saving fuel and emissions from trucking. This is an excellent example of an innovation that can have tremendous value—including increasing cost efficiencies—but it is one that cannot be implemented without Congress modernizing our transportation policy.”

Tam said increasing from 28 feet to 33 feet would be an 18% capacity increase.

“Even if legislation ultimately fails, pent-up demand from 2014-2015 should have positive ramifications for 2016,” he said. “The railroad lobby is typically quick to quash legislation that could provide productivity for trucking. LTL freight has never been a competitive market between trucking and railroads. The push for longer pup-trailer lengths is coming from powerful entities. FedEx has been the leader of the push, and UPS is one of the largest intermodal shippers. Still, expect some pushback from railroads. They do own 56’ well cars for the expressed purpose of carrying two 28’ pups.”

The transportation bill expires in September.

“Given the political sensitivity of ‘raising revenues’, mid- 2015 timing for a new transportation bill seems more realistic,” Tam said. “Not that the politicians care, but the highway fund will run out of money mid-year.”

Tam also said that ACT’s new Global Trailer Forecast will be completed very soon. It will feature major regions and countries, including North America (US, Canada, Mexico), South America (Brazil, Argentina), Asia (China, India, Japan, Korea), and Europe.

It will be done by trailer type, with a discussion of each market’s top OEMs, products, volumes, and economic and volume forecasts to 2016.

“We’re very excited about it, and you will hear more as we get close to launch,” he said. ♦

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