THE good times that the commercial truck and trailer industry is enjoying should continue, according to an array of truck and trailer specialists participating at the recent ACT Research seminar in Columbus, Indiana.
The two-day event featured a diverse group of speakers, including Bill Harris, director of government sales and business development for Heil Trailer International; Todd Hooper, director of marketing operations for Daimler Trucks North America; Steve Latin-Kasper, market data and research director for the National Truck Equipment Association; David Li, general manager of CIMC Vehicle; Zita Zigan, head of global commercial vehicle forecasting for LMC Automotive; in addition to ACT's staff of economists and analysts.
The good news for North American trailer manufacturers is that business is good and should remain strong for the next several years, according to Frank Maly, ACT's trailer industry specialist. Based on his forecast, shipments of complete truck trailers are expected to increase 19% in 2012 and an additional 8% next year.
In a presentation titled “U S Trailer Market and Forecast,” ACT's Frank Maly said trailer shipments should reach 249,000 in 2012. Manufacturers should exceed that figure in 2013, shipping an estimated 268,000 trailers.
The outlook is particularly strong for platform trailers, the market segment that Maly believes will show the largest rate of growth this year and next. His forecast is for the industry to produce 19,000 flatbeds this year, up 27% from 2011. ACT is expecting them to be the fastest growing sector next year, as well, up 21% from 2012.
The forecast calls for 138,000 dry-freight vans in 2012, up 18% from last year. The growth should continue through 2013, with a 160,000 vans expected to be built.
Trailer manufacturers have a number of factors in their favor today, including the age of trailers today, replacement demand, and significant activity in the energy sector. He said that 52 manufacturers in the United States and Mexico are producing frac trailers alone. In addition, the amount of material that the energy business needs to move is a boon that has repercussions for the trailer market beyond those who are directly selling to the energy industry.
Trailer backlogs are stretching out 10 months and more. Maly listed several factors that should keep trucks and trailers in demand for years to come. They include freight supply and demand that favors fleets; good used trailer prices that reduce direct cash outlays for new trailer purchases; the impact of CSA and hours of service regulations, and the age of trailers. Maly cited the growing popularity of the 10-year rule under which some shippers will no longer allow their goods to be carried in trailers that are more than 10 years old. The average age of trailers today is 8.2 years, up from 6.4 years in 2000.
Tank trailers are an exceptionally hot segment of the trailer market, according to Heil Trailer International's Bill Harris, who joined Maly in presenting the outlook for truck trailers.
Liquid tanks are up 61% from their 2009 levels, Harris said, and dry bulk trailers have grown a whopping 700% during the same period. He believes dry bulk shipments will continue to grow through 2013, driven primarily by hydraulic fracturing and the need for trailers to haul sand. Also because of hydraulic fracturing, Heil believes more than 50% of liquid tanks will be made of stainless steel.
How CIMC is approaching the global trailer market
David Li shared the approach his company has used to become the world's largest manufacturer of truck trailers.
The key, Li said, is to operate globally but to be very familiar with local markets. With a global operation, the company is able to take advantage of the efficiencies of global supply chain, technology transfer, logistics, and finance. Even so, the company must know the local market and tailor those global efficiencies to meet local needs.
CIMC has been a growing force in the global market since getting into the trailer business 10 years ago. The company introduced container chassis and flatbed trailers in China in 2002. The next year, tanks were developed for China, and CIMC entered the US market with a line of container chassis.
In 2004, the company began manufacturing reefer trailers in China and started its Vanguard dry van trailer manufacturing operation in Monon, Indiana.
CIMC began European operations in 2007 with chassis, curtainside vans, and tanks. The company introduced Vanguard reefers in 2009 and added G3 curtainside trailers and reefers in Europe last year.
The results have been impressive: $2.71 billion in sales last year and net profits of $108 million. CIMC sold $198 billion in its domestic market, $445 million in North America, $94 million in Europe, and $190 million elsewhere — including Southeast Asia, Australia, and the Middle East.
Globally, CIMC sold 157,000 trailers and special-purpose vehicles. In North America, the company sold 1,100 refrigerated trailers, 7,000 dry-freight vans, 16,000 container chassis, and 20,000 53-ft intermodal containers.
“There is no standard trailer design,” Li said. “Our global operation is supported by local knowledge. It is the pool of wisdom of our local management teams.”
Li identified several needs that its USA operation can provide.
“In China, the trucking industry is high wear and low cost,” he said. “The efficiency of the trucking industry in China is not high, even though the trucking industry wants to be efficient. If we can bring the high efficiency of the U S trucking industry to China, we can meet a need. For example, we launched the PSI tire inflation system to Chinese truckers last March. We are going to sell 3,000 in 2012. Eventually it will be tens of thousands per year. This is one example that shows U S companies can find their way into China.”
Looking ahead, Li said he was optimistic about plans for the company's Vanguard operation, including research and development of a modular trailer design and a new plant in which the trailer will be produced.
Following his presentation Li fielded questions. Among them:
Question: How do you comply with the different regulations that apply to the trailers in the various countries in which you market?
Li: We rely on local knowledge. Our European team, for example, will come up with what we need to meet standards there.
Question: Could you talk about the regulations in China?
Li: The regulations in China are a hybrid of regulations in Europe and North America. Regulations are moving quite quickly. In terms of trailer regulation, probably 70% are based on U S standards. We are trying to lobby Beijing to accept American standards.
Question: Logistics costs in the United States used to be 18-20% of the cost of the goods on average 20 years ago. Today it is 9-10%. What is happening in China?
Li: Trucking is not efficient. Logistics costs are anywhere from 18% to 30%, depending upon the type of cargo. This is high. It is caused by inefficiency. We need to bring the good expertise and knowledge to China. With knowledge, the improvement will be faster. China needs to import, not just export.
Five trends to watch in the medium-duty truck market
The medium-duty truck market is in transition. What should people who have a stake in the medium-duty truck business — including those who install truck bodies and equipment on them — need to know?
Todd Hooper, director of marketing operations for Daimler Trucks North America, listed five trends to watch.
- The Class 6 market is expanding at the expense of Class 7
He listed several possible reasons: the driver shortage exacerbated by CDL requirements on heavier trucks; fleets are seeking relief from EPA regulations by taking advantage of the gasoline engine options are available on Class 6 trucks; our urbanized economy makes smaller trucks more attractive; and some segments that historically have been partial to Class 6 trucks are bouncing back from the recession faster than others.
- The future of the housing market will shape the recovery of the Class 6/7 market
The housing industry must recover if Class 6/7 trucks are to return to their pre-recession levels, Hooper said.
- Demand for new truck technologies will increase
These include active safety systems, body and chassis electrical integration, fuel efficiency measures, growing requirements for all-wheel drive trucks, and telematics.
- Green will grow
Look for more medium-duty trucks powered by CNG, LNG, and hybrid drive systems. Also expect to see greater emphasis on reducing the amount of waste going to landfills.
- Customer demographics could be shifting
For example, leasing has bounced back faster than any other Class 6/7 market, possibly because purchase costs of new equipment have made rental and leasing more appealing. Construction, another strong medium-duty market is driven by housing and government spending. Both of these segments are struggling. The school bus market dropped 40% during the recession, and it's possible that even when the recovery is complete, the total school bus market will still be 25% less than its 2006 level.
The crane market is beginning to rebound, but the increase in sales is probably the result of replacement demand.
Medium truck sales expected to climb
Even though the engine is running rough, growth in the medium-duty truck market is expected for years to come.
ACT's Steve Tam summarized situation this way: a positive performance in 2011, with a little loss of momentum in the early going this year. The housing market continues to be a drag on growth. Buses, another segment of the medium truck market, are growing in spite of budgetary constraints among states and school districts.
In spite of the negatives, truck sales should continue to grow, in large part because of the average age of medium-duty trucks. The average Class 4-5 truck in the U S reached 6.5 years in 2011, the oldest in the 24 years of data that ACT displayed. That average will continue to grow this year and next. Class 6-7 trucks are even older — 7.3 years and will grow even old next year until an expected boom in truck sales between now and 2017 rejuvenates the fleet.
Class 4-7 sales have come a long way since the pit that was 2009. Sales that year were 131,000. In 2011, they recovered to 166,000 and are expected to reach 183,00 this year. ACT is calling for continuous growth in the medium truck market all the way to 2016 when sales are expected to peak at 261,000. Not until 2017, when sales are forecast to slip to 241,000 trucks, are medium-duty truck dealers expected to have a down year.
Don't forget the big boys
Like their little brothers, Class 8 trucks have a rosy future.
In an address titled “The Happy Side of the Cycle,” ACT's Kenny Vieth explained why he is a long-term bull when it comes to his Class 8 truck forecast.
As the title of his presentation implies, the truck business by its nature is a cyclical market, and by all indications the market will continue to rebound from 2009's trough.
“There is no substitute transportation mode for heavy trucks,” Vieth said.
To forecast Class 8 demand, we need the answers to these questions:
Is there freight to haul?
Are truckers making money?
What are used asset values?
The answers to all of these are positive, and even underlying demand drivers such as the age of the fleet and government regulations are serving to keep Class 8 trucks in demand. CSA is estimated to cause a 2-3% loss in carrier productivity and hours of service regulations may force an additional 6-7% decline.
Just-in-time delivery systems raise the ante.
“It's hard to maintain JIT deliveries with un-JIT equipment,” he said. “And you can't offer 99% on-time delivery when you are at 96% capacity.”
Fuel prices, government policies, and the Eurozone can all adversely affect Class 8 demand. However, ACT is forecasting a strong market in the next few years. Unlike 2009 when Class 8 truck production dropped to 118,000, expect 299,000 Class 8 trucks in 2012, 307,000 in 2013, and 289,000 in 2014.
North America to lead the way
North America will drive global truck volumes this year, according to Zita Zigan, head of global commercial vehicle forecasting for LMC Automotive.
The truck market in North America is expected to grow 17% this year while sales in other major markets will be down or relatively flat. Latin America will be off 12%, and Europe will post 1-2% growth. She expects substantial growth in Europe next year, the result of pre-buying ahead of an additional round of engine regulations that take effect in 2014. Even with the pre-buy, sales will not reach pre-recession levels until after 2014, she said.
Lukewarm economy predicted
With a context of what the future holds for the commercial vehicle industry, economist Sam Kahan said the U.S. can expect moderate economic growth in 2012.
Speaking to a gathering of trailer manufacturers, truck manufacturers, suppliers, and members of the financial community, ACT Research's chief economist expects the economy to post moderate growth this year. He also said that:
Unemployment will remain historically high this year.
Inflation will continue to be subdued, but he is concerned about the effect of rising energy prices. Barring a flare-up with Iran, supplies are expected to be plentiful. Given the level of supply, oil prices should be lower than what they currently are.
Employment is growing.
Financing is becoming easier to obtain.
Residential housing is beginning to improve, but it will remain slow due to remaining high levels of existing homes on the market.
State and local governments continue to face tight budgets, and stimulus money is ebbing.
Exports are up, fueled by favorable exchange rates, but the economies of emerging markets are slowing, and the Eurozone is weak.