Trailer market remains strong

Nov. 11, 2017
2017 FTR Transportation Conference coverage. Total US trailer production is expected to peak in 2018.

Ake forecasts 285,300 units in 2018 for a 1.4% gain,
slight decreases in 2019 and 2020, then modest gain in 2021

Total US trailer production is expected to peak in 2018, then decline slightly for two straight years before rebounding in 2021.

In his presentation—“FTR Commercial Vehicle Trailer Outlook: Is 2017 the bottom of this sales cycle?”—Don Ake, FTR’s CV equipment expert, said his forecast is for 285,300 trailers in 2018, a 1.4% gain over 2017. That will be followed by 280,000 in 2019, 275,000 in 2020, and 278,000 in 2021.

“We’re going to have a very good market in 2018 and then some subtle decreases,” he said. “But it’s all basically in the same range. That’s provided you don’t get a recession. If so, the cyclical natures that we’ve seen come back into play.”

The North American Forecast for 2017 is 308,300 (281,300 in the US, 18,000 in Canada, and 9000 in Mexico), followed in 2018 by 314,000 (285,300 in the US, 19,100 in Canada, and 9600 in Mexico).

“The economy right now in Canada is doing much better,” Ake said. “I haven’t researched to see how well their energy markets are coming back, but you can assume they have to be doing better than a year or so ago. The Mexican economy—provided there’s no huge NAFTA change—is starting to grow faster than it has in the past. So it’s decent. Add that up and it’s still just a little bit over a percentage point gained. So again, a stable market in North America, another good market.”

US trailer production is predicted to drop 2900 in the third quarter of this year (72,400, after 75,300 in Q2) and then down to 66,300 in the fourth quarter. For 2018, the predicted quarterly totals are 70,900, 74,000, 71,800, and 68,600.

Here is the segment outlook for 2018, with the total number of units and the change from 2017: dry vans, 178,000, up 0.5%; refrigerated van, 42,400, down 3%; flatbed, 23,200, up 5%; dump, 9600, up 5%; liquid tank, 5700, up 16%; dry tank, 2700, up 6%; low beds, 4000, up 11%; all others, 19,700, up 6%.

“The thinking behind 178,000 dry vans is you’re going to lose the pre-buy,” he said. “You’re going to lose the pent-up demand. But as you’ve seen today with capacity restraints with the freight market we’re showing, you’re basically going to get 20,000 leave and 20,000 new come back on top.

“The refrigerated van forecast has pressure down because the backlog on refrigerated vans is not looking very good right now. So I think the forecast is good as long as freight maintains. The problem is, we had those big numbers that were catching up to demand. I think we’ve caught up to demand. Freight is still good, but I don’t think we’re going to need as many new reefers as we have the last couple of years. If backlog continues to go down, that number is a bit too high.

“We’re looking for a decent recovery in dump. Liquid tank is looking better because there was some lull with energy, and it’s coming back. The chemical market is looking good. Dry tank is going to benefit from energy. Low beds are catching up to flatbeds.”

Ake said the industry is “still in the midst of the great divide,” with the truck and trailer market not yet together.

Historically, there has been a very tight correlation between Class 8 truck builds and vocational trailers. They have followed a nearly identical graph for 20 years, with the vocational trailer market falling a bit sharper between May and July of this year than the Class 8 market.

There has been the same kind of correlation in Class 8 truck builds and van trailers. But orders separated in June 2015, and since then, van trailers have been as much as 35% higher during some months.

“There is something going on here that is different,” he said. “What is driving the van market? It’s a trick question. There is no van market, because the factors that are boosting the dry van segment are different than the refrigerated segment. So we have to look at both of those segments separately.”

Last year, Ake forecasted 150,000 dry vans for 2017.

“The van trailer experts or industry people who were here really liked that forecast,” he said. “One comment I heard: ‘The market is 145,000 if everything goes right.’ Another comment I heard: ‘I’ll be happy if we make it to 140,000.’ The old forecast was for 150,000, but the current forecast is for 177,000—an 18% improvement. I was at 150,000. I could say, ‘Well, yeah, I did better than the other people because my forecast was higher.’ I don’t look at it that way. I look at it as I missed it by 18%. So the question is, ‘Why?’ We have factors driving the dry van market this year that are different and pretty much unexpected.

“Something that’s very odd is the consistency of the last three years. Anyone looking at that from outside the industry would go, ‘Aha, you’re capacity-constrained.’ That may have been true in 2015, but the industry has added capacity in 2016 and 2017, so that’s not the case in 2016 or 2017.”

He gave these reasons for the dry van build totals of 176,300 in 2015 and 177,300 in 2016, and the estimate of 176,200 in 2017.

•  Pent-up replacement demand.

“What happened was you had these three peak years. If you figure trailers get replaced roughly in 10 years, those trailers should have been replaced. But they weren’t. Why? There’s no freight to haul those trailers. So on the truck side, the fleets turn over their trucks based on years. But on the trailer side, fleets turn over trailers based on miles. And these trailers back here were not being driven. So you get into 2014 through 2017 where those trailers started to get replaced. It was pent-up replacement demand, and it pushed the market up. Now, when we get to 2017, that’s just about running out. But for now, it boosted demand in 2017.”

•  GHG 2 pre-buy.

“Why would you pre-buy? Well, you add up what you need to do to fit the regulation, and it’s $2300. ($640 for skirts, $679 for a tire-inflation system, and $990 for a tail device.) In talking to OEMs, it is a factor. I’m estimating maybe 10,000 on the pre-buy. Not huge, but 10,000 trailers is 10,000 trailers.

•  Electronic Logging Devices (ELDs).

“If you are a fleet and you are competing with a fleet that hasn’t converted yet, you know what’s going to happen. When they convert, their productivity is going to go down and they’re not going to be able to haul the freight they typically do, and you’re going to have freight sitting right there. So what are you going to do? You are going to go for it. You’re going to add trailers in order to improve productivity to haul that freight. Why aren’t you buying trucks to do that? The trucks needed drivers. You can gain some productivity by adding the trailers at a cheaper dollar amount and they don’t need a driver.”

“The 177,000 includes 130,000 for replacements, 15,000 for pent-up replacement demand, 12,000 for expansion, 10,000 for the ELD factor, and 10,000 pre-buy. Truth be told, I’m estimating the four numbers. You could move those numbers around and it doesn’t matter. When you add them together, you’re at 177,000.”

On the refrigerated van side, there was a record year in 2015 (48,000), a near-record year in 2016 (47,000), and a huge year in 2017 (44,000).

He listed these refrigerated van demand drivers:

•  Many items are now being shipped as “temperature-sensitive” freight.

“Medicines, including over-the-counter meds, flowers, aerosols, electronics, paint, cosmetics. So many are saying they have to ship paper under temperature-sensitive conditions. They have glue on their paper for Sticky Notes and things like that, and if that adhesive gets too hot, your inventory is ruined. There are legal, cost, and quality factors.

•  Food Safety Modernization Act.

“It’s causing people to replace old trailers faster because you don’t know whether your trailer is going to meet the standards, and now you’ve got new standards, so rather than guess and be wrong, you replace the trailer. Rather than retrograde trailers, they’re just buying new trailers.”

•  Increase in drop-and-hook due to regulations and driver shortage.

“Ten years ago, you wouldn’t have heard much drop-and-hook in the reefer market. Now you have companies designing their docks for drop-and-hook.”

•  New fleets have entered the refrigeration transport market.

“If all of sudden the stuff you were hauling by dry van is now being hauled by your competitor in a refrigerated van, one of your responses is, ‘Well, I want that freight back. I’ve got to get into the reefer market.’ ”

•  Consumer demand for fresher food, convenience food, choices of food and variety of food vendors.

“Think about the choices you have now for food. Think about the choice of vendors. Everybody is selling food. So now you have all this freight increase going all over the place.”

• More warehouses, more loads, more imports that can go in refrigerated vans because of the logistics.

“You add all of those together and you get a big increase in demand for refrigerated vans, and that’s what we’ve seen the last several years.

“There’s a cultural impact. You’re not transporting refrigerated goods or temperature-controlled goods. You’re transporting consumer convenience. You’re transporting consumer choice.

“And you’re transporting consumerism. Why temperature-sensitive cosmetics? I did research on this. You won’t get this type of research anywhere else. Christian Louboutin Velvet Matte Lip Colour is $90 per stick, and that’s equivalent to $670 per ounce. Do you think Christian Louboutin wants his product to melt in the summer in Arizona? Oh, no. Do you think he wants it to freeze in the winter in Minnesota and become brittle? Oh, no. You are hauling some very expensive inventory there. You are not sticking that in a dry van, I guarantee you.”

As for the flatbed market, he said it’s making a stronger and faster comeback than expected. Backlogs are up 38% year-over-year, and the combo segment is hot. June’s build was the highest since September 2015.

“Dealers are back in the game finally,” he said. “They’re ordering, stocking, and selling trailers. They’re positive for the first time in a couple of years. Flatbed freight growth is strong and will continue to be strong. The energy markets are coming back, the housing markets are OK, manufacturing is very good. Capacity is very tight and the driver shortage critical. They started to have critical driver needs in February and March, and it’s just getting worse, and going to be worse.

“There is upside pressure in the forecast. The Class 8-based forecast for flatbeds would be 26,000 versus my forecast of 23,200. Interestingly enough, in talking to industry experts in the flatbed market, they’re claiming my forecast is too high. Well, I’m going to stick with it because of what happened last year in dry vans.”