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Trucking Industry Insight | Fall 2020

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This document focuses on a number of topics that pertain to the trucking industry as a whole, including key statistics pertaining to the industry, Class 8 sales, the top 2020 issues for the industry, a new House bill that promotes transportation technologies, and continuation of the driver shortage dilemma. It also includes a brief summary of trends in used equipment values.

Must-Know Statistics Pertaining to the Trucking Industry: Although predictions being made about market statistics for 2021 may change due to market instability, for anyone who wants to be familiar with the ins and outs of the trucking industry, being familiar with the current statistical data behind it is incredibly important. The 10 must-know statistics regarding the trucking industry and related developments over the past year are as follows.

  • Highest GDP In The World – The U.S. currently stands at the number one spot when it comes to GDP from the trucking industry. The GDP of this industry is higher than that of 150 nations in the entire world.
  • Job Percentage – The trucking industry takes up a notable chunk of the U.S employee market as it accounts for more than 5.8% of all jobs in the entire country.
  • Biggest Employer – Walmart currently has the greatest number of hired truckers, standing at 8,600.
  • Total Weight Carried – In the U.S., trucks carry approximately 10.8 billion tons of goods across the country.
  • Preferred Form of Transportation – Almost 70% of the goods transported in the country are carried from one state to another by trucks.
  • Job Diversity – The trucking industry has an incredible amount of diversity with more than 40% of the jobs being held by people belonging to minorities.
  • Grocery Store Dependence – Grocery stores are incredibly dependent on truck drivers to carry their goods and most grocery stores would run out within three days if truck drivers stopped their deliveries.
  • Job Demand – There is an ever-growing demand for truck drivers and experts believe that the trucking industry needs to hire at least 900,000 more people to meet that demand.
  • Annual Income – In spite of the large demand for truck drivers, their annual income is significantly less than that of most Americans.
  • Miles Per Year – Truck drivers put countless hours into the work they do. The average truck driver logs in more than 100,000 miles every single year.

Despite ongoing market instability, the above statistics provide an indication as to how the trucking industry is likely to function in 2021.

Used Class 8 Sales Flat in September: According to a report published by ACT Research, the price of the average used Class 8 truck sold in September was almost $40,000, and sales were nearly flat compared with a year earlier. Sales reached 20,200 in September, dipping slightly below 20,500 a year earlier, but up from 18,500 in August. On a year-to-date basis, sales fell to 176,300, compared with 187,500 for the same period last year. Although the average sales price has risen for 4 consecutive months, it has declined for 17 consecutive months year-over-year. Nonetheless, Steve Tam, Vice President of ACT Research, believes we are very close to turning the corner and could hit a year-over-year increase for October if prices just stay where they are. In September, the average Class 8 truck cost $39,371, compared with $ $38,425 in August. In October 2019, the price was $38,700.

Mr. Tamm believes we are at the inflection point that suggests we will start to see prices improve, longer term. Even though prices are going up, he believes the trucks buyers can get for around $40,000 are still quality trucks with a good amount of usable economic life. The mileage on the average used Class 8 truck was 453,000, compared with 459,000 miles a year earlier. Its average age was 6 years and 6 months, compared with 7 years and 3 months, a year ago. Each month, ACT surveys a sample of dealers, wholesalers and auctioneers as well as a few large fleets to determine average price, age and mileage, and estimated industry volumes.

“The prices are still meaningfully below where they were a year or two years ago, so the metrics seem to be moving in the right direction. Still, there’s a lot of uncertainty out there.”

– James Hopkins, Executive Director of Investor Relations, Cummins Inc.

At the Morgan Stanley virtual conference held September 16, James Hopkins, executive director of investor relations at Cummins Inc., said the used truck market has improved a little bit, referring to sales volumes and stabilizing prices. “But the prices are still meaningfully below where they were a year or two years ago,” Hopkins said. “So the metrics seem to be moving in the right direction, still, there’s a lot of uncertainty out there.”

Top 2020 Issues for the Trucking Industry: On October 27, the American Transportation Research Institute (ATRI) released a report identifying the top concerns for the trucking industry. The report is based upon responses received from a combined total of 3,122 truck drivers, motor carriers and other industry stakeholders, an all-time record number of responses for the 16-year-old survey.

According to the report, driver shortage topped the list of concerns for the fourth year in a row. Other key concerns include truck parking, driver compensation and retention, and insurance costs, which made the list for the first time since 2005. Driver shortage topped the motor carriers’ list of concerns, highlighting the challenges fleets face in recruiting new talent and keeping current drivers. Driver retention was motor carriers’ No. 2 issue, and was sixth on the combined list. Truck parking climbed two spots this year to become the third-highest ranking issue of concern and achieving its highest ranking since first appearing on ATRI’s Top 10 list in 2012. Among the 1,000-plus truck drivers who responded to the survey, truck parking, driver compensation and detention issues were among the top concerns. With this information, the industry believes it can best target its resources to address trucking’s concerns.”

In addition, tort reform was among the survey’s Top 10 concerns for the first time since 2011, landing at seventh in the combined list and fifth in the carriers’ list. “The impacts of litigation and growth of nuclear verdicts (jury awards in excess of $10 million) in the trucking industry was really apparent in this year’s list of concerns,” said Rebecca Brewster, president and COO of ATRI. “Earlier this year, ATRI quantified the growth in nuclear verdicts in the trucking industry, but even without that critical research, the fact that tort reform and insurance issues have resurfaced in the survey are a clear sign the industry is being impacted by rising costs related to litigation and insurance.” The complete results of the annual survey were released as part of American Trucking Associations’ 2020 Management Conference and Exhibition.

New House Bill Promotes Transportation Technologies: The U.S. House of Representatives recently introduced legislation that aims to promote the adoption of new technologies throughout the country’s transportation networks. The Strengthening Methods to Advance Research and Technology, or SMART Act, introduced by Representative Troy Balderson (R-Ohio), would aim to advance innovation, efficiency and new safety programs across transportation corridors. Specifically, the bill would authorize several programs pertaining to advanced technologies, connected vehicles, automated driving systems, and digital construction management systems at the U.S. Department of Transportation. Rural areas would be covered under the bill, according to background provided by the congressman’s office.

“In Central Ohio, we’re proud of our history as a national leader in smart mobility and advanced transportation research,” Balderson, a member of the House Transportation and Infrastructure Committee, said in a statement on October 29. He continued, “I’ve seen firsthand the state-of-the-art research and work being done in this community that will improve road safety and create more efficient transit options throughout Ohio. I’m excited to continue working with our local transportation thought leaders like DriveOhio and the Mid-Ohio Regional Planning Commission to continue these efforts.” The measure was referred to the committee of jurisdiction.

As Recovery Emerges, Trucking Faces Driver Supply Dilemma: Many signs in the trucking industry are pointing to strong demand for freight as we near the end of 2020 and look forward to 2021. However, individual fleets are finding it more difficult to move that freight as the supply of drivers for hire is dwindling due to the retirement of veteran truckers, drivers’ inability to pass drug tests, and competition from other “blue-collar” industries such as manufacturing and construction, as well as local delivery and private fleets. According to the National Transportation Institute (NTI), retirement accounts for 54% of the driver shortage. At the same time, the economy is coming out of the slump brought on by COVID-19. FTR Transportation Intelligence projects that utilization will accelerate in the first quarter of 2021, pushing freight rates higher than the 10-year average by next summer. That would be comparable to 2018 numbers. According to Leah Shaver, NTI CEO, most fleets report they could do four times the amount of work, if only they had qualified drivers.

Due to the pandemic, training schools and the Department of Motor Vehicles installations have either reduced capacity or closed, with some schools dropping enrollment by 40%, thereby limiting the amount of newly certified drivers available. Furthermore, according to an NTI survey 71% of all fleets halted training programs. Shaver said the new pool of drivers could be reduced by as much as 30% to 40% in total. As a result, there is now a mad dash to find qualified drivers. Most fleets are reporting extreme challenges and increases in cost as they struggle to rebuild their pipelines. These struggles are intensified by the demands of long-haul trucking. It requires long days, is physically demanding, and is fraught with heavy oversight. Although private fleets and local delivery jobs alleviate some of these hardships, the wages tend to be lower, but the driver gets more time home and has a lot less federal regulation to worry about. In addition, other industries are siphoning off potential talent by offering equal or better pay with a better work-life balance. According to the U.S. Bureau of Labor Statistics, the median pay for heavy and tractor-trailer drivers is $45,260. By contrast, the median wage for a machinist in 2019 was $45,750. Although that work requires up to two years of training on-the-job, and/or formal schooling, it is more predictable and there are no long periods away from home.

The most obvious answer to dealing with the driver shortage problem is to increase pay. Although that is happening at a rapid pace, Shaver believes that further efforts, including video messaging, surveys, and greater transparency by employers must be made to engage drivers. Allowing drivers to grow and obtain leadership roles, the implementation of wellness programs, and reaching out to women, veterans, and the growing Latin community are other solid strategies.

Trends in Used Equipment Values
During the first half of 2019, the used truck market was relatively strong, but has since struggled as both prices and sales of used Class 8 trucks have dropped significantly. The increased number of bankruptcies among weaker trucking companies have caused more inventory to flush into the secondary market, thereby contributing to the downward movement in pricing. In addition, widespread quarantines, business closures, and unemployment brought about by the COVID-19 pandemic have caused freight volumes to pull back resulting in what has been referred to as “a fear factor” in the used truck market.

During the first two months of 2020, the pricing for used trucks averaged 28.2% lower than the same period last year. In March, in-person auctions were scaled back in favor of those online, which limited sales volume during the first two weeks of the month. While pricing did improve, it was still down roughly 10%. When the pandemic struck, it caused huge declines in both the demand and pricing for used trucks in March, April and May in an industry already experiencing a glut. Compared to the prior year, used heavy equipment prices near the end of the second quarter were down about 2%, while prices for truck tractors were down about 6%.

The market report recently published by Ritchie Brothers shows that October prices for used equipment were steady compared with those one year ago. According to the report, used heavy equipment prices, truck tractors, and vocational trucks were up or down about 1.5% year over year in both the U.S. and Canada. However, lifting and material handling prices declined about 2% in the U.S., while increasing about 1% in Canada. Irontrax does not anticipate any significant improvement in used truck values until next year, but believes some spikes in auction values may be experienced depending on the condition and type of equipment being sold.

With respect to credit, access still remains limited for many in the trucking industry. The current challenge is getting approvals for truck loans as financial institutions have tightened their financing criteria because of the “big scare” associated with COVID-19. They are worried about the uncertainty in the market because they have been providing payment deferrals since the beginning of the outbreak, and the recent spike in COVID-19 cases has intensified their concerns.