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INSIGHTS

Trucking Industry Insight | Spring 2018

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This document focuses on a number of topics that affect the trucking industry as a whole, including concerns around the funding of President Trump’s infrastructure plan, the shortage of drivers within the industry, a strong economic forecast for the trucking industry, and the impending ELD enforcement date. It also includes a brief summary of trends in used equipment values.

Hot Topics

Details on Trump’s Infrastructure Plan Wanted by Trucking Industry: During his campaign and in his recent State of the Union address, President Trump highlighted infrastructure spending as a priority and is pitching a $1.5-trillion infrastructure program. In the 2017 Infrastructure Report Card released by the American Society of Civil Engineers, the U.S. infrastructure received a D+ rating. In the report, the group stated there is a $2-trillion investment gap. While they support Trump’s program, freight and logistics leaders are still waiting to learn his administration’s plans for bolstering the nearly insolvent Highway Trust Fund. This fund is the major source of funding for public roads, highways and bridges in the U.S. and its main source of revenue has been the federal gas tax, which has not been raised since 1993. Further, the Committee for a Responsible Federal Budget, a nonpartisan, non-profit organization comprised of some of the nation’s leading budget experts, believes that in the absence of a cash infusion, the Highway Trust Fund may become insolvent by fiscal year 2021.

In response to its concerns about the funding of the President’s infrastructure plan, the American Trucking Association (ATA) has proposed a “Build America Fund” infrastructure plan to help generate revenue for the Highway Trust Fund. It wants to raise federal fuel taxes by five cents annually for four years to shore up the Fund. The plan would generate $340 billion in new revenue over the first 10 years, the ATA said. “Trucking already pays half the nation’s highway funding tab, and we are ready to pay more,” said Chris Spear, ATA president. There’s widespread support for that effort in the trucking industry. Besides ensuring the Highway Trust Fund remains solvent, funding for additional truck parking is a priority that the Owner-Operator Independent Drivers Association wants to see addressed in Trump’s infrastructure plan. “The truck parking shortage is critical,” said Norita Taylor, spokeswoman for the Association. “We hope that the administration and Congress are able to make infrastructure the highest priority.”

Trucking Industry Struggling with Growing Driver Shortage: The trucking industry is facing a growing shortage of drivers that is pushing some retailers to delay nonessential shipments or pay high prices to get their goods delivered on time. A report from the ATA says more than 70% of goods consumed in the U.S. are moved by truck, but the industry needs to hire almost 900,000 more drivers to meet rising demand. Although truckers drive the American economy, in recent years the industry has struggled to attract new recruits. During the Great Recession, freight volumes dropped, allowing the industry to meet demand with fewer drivers. But when volumes recovered in 2011, the driver shortage became a problem again. According to an industry analysis by DAT Solutions, just one truck was available for every 12 loads needing to be shipped at the start of 2018, which is the lowest ratio since 2005. An aging fleet of drivers is one of the main reasons for the driver shortage. The Bureau of Labor Statistics estimates that the average age of a commercial truck driver in the U.S. is 55 years old. That is about 10 years older than the average age across other comparable industries like manufacturing and construction. As retirements are taking place, the industry is just not seeing the same level of new drivers. The industry also heavily relies on male drivers — according to the ATA only 6% of commercial truck drivers are women. Additionally, the industry has struggled to attract new drivers because the lifestyle of a trucker is less than ideal. Drivers are often forced to be on the road for extended periods of time, causing fatigue, and many suffer from undiagnosed sleep apnea. The Trump administration implemented new safety regulations in December that require commercial truck drivers to use electronic logging devices to record their hours. But many truckers say the federal mandate does not provide the flexibility they need.

Derek Leathers, CEO of Omaha-based trucking company Werner Enterprises says his company has increased wages, so drivers can make up for lost time on the road. According to the Bureau of Labor Statistics, the median annual wage for heavy and tractor-trailer drivers was $41,340 in May 2016. “Pay in the industry’s come up considerably. Here at Werner our pay’s up 17% over the last couple of years,” Leathers says. “First-year entrants into the industry now make around $50,000 a year depending on what part of the business they go in. So, it’s a good job. It pays well; you can build a family around it. It’s about getting that awareness out there.”

Strong Economic Forecast for the Trucking Industry: 2018 is looking like it is going to be a great year for the trucking industry. Freight demand is rising, rates are soaring and truck sales are at their best level in years. Peterbilt is forecasting that sales in the industry’s heaviest weight class will be in the range of 235,000 to 265,000 vehicles in the U.S. and Canada this year. That would be the third-best year ever for sales of trucks in the heaviest Class 8 weight segment.

Freight volume is at record levels, driven in part by the growth of e-commerce. According to the ATA, freight tonnage in January jumped 8.8% compared with the same period a year ago. “With the economy strong, the drivers of truck freight solid, and the inventory cycle in favor of motor carriers, I expect freight tonnage to remain robust in the months ahead,” said Bob Costello, the ATA’s chief economist. As a result of the increased demand for hauling goods, trucking rates are also on the rise. According to DAT Solutions, which tracks freight and rates, demand for spot truckload freight “set new records in January,” increasing 65% compared with the same month a year earlier and dry van spot rates were $2.26 per mile, up 59 cents, setting an all-time record. Although spot market rates started slipping in February, they are still well above last year. At the same time, according to Kyle Quinn, general manager of Peterbilt, retail sales of Class 8 trucks are increasing. The healthy economy, combined with the new tax policy, is encouraging motor carriers to make large equipment investments, fueling semi-tractor and trailer sales, analysts said. According to ACT Research, North American Class 8 truck orders in January rose to the second highest level ever, and this was the best January on record for trailer orders. Overall business confidence is surging due to tax reform, and it’s making a hot market even hotter.

ELD Enforcement to Start April 1, 2018: Time is running out for truckers still resisting a federal mandate to use a digital device to track their driving time. The new rule forces truckers to switch from the paper logs the industry has used since the 1930s to electronic logging devices, or ELDs. The Federal Motor Carrier Safety Administration (FMCSA) enacted the regulation in December but has provided a phase-in period through April 1 to give truckers more time to comply with the regulation. However, under the new rule trucks equipped with model year 1999 engines and older are exempt from compliance, regardless of the model year of the truck. The rule is intended to make sure truckers comply with a federal hours-of-service rule that limits driving to no more than 11 hours a day within a 14-hour workday. Drivers must then be off duty for 10 consecutive hours. Some drivers have protested the regulation, saying that digital monitoring violates their privacy, but multiple efforts to overturn the regulation have failed. Truckers now have until April 1 before state commercial vehicle inspectors start full enforcement of the rule. Those found in violation could be pulled off the road, according to the Commercial Vehicle Safety Alliance, an agency of approximately 13,000 inspectors in North America charged with enforcing the mandate. The switch from paper logs to ELDs is also a challenge for commercial vehicle inspectors. In the past three weeks, the ELD adoption rate has been hovering around 90% overall, but still in the low 80s for “regional fleets,” which include small-business truckers, said Andrew Lockwood, senior manager of analytics at Kenco Group. Being placed out of service for not having an ELD leads to “unhappy shippers and customers,” he said. “While some may be still holding out, the polling data suggest that most have made the switch already,” Lockwood said.

Trends in Used Equipment Values

According to the National Automobile Dealers Association (NADA), Class 8 vehicle selling prices in January were solid, continuing the uplift experienced in December. Looking at the three-to-five-year age group, the pricing of 2016 models was 4.7% higher than December, while the pricing of 2015 and 2014 models was up 5.2% and 2.9%, respectively. Trucks of most age groups were also up firmly compared to the same period last year. On a year-over-year basis, late-model trucks sold in January averaged 7.6% higher than January 2017. NADA expects that used truck volume will be mildly to moderately stronger in 2018, as customers become more confident about the economy.

Analysts predict that rising domestic and international trading activities will drive the market for heavy-duty trucks over the next eight years. Road and rail will dominate the freight transport segment and boost overall business growth. Increasing fleet size will support the logistics and construction sectors which in turn will drive heavy-duty truck market share from 2017 to 2024. Additionally, an upsurge in the demand for heavy commercial vehicles used in mining and agricultural applications will have a positive influence on product penetration. Over the same period, Class 8 vehicles are projected to generate the highest revenue share owing to their capability to carry huge loads. These vehicles are diesel-powered with a gross weight vehicle rating over 33,000 pounds and are mainly used for high-power applications such as mining, agriculture, and construction applications. Innovations in the product, along with increasing R&D investments by OEM, should further propel the heavy-duty truck market size from 2017 to 2024.