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Trucking Industry Insight | Spring 2019

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This document focuses on a number of topics that affect the trucking industry as a whole, including the reality of hydrogen-powered semis, the ongoing struggle to recruit new long-haul truckers, the 2019 outlook for the trucking industry, the results of recent Class 8 truck sales, and concerns regarding potential tariffs on imported truck and automobile parts. It also includes a brief summary of trends in used equipment values.

Hydrogen-powered Semis Becoming a Reality: It’s not just passenger vehicles that are moving away from gasoline, big rigs are also saying goodbye to fossil fuels. Nikola Motor Company recently unveiled its zero-emission semi-trucks that don’t operate on diesel, but use hydrogen fuel cells instead. The trucks combine hydrogen stored in onboard tanks with atmospheric oxygen to generate electricity for their motors, a process that emits no harmful emissions. Trevor Milton, Nikola founder and CEO, started the company in his basement in Utah five years ago and now aims to contribute to the clean, renewable-energy movement via trucking worldwide. The company, which is headquartered in Phoenix, plans to break ground in 2020 on over 400 acres and in a million-square-foot manufacturing facility. The plan is to have the company begin full production by 2022, adding 2,000 jobs in Arizona and building up to 35,000 trucks per year.

The Nikola Two is a long-haul tractor with 1,000 hp, 2,000 lb.-ft of torque and a range of 750 miles, while the cab-over Nikola Tre is aimed at the European market. Full battery-powered versions are in the works for urban applications covering shorter routes. Both models feature video camera rearview mirrors and digital displays equipped with programs to track mileage, sleep and expenses. Nikola claims to have 13,000 orders for the trucks, including 800 from Anheuser-Busch as part of its sustainability strategy. Exact pricing hasn’t been publicly released, but it is offering million-mile leases that include hydrogen supplied through a network of stations it is building across the country. As far as competing with Tesla’s upcoming battery-powered semi is concerned, Milton thinks there’s enough customers to go around. Tesla plans to begin production of its Semi by the end of 2020.

Driver Shortage Continues in Soaring Economy: The nationwide trucking industry, which is heavily relied upon to move freight, is continuing to struggle to recruit new long-haul truckers during an extended period of economic growth. During 2017, trucks transported 70% of the more than 10 billion tons of freight valued at just over $700 billion across the U.S. According to the U.S. Census Bureau, truck driver is currently the most common job in 29 states. In fact, the U.S. trucking industry employs more than 7 million people, including 3.5 million truck drivers of which 1.5 million drive Class 8 tractor trailers.

Raising compensation and offering better benefits are two of the more significant measures the industry is taking to deal with the shortage. According to the American Trucking Associations, the current average salary is $55,000 a year. The industry is also making a concerted effort to attract new long-haul truckers among immigrants, refugees and women, three traditionally underrepresented demographic groups. The shortfall in long-haul truckers stood at about 20,000 in 2005, the first time it was documented. That shortage was erased during the recession that began in 2008 and the related reduction in freight transport volumes, but rose to about 45,000 by 2015. At that time, the shortage was expected to rise to more than 50,000 by the end of 2017; 60,000 by the end of 2018; and possibly grow to more than 174,000 by 2026. In Colorado, for example, the number of heavy and tractor-trailer truck drivers that will be employed in 2019 is estimated to be 27,100 and demand is projected to grow at a 3% annual rate in coming years. This means more than 1,600 additional truck drivers will be needed by 2021. “The Colorado Motor Carriers Association, along with other local, state and national organizations, are working to attract new and under-represented groups into the industry,” said Patti Gillette, association vice president. “These include women, minorities, veterans and others. Many of our motor carriers and fellow organizations are seeing great results with this approach.”

2019 Outlook for the Trucking Industry: Based on a number of factors, the outlook for the trucking industry is looking to be quite positive throughout the remainder of 2019, and even moving into 2020:

Consumer Demand Continues to Rise

It appears that consumer demand will continue to increase modestly throughout the year with an estimated rise of about 3-4%. Since trucks are responsible for transporting about 70% of all consumer goods, this means that there will be plenty of job opportunities for everyone looking to get into the industry. As long as consumer demand continues to grow, the industry will be relatively healthy and job growth will remain largely positive.

Truck Drivers are Needed

There are approximately 52,000 vacancies in the trucking industry all across the country. The consistent availability of jobs provides job security for those who choose to enter the field.

Automatic Trucks are Not Coming Any Time Soon

Many truck drivers are concerned about automatic trucks taking their jobs away. While manufacturers are working on making automated trucks, the good news is that the developments of such vehicles are in their infancy stages. These trucks are many years away from being mainstream on the roads. Challenging moves like backing in and out of tight spaces and pulling onto busy highways or interstates will still require human intervention and assistance for decades to come. This means there has to be a trained driver in the truck at all times and that driver’s jobs are very secure.

Truck Driving Proves to Be a Great Career Path

There are a variety of reasons that the trucking industry makes for a great, long-term career. The starting pay for an average Over-The-Road trucking job is over $45,000 annually, in addition to paid vacation time, full healthcare benefits, and retirement plans. Many large, national carriers even have programs that reimburse drivers for the costs of getting their commercial driver’s license that comes in the form of monthly payments in addition to their normal monthly salary.

Class 8 Sales Surpass 22,000 in March: U.S. Class 8 retail sales in March climbed above 22,000 for the first time this year and all truck makers but one had higher sales. The sales total of 22,834 was up 17.8% from 19,384 a year earlier. For some analysts, March’s volume brought a sigh of relief as they had been waiting for a number like this to show that trucks were getting into service despite the moderating economic news. Freightliner, a brand of Daimler Trucks North America, remained the leader with a 36.6% market share on sales of 8,363 units, up 11.4% from a year earlier. International Truck, a unit of Navistar Inc., posted the biggest monthly increase, rising 62.2% from a year earlier on sales of 3,476 trucks. That equates to a 15.2% share, which was the second highest of all individual brands. Some analysts expect that production capacity is going to be an issue for the entire year. “What we saw in 2018 was a market where everybody was selling every truck they could make. I think 2019 will be like 2018. The question is, can they make more this year,” said economist Bob Dieli, an associate at McKay & Co. Mack Trucks saw sales rise 18.6% compared with a year earlier to 1,623, which was good for a 7.1% share. Jonathan Randall, Mack senior vice president of North American sales, said, “Considerable order backlog will translate into retail sales momentum”. Volvo Trucks North America posted a 10% gain in sales on 2,404 trucks, good for a 10.5% share. Peterbilt Motors Co. posted a 14.9% share on sales of 3,403. That was up 20.5% compared with a year earlier. Kenworth Truck Co. saw sales rise 8.2% to 3,147 and claimed a 13.8% share.

Across the industry, year-to-date Class 8 sales rose to 62,884 compared with 50,529 last year. That was a 24.5% increase. Although 2018 got off to a slow start, it was strong from June on. Analysts expect the opposite this year: a strong start in the first half followed by a slower second half. Holding on to that 25% gain for the full year is uncertain and “largely constrained by the industry’s ability to produce and deliver,” said Steve Tam, vice president of ACT Research. ACT believes U.S. retail sales, including certain specialty vehicles such as dump, cement and refuse trucks, will reach 264,000 in 2019.

Trade Groups Push for No Tariffs on Vehicle Parts: Officials in the transportation industry warned that if President Trump follows through on the threat of placing tariffs on imported truck and automobile parts, the effects could be devastating for jobs in the U.S. At Trump’s request, in May 2018 the Department of Commerce began a Section 232 National Security Investigation of automobile and truck parts. The purpose was to determine the effects of imported parts on national security and “whether such imports are weakening our internal economy and may impair the national security.”
The agency delivered its recommendations to Trump in mid-February, and some transportation industry members believe those recommendations likely include tariffs on fully assembled vehicles or on parts — especially those related to electric, automated, connected or shared vehicles. The final report has not been made public, and the White House has until mid-May to decide if it agrees with the findings and whether it will act upon the recommendations. With the clock ticking on this decision, the vehicle parts industry is ramping up its efforts to fight the possible tariffs.

The Motor & Equipment Manufacturers Association (MEMA), a trade association that represents parts suppliers, said in a report released April 9 that tariffs as high as 25% on parts could jeopardize as many as 871,000 vehicle supplier jobs in the U.S. and damage the country’s global competitive position. Since the report has not been made public, it is unclear how, specifically, it might impact the trucking industry and that secrecy is leading to frustration. “We don’t know what is in the report, however we are working under the assumption truck parts are in the report,” said Cindy Sebrell, vice president of communications for the MEMA. “No one knows definitely what is in this report and what action the president may take.”

Other organizations are joining MEMA in opposing the possible tariffs and warning of the potential consequences. A group of organizations that includes the Heavy-Duty Manufacturers Association and the Association of Equipment Manufacturers said in an April 4 letter to Trump that the investigation “poses a serious economic threat to the nation’s entire economy and the wellbeing of our manufacturers, dealers, employees and customers. Any remedy proposing quotas or tariffs should not be implemented. We urge that you not impose tariffs on any imported vehicle or motor vehicle parts.”

Trends in Used Equipment Values
In March, used truck prices decreased across all classes and segments – a move which J.D. Power Valuation Services says puts the market closer to a “historically typical” range. With suppressed winter sales behind us, J.D. Power Commercial Truck Senior Analyst Chris Visser says March data provided the first real look at how the market is holding up this year. “Volume of our benchmark model was up by an expected proportion over February, but fell well short of last March,” he says.

J.D. Power’s benchmark model for March auction activity showed the following results compared to February:

  • 2016 tractors averaged $42,750, $3,550 or 7.7%, lower
  • 2015 trucks averaged $36,600, $3,000 or 7.6%, lower
  • 2014 tractors averaged $29,250, $1,050 or 3.5%, lower
  • 2013 tractors averaged $25,400, $2,175 or 7.9%, lower
  • 2012 tractors averaged $18,750, $5,650 or 23.2%, lower

However, in the first 3 months of 2019, Visser says 4-6-year-old examples of J.D. Power’s benchmark model brought 4.3% more money at auction than in the same period of 2018.

“Going forward, year-over-year comparisons should reach parity and then turn mildly negative,” Visser adds. “Freight-focused economic measures are less stable than last year, but we expect pricing to remain relatively healthy through the second quarter.” The volume of late-model trucks that retailed in March was similar to February, although dealers sold incrementally more trucks overall. The average sleeper tractor retailed in March was 69 months old, had 467,319 miles, and sold for $55,808. Trucks with less-desirable specs and mileage are not faring as well as in previous months. Compared to February, the average sleeper was identical in age, had 3,209 or 0.7% more miles, and brought a nearly identical price. On a year-over-year basis, Visser says late-model trucks sold in the first quarter this year brought 10.6% more money than in the same period last year. On average, trucks in this age range depreciated 3.3% per month compared to 2.5% in the same period of 2018. He also noted that value trends in 2019 are looking more historically typical than in 2018.