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Industry ReviewEconomics, Transportation
&Commercial Vehicles
ACT Research StaffWebinarSeptember 11, 2019
9/11
2
Webinar Overview
• Introduction - Steve Tam• Economy - Sam Kahan• Transportation & Freight - Tim Denoyer• Class 8 - Kenny Vieth• Used Trucks/Classes 5-7 - Steve Tam• Trailers - Frank Maly• Q&A/Wrap-up - All
3
Did You Know?
We are currently renewing subscriptions for 2020• Tell us your intentions now to guarantee
uninterrupted service• Added reports start now at no charge for
2019• Payment is due next year
Latest Freight Forecast published Monday• Do you know where rates are headed?• Shouldn’t you?
4
Check Out Our You Tube Channel
youtube.com/channel/UCm8bQs2nAzycAzVbrjEkteg
5
Economic Overview
• U.S. economy decelerating but will avoid recession
• Manufacturing and Transportation most vulnerable sectors
• More downside risks than positive surprises
• Sentiment, consumer and business, are the key variables to watch
• Federal Reserve policy measured and moderate
6
The Major Factors at Work
• The imposition of tariffs and their composition is the major uncertain factor affecting the direction of US economic activity.
• Two others, weakening of overseas economies and the withdrawal of the U.K. from the European Union, Brexit, also have potential for causing weakness in the US. The latter, because the conditions of departure are still unclear, is especially vexing.
7
U.S. Real GDP (2014 – 2021)(% change, annualized)
GDP growth:2018 = 2.9%2019 = 2.3%2020 = 1.7%2021 = 1.7%
GDP: Consumption strong, trade deficit drag. Business investment positive even as it slows.
Vulnerable sectors: Manufacturing, freight, retail, housing.
8
Consumer Price Index (Total, Core) (2014 to 2021),(% Change, Y/Y)
Inflation above Fed’s 2% target would provide pressure to raise rates and conversely.
Tariffs are likely to impact numbers in Q4’19 and early 2020.
Wage increases moderate and manageable.
Swings in energy and commodities are major source of price volatility.
9
Sentiment
Consumer (UoM) Small Business
10
Federal Funds Rate(2015 – 2020)
Federal Reserve Policy moderate and measured.
FOMC to ERR on the side of caution.
Expect a 25 basis point cut in Mid September(1.88%). Another drop to 1.63% before quarter end.
11
Freight Demand
Freight fell into recession in 1H’19 in for-hire markets Loads fell in each key ground mode: TL, LTL, intermodal & carload rail
Key Factors: trade, manufacturing, inventories and private fleetsNear-term outlook for pre-tariff inventory build, payback early-2020
Downtrends tend to last 1-2 years; this one started late-2018
Trade war a key risk to the forecast, raising 2020 recession risk
12
Consumers Still Looking Good
2
3
4
5
6
7
8
9
10
04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Percent
12MMA
Source: BEA, ACT Research Co., LLC: Copyright 2019
January 2004 - July 2019Personal Savings Rate
Percent - SAAR
13
-20-10010203040600
800
1000
1200
1400
10 11 12 13 14 15 16 17 18 19
Thousands
Source: Census Bureau, ACT Research Co., LLC: Copyright 2019
January 2010 - July 2019
Building Permits: New Private Housing Units AuthorizedThousands of Units - SAAR
Freight Intensive Sectors Lose Traction
-20
-15
-10
-5
0
5
10
75
80
85
90
95
100
105
110
08 09 10 11 12 13 14 15 16 17 18 19
Y/Y % Chg.Index
Source: Federal Reserve, ACT Research Co., LLC: Copyright 2019
January 2008 - July 2019
Industrial Production Index: ManufacturingIndex 2008 = 100 SA
14
Truck Volumes Down in 2019
Monthly LTL data less negative in July and August; down nine straight months
15
Where Are Truckload Volumes Headed?
Pre-tariff shipping near-term, hangover in early-2020With big trade caveat, freight should stabilize/grow in 2020/2021
16
Freight Hauling Supply
Class 8 tractor build near historic recordsActive truckload fleet +7% y/y
Orders are down, but production and sales have not yet responded, so capacity rebalancing has yet to begin
Carrier profits still elevated but under increasing pressureSharply lower tractor sales and ongoing consumer growth support mid-2020 spot rate upturn
17
Spot Rates Lead Contract
Contract rates follow spot by ~5 months; spot 2x as volatile
18
Carrier Margins On the Precipice
Margins still at record levels; drop to 5%-6% range not too shabby
19
U.S. Class 8 Tractor Dashboard
20
Class 8: Current Market Conditions
• Too many trucks, too little freight• And a very young fleet
• Upstream metrics lose momentum• Order trend continues to deteriorate• Backlogs dropping 15k-20k/month
• Mid and downstream metrics continue strong• Build rates hit cycle peak in June-July• Retail sales moving sideways at high levels
• Relative measures heading in wrong directions• BL/BU from 13 to 5• IN/RS from 2 to 3
21
Young Tractor Fleet
Very young fleet gives tractor buyers latitude to pause buying
Vocational fleet well balanced across population distribution
US C8 Tractor Retail Sales: Past 8 Years/Past 15 Years
1990 - 2024
ACT Research Co., LLC: Copyright 2019
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 2448
50
52
54
56
58
60
62
64
66Percent
22
0
2
4
6
8
10
12
14
16
10 11 12 13 14 15 16 17 18 19
Units (000s)Actual 6MMA
Source: ACT Research Co., LLC: Copyright 2019
January 2010 - July 2019
Class 8 Straight Truck with Day Cab: N.A. Net Orders
0
2
4
6
8
10
12
14
16
18
10 11 12 13 14 15 16 17 18 19
Units (000s)Actual 6MMA
Source: ACT Research Co., LLC: Copyright 2019
January 2010 - July 2019
Class 8 Tractor with Day Cab: N.A. Net Orders
Broad-based Order Pullback
0
5
10
15
20
25
30
10 11 12 13 14 15 16 17 18 19
Units (000s)Actual 6MMA
Source: ACT Research Co., LLC: Copyright 2019
January 2010 - July 2019
Class 8 Tractor with Sleeper: N.A. Net Orders
Preliminary August NO: 10,900 units (12.5k SA)
23
Weak Orders, Falling Backlogs
August Forecast: Prelim. NO less OEM BU plans = BL likely down another 17k units
2
4
6
8
10
12
14
50
100
150
200
250
300
350
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
BL/BU Ratio (Months)Units (000s)BL/BU Ratio Backlog SA BL/BU Ratio
Source: ACT Research Co., LLC: Copyright 2019
January 2000 - July 2019
Total Class 8: N.A. Backlog & BL/BU Ratio
24
Build Follows Orders
5
10
15
20
25
30
35
40
45Units (000s)
Build Net Orders 12MMA
Source: ACT Research Co., LLC: Copyright 2019
January 2001 - Estimated December 2019
Total Class 8 N.A.: Net Orders 12 Mo. Avg. & Build
Assumption: Orders recover to 20k sa/mo. in Q4
25
Qtly Fcst: Implied Monthly Build
Build BUPDQ1’19 89.4k 1,418Q2 94.3k 1,473Q3 89.0k 1,435Q4 72.4k 1,227Tot. 345k
Q1’20 67.0k 1,081Q2 59.3 941Q3 57.0 919Q4 55.0 949Tot. 238k-50
0
50
100
400
600
800
1000
1200
1400
1600
10 11 12 13 14 15 16 17 18 19 20
Y/Y % ChangeUnits Per Day
Build/Day Y/Y % Chg.
Source: ACT Research Co., LLC: Copyright 2019
January 2010 - April 2020F
Total Class 8: N.A. Build Per Day
26
First Rule of Holes: Stop Digging
0
1
2
310
20
30
40
50
60
70
80
90
10 11 12 13 14 15 16 17 18 19
IN/RS Ratio (Months)Units (000s)Inventory Inventory SA Retail SalesRetail Sales SA IN/RS Ratio IN/RS Ratio SA
Source: ACT Research Co., LLC: Copyright 2019
January 2010 - July 2019
Total Class 8: N.A. Inventory/Retail Sales RatioU.S. CLASS 8 TRACTORS
Retail SalesJanuary '10 - December '19f
ACT Research Co., LLC: Copyright 2019
10 11 12 13 14 15 16 17 18 190
5
10
15
20
25Units (000s)
Replacement2% GDP Fleet Grow th
Replacement + New demand: ~13K u/m
27
Inventory CycleIN Cycle Duration
INV Start
INV Peak
+Build/ Month
INV ending
Mos. Build/ Month
Cumm. Impact
94-9518 mos.
22k 40k 1,000/m47u/d
32k 8 1,000/m47u/d
2,000/m94u/d
98-0014
35 63 1,95091
32k 15 2,06096
4,010187
05-0614
53 71 1,30060
47 12 2,00093
3,300153
11-1213
39 59 1,55072
47 6 2,00093
3,550165
14-1515
52 71 1,40065
45 15 1,87087
3,270152
18-?CyTD=14
54 82.5July
2,00095
28
How can the forecast be wrong?
• Upside Surprises:
• Highly desirable new equipment features (technology, FE)• Secondary market technology pull-through
• Carrier profit trough at high ebb
• Downside Risks:
• Trade war(s) devolve US/NA/Global economies into recession• This is a rapidly developing situation
• Easing of regulations favors shippers (Personal Conveyance, HoS)
29
Class 8 Summary
The evidence is overwhelming: 2020 is going to be a tough year.
What are you doing to prepare for a ~30% drop in C8 build?
30
Used Class 8 Trucks
Average retail at $53,350 in July• -3% m/m, +3% y/y, +9% ytd
Miles flat to down, age creeping upInventory increasingWaning demand now limiting factor for salesExports remain subdued
• Softening global economy, strong USD• July +22% m/m, -4% y/y, -15% ytd• Central America (Guatemala port) at 30% of imports• Mexico at 25%• Vietnam back in the game in July
31
Pricing Continues to Soften
-20
-10
0
10
20
30
40
10
20
30
40
50
60
09 10 11 12 13 14 15 16 17 18 19
Y/Y % ChangeTotal ($000)
Class 8: U.S. Used Truck Average Sale Price
Y/Y % Chg. Monthly 6MMA
Source: ACT Research Co., LLC: Copyright 2019
January 2009 - July 2019
-40
-20
0
20
40
6030
40
50
60
70
80
09 10 11 12 13 14 15 16 17 18 19
Y/Y % ChangeTotal Reported Price ($000)Y/Y % Chg. Monthly 6MMA
Source: ACT Research Co., LLC: Copyright 2019
January 2009 - July 2019
Class 8: U.S. 4 to 5 Year Old Used Truck Average Sale Price4 to 5 year old, 400-500,000 miles legacy
32
Miles Flat to Down/Age Creeping Up
-20
-10
0
10
20
350
400
450
500
550
600
650
09 10 11 12 13 14 15 16 17 18 19
Y/Y % ChangeTotal (000s)
Class 8: U.S. Used Truck Average Miles
Y/Y % Chg. Monthly 6MMA
Source: ACT Research Co., LLC: Copyright 2019
January 2009 - July 2019
72
78
84
90
96Total (Months)
Source: ACT Research Co., LLC: Copyright 2019
January 2009 - July 2019Class 8: U.S. Used Truck Average Age
33
Exports Subdued
13.514.4
15.0
22.1
15.4
11.813.0
22.7
16.4
13.5
0
5
10
15
20
25
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19Source: ITC, ACT Research Co., LLC: Copyright 2019
2010 - 2019(Actual through July 2019)
Used Class 8 Tractor Exports
Units (000s)
34
Medium Duty
BL/BU ratio moderatingIN/RS ratio on target; inventory rolls over
• OEM build peaking− Q1’19 = 1,108, Q2’19 = 1,218, Q3’19 = 1,170, Q4’19 = 1,038
Market will see sales growth in 2019, build flat on inventory draw downKey MD truck demand drivers staying between the lines:
• Consumer confidence lower but remains elevated− Confident consumers are more willing to spend
• Construction (resi/non-resi) and light truck and automotive markets are especially important to MD trucks; slowing growth/contraction in 2019 will be partially offset by services spending and e-commerce
• State and local governments exhibiting moderate growth
35
N.A. Classes 5-7 Order Distribution(Data through July 2019, annualized)
Classes 5-7 Orders
Truck (000s)
Bus (000s)
RV (000s)
Total* (000s)
Past 12 Mo. 202.0 41.6 18.7 272.2
Past 6 (AR) 180.4 47.3 18.8 257.7
Past 3 (AR) 168.4 33.9 15.7 231.9
July (AR) 150.4 29.5 12.9 204.5
July SAAR 244.4
Aug (P) SAAR 232.3* Total includes Step Vans
36
Backlog/Build Pressuring Abating
1234
30
40
50
60
70
80
90
100
10 11 12 13 14 15 16 17 18 19
BL/BU Ratio (Months)Units (000s)BL/BU Ratio Backlog SA BL/BU Ratio
Source: ACT Research Co., LLC: Copyright 2019
January 2010 - July 2019
Total Classes 5-7: N.A. Backlog & BL/BU Ratio
37
Inventory High, But On Target
1
2
3
4
10
20
30
40
50
60
70
10 11 12 13 14 15 16 17 18 19
IN/RS Ratio (Months)Units (000s)IN/RS Ratio Inventory Retail Sales SA IN/RS Ratio
Source: ACT Research Co., LLC: Copyright 2019
January 2010 - July 2019
Total Classes 5-7: N.A. Inventory/Retail Sales Ratio
38
50,000
100,000
150,000
200,000
250,000
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000Cl 5-7 Truck Sales (SAAR)Light Vehicle Sales (SAAR)
Source: ACT Research Co., LLC, MOTOR INTELLIGENCE
Light Vehicle Sales vs. Cl 5-7 Truck Sales
LIGHT VEHICLE RS Cl 5-7 TRUCK RS Poly. (LIGHT VEHICLE RS) Poly. (Cl 5-7 TRUCK RS)
39
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20RV 12 12 13 15 17 18 21 22 22 16 16Bus 27 27 32 34 37 38 41 43 43 44 45Truck 79 127 143 153 172 181 171 184 208 213 199Total 119 167 188 202 227 237 233 249 273 273 260
119
167188
202
227237 233
249273 273
260
0
50
100
150
200
250
300Units (000s)
Source: ACT Research Co., LLC: Copyright 2019
2010 - 2020
N.A. Classes 5-7 Production
40
U.S. Trailer Market Update
• Surged into 2019, but perhaps stumbling into 2020• 2020 orderboards open, but lackluster interest
• Fleets clamoring for spots just a few months ago• Orderboard churn…cancels stirring Q4• Build rates strong , but will soften as we close the year• Full system inventory very high• Less pressure on component supplies• OEMs losing some market advantage
41
Order Comparisons Headwinds
• Running into record volumes y/y
• Speculative orders Q3/Q4’18?
• Slowing freight volumes• Lower freight rates• Financial pressures• Assess true equipment
needs
42
Backlog Finally Breaks into 2020
• July BL/BU similar to June• BU eases…more than BL• BL/BU finally slips into 2020• No surge from orderboard
opening• 2019 production outlook
really now “complete”
43
Orderboard Now Declining Y/Y
-25%
0%
25%
50%
75%
100%
125%
-
50
100
150
200
250
300
Thou
sand
s
Y/Y%Ch (Right) Backlog (Left)
• Net Ord neg y/y since Dec’18
• First Y/Y BL decline since Fall’17
• Expect further declines through year-end
• Expect stretching existing BL
• Potential price pressures
• Advantage - Fleets
44
Reacting to the Backlog Trend
• Stretch the orderboard• Lower rates• Days/Shifts• Staffing last resort
• Soft foundation for ‘20• Slow start• Waiting order support
45
It’s Not Just Economic Pressure on Trailers
• Replacement demand peaked in 2019• Total Trailer Age…fleet is very young
• 2010-2011 8.2 years• 2019-2020 6.6 years• Lowest since 2000• Forecast minimal change in age
• Fleet growth over 430k since 2015• Fleets now reassessing true
equipment needs800
1,300
1,800
2,300
2,800
3,300
3,800
'79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19
Population (000s)Dry Vans Reefer Vans Flatbeds H LowbedsM Lowbeds Liduid Tank Bulk Tank DumpGrain Speicalty
Source: ACT Research Co., LLC: Copyright 2019
1979 - 2019
Total Trailers: Population
46
Lower, But Still Solid Volume in 2020
• 2020 still 10th Best • Perspective…2019 All-time
Record• 2015-2019 were 5 of Top 6
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20Dry Vans 62 120 128 135 155 181 181 183 194 201 160Reefer Vans 28 34 34 36 39 47 47 43 46 49 45Flatbeds 8 15 24 22 26 31 20 24 35 33 23All Others 29 39 45 42 48 50 40 42 48 46 42Total 127 209 231 235 268 308 288 291 323 329 269
127
209231 235
268
308288 291
323 329
269
0
50
100
150
200
250
300
350Units (000s)
Source: ACT Research Co., LLC: Copyright 2019
2010 - 2020
U.S. Trailer Production
47
Build Forecasts
2016 2017 2018 2019 2020
NA Class 8 (000s)
228.3 255.6 324.5 345.1 237.9
NA Classes 5-7 (000s)
232.9 248.7 272.7 273.4 260.5
US TrailerTotal Trailers (000s)
287.5 291.0 323.0 329.3 269.2
48
Questions?
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