“Reports of my death are greatly exaggerated.” – A phrase originally uttered by Mark Twain but equally applicable to perceptions of today’s freight market.
A sharp and prolonged decline in spot market rates, coupled with a spike in the price of diesel fuel, has raised alarm bells in pockets of the industry, but that concern has yet to broadly affect fleets, many of which are still standing. for new equipment that truck and trailer OEMs simply can’t build fast enough.
ACT Research Vice President Steve Tam said just over 11,000 orders for Class 8 trucks have been canceled this year compared to order intake of around 64,000 in the first three months of 2022, and just under 4,000 trailers against orders of more than 91,500. Trailer cancellations in March were the lowest this year, according to Tam, while truck cancellations fell 1,500 units from February highs.
“While it’s not completely obvious, cancel activity is essentially not an issue,” Tam said. “Most of the business is actually for OEMs to do the housework, i.e. cancel orders for equipment from the previous model year and replace the order with a corresponding new order. Put simply, demand remains solid and unaffected by the current slowdown in freight growth Freight continues to grow, but at a slower pace Short term decline is from all-time highs Compared to the longer term, growth remains intact.
Fleets have been waiting for enough new equipment for more than a year, noted Don Ake, FTR’s vice president of commercial vehicles. “Cancelling and getting out of the queue at this point, with such high pent-up demand, doesn’t make much sense,” he said, estimating that pent-up demand for trailers alone could be as high as 100,000 units.
“Yes, freight has eased off the robust growth we’ve seen following the economic restart, but freight volumes continue to grow,” Ake added. “FTR expects Class 8 freight growth to remain at healthy levels this year and will still be just below 3% next year. Of course, there are risks to this forecast, and if the economy ends by entering a recession, it would probably take the freight markets with it.”
Ake added, although it is difficult to know the true truck and trailer cancellation figures as OEMs may cancel an existing order and re-enter it at a higher price due to increased costs. materials under current conditions, “the number of trailer cancellations has been low over the past three months. The number of Class 8 cancellations has been average over the past three months. Cancellations are averaged over a period 5 years old.
Motor carriers not waiting for new assets are still paying historical premiums for used sleepers and doing so – without some slowdown in demand for higher mileage equipment – without hesitation. Chris Visser, principal analyst and product manager for commercial vehicles at JD Power, noted that while fleets and lenders are taking a more “mature” view of the industry, “there is still a high volume of goods to be moved and many buyers of used trucks. I doubt anyone will make any major changes right now, but this quarter will be crucial.”
At the end of 2018, the cycle of declining truck loading rates, used truck pricing took more than 8 months from the start of the recession to show a big impact, Visser said, adding that the current cycle of freight and used truck trade is anything but normal “as trade is still heavily impacted by overseas shutdowns and the used truck cycle is still impacted by low availability of new trucks” , he said, “If volume and freight rates continue to decline and we have more new truck delivery months like March, used truck prices will start to move more noticeably. But these two factors are far from guaranteed. We are essentially flying blind with very little historical perspective to draw from.”
Solid economic indicators and optimism on the agenda
In addition to asset acquisition, Jason Miller, PhD, associate professor of logistics in the Department of Supply Chain Management at Michigan State University’s Eli Broad College of Business, highlighted the strength fundamental of the fundamentals of the trucking industry. Miller pointed out that contract rates have skyrocketed over the past few months and subsequently partly explain the pullback in the spot market.
Credit card spending, which hit its lowest point this year in March, tends to rebound in April, raising optimism in the cash market going forward.
“It seems, at least according to [U.S. Bureau of Economic Analysis] credit card spending data, that there was a pause for many sectors in early March 2022 that could have contributed to the sharp drop in spot rates at that time,” Miller said. “We are starting to see the market normalizing, especially in retail. We are not seeing pronounced year-over-year sales gains, and in most retail sectors, once we removed inflation, sales are now down from 2021.” , but still well above 2019 levels,” Miller added. “Examples include furniture and fixtures; sporting goods, hobbies, musical instruments and bookstores – yes, that’s a real industry category; other general merchandise; and non-store retail (e.g. pure online retailers).”
The past three months “have been a story of haves and have-nots” when it comes to volume growth, said Lee Klaskow, senior freight transportation and logistics analyst at Bloomberg Intelligence, adding that “load growth could increase sequentially in May, providing some support for spot rates.”
Carriers are indeed optimistic about volume and rate growth this year, despite rising fuel and equipment costs, according to the latest Bloomberg/Truckstop.com Survey of Small Fleets and Owner-Operators.
About 72% of respondents expect load growth over the next six months, up from 71% to end 2021 and the first quarter a year ago. Temperature-controlled carriers were the most optimistic, with 77% expecting higher volume, followed by 74% of flatbed carriers who benefit from a strong housing market and infrastructure development. There is less optimism regarding rates. About 55% of respondents expect spot fares (minus the fuel surcharge) to increase over the next six months, up from 59% in the fourth quarter of last year. About 14% of carriers expect fares to drop over the next 3-6 months, in line with historical averages. Only 2% expect rates to fall quickly this year. Another 32% expect them to moderate slowly.
Fares and charges are not even the primary concern of carriers. This crown goes to fuel. About 56% of carriers surveyed by Bloomberg and Truckstop.com said rising fuel costs are the industry’s biggest challenge. Falling rates are the second concern in 2022 with 21% of the sample, followed by the weakening economy (16%). Despite these concerns, around 69% of respondents expect the truckload market to remain tight this year, which is positive for carriers.