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Trucking Industry Insight | Spring 2021

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This document focuses on a numberof topics that pertain to the trucking industry as a whole, including trends transforming the trucking industry outlook for 2021, recent auction records set by the Ritchie Bros., the potential impact of infrastructure investment and green initiatives, the continuation of strong orders for Class 8 vehicles, and the introduction of the DRIVE-Safe Act. It also includes a brief summary of trends in used equipment values.

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Trends Transforming the Trucking Industry Outlook for 2021: Over the past year, the trucking industry has witnessed tremendous changes when it comes to the manner in which it operates and the kind of trucks making their way to market. In the U.S. alone, numerous things that have impacted the manner in which the industry has functioned, and many elements have changed the way work is received within the industry. Ten trends that are likely to surface in 2021, that would truly impact the industry are as follows:

1. Carrier Bankruptcy. Over the past few months, several large and small trucking companies have closed due to harsh market conditions prevalent within the industry. Currently, at least three thousand truckers are unemployed due to these closings. One of the reasons for this is that retail companies are moving fewer goods from one place to another, causing many trucking companies to lose out because of lack of work due to a drop in profitability. The trend is not likely to change this year unless there is a large spike in the retail industry and a significant increase in the movement of freight.

2. Improvement of Technology. Technology has caused widespread improvements in the trucking industry. Corporate offices are beginning to use a number of software programs to help make their operations more efficient and streamlined, and more trucks are beginning to incorporate ‘smart’ technology to improve functionality. The concept of tracking an order is also something that has caused many trucking companies to set up technology to keep track of the goods that are being transported and to keep their customers informed.

3. Higher Number of Mergers. While a large number of trucking companies are going under as a result of the harsh market conditions, many are choosing to merge with other companies. When it comes to mergers, there are two main routes such companies are likely to take. The first is to pool resources with an existing company to withstand the market. This allows them to continue operating and possibly expand to newer territories. The second route is to merge with a company of a different sector to expand the range of services they can provide, thereby helping them survive until the market becomes more favorable.

4. Shift In Production Locations. Over the past few years, production locations for some of the most well-known trucking companies have remained constant. However, companies are starting to consider newer locations to meet the existing demand for trucks. When it comes to Dry Vans, Texas, Illinois and Ohio are some of the locations that companies are likely to shift to. For Reefers, California and Illinois are preferred, and flatbed vehicles are mainly being produced in Texas and Pennsylvania. The trend of shifting to a new location is something that is being witnessed across the entire transportation and freight industry.

5. A Market Flip. While the trucking industry might not be in the best market situation, there are some experts who are enthusiastic and optimistic about 2021. Because of the decline the industry experienced during 2019, many believe it is likely to turn around and experience a gradual increase as a result of new developments that are coming to the industry. A market flip is expected to emerge in 2021 and is something that can help the entire industry and one factor that can help save those companies that are likely to go under unless current market conditions improve.

6. Changes in Pricing. Truckers are currently earning far less than the average American. During 2019, the pricing for truckers declined significantly due to the shortage of jobs. Trucking companies started to charge less for fear of not being able to get enough business. In 2021, pricing is likely to change again, either for the better or worse. If the market continues to decline, trucking companies will have to lower their prices even further. If the industry experiences positive growth, prices can rise to where they were before the decline. Either way, pricing is going to change significantly when it comes to the trucking services companies offer.

7. Influence of E-commerce. Over the past few years, the e-commerce industry has grown tremendously, and we currently live in a world where people prefer to shop online than in-store. However, it is important to note that the e-commerce industry cannot function without the help of the trucking industry. This industry depends on truckers to get their goods from one place to another, which means that improvements in the e-commerce industry will lead to improvements within the trucking industry. Because the e-commerce industry is likely to grow further in 2021, the same can be expected for the trucking industry.

8. Rising Fuel Costs. Over the years, fuel costs have only risen because of the limited supply, which always impacts the trucking industry. Rising prices has always been a matter of concern for companies operating within this industry as they try to manage their cost of operations. However, managing those costs has become much easier than it had been in the past. Today, trucking companies can opt for alternative fuel trucks or even electric trucks to control such costs. However, this does mean that an investment needs to be made for these new vehicles, which is often an expense that trucking companies currently cannot incur.

9. Urbanization. One of the more beneficial developments the industry is likely to experience in the coming year is the growth of urbanization. Over the past few years, most of the country has experienced wide-scale development, with most rural areas being converted into urban landscapes. This means that it is easier for trucks to navigate through parts of the country that they weren’t able to pass through before, thereby allowing the industry to generate significantly more business.

10. Incorporation of Data Analytics. Many companies in the trucking industry have realized the benefit of incorporating data analytics into their work, and more companies are expected to follow in the coming year. In 2021, data analytics is going to be applied to the work at corporate offices, and to vehicles on the road. Vehicles are being developed with technology that can send information to a source regarding the route and the operations currently engaged in. This technology can help the trucking industry identify areas that need development and those that need improvement to make operations more efficient.

All of the above trends are expected to alter the manner in which the trucking industry is likely to function in 2021.

Ritchie Bros. Sets Records at Toronto Auction: Ritchie Bros. recorded its largest-ever auction in Toronto, selling 4,300 trucks and equipment pieces in an online event that ran March 9-11. The volume of sales represented a 35% year-over-year increase in the number of bidders, resulting in $49 million in transactions. Sales included more than 320 trucks, 210 aerial work platforms, 120 compactors, more than 95 skid steers, and more than 55 excavators. The 10,000 registered bidders and more than 4,300 lots were records for the site.

“Following excellent recent results in Edmonton, Orlando, and our Rocky Mountain Regional Auction, we continue to achieve strong pricing for consignors, regardless of auction type or location,” said Ryan Pottruff, Regional Sales Manager. “Last week’s record-breaking Toronto auction saw particularly strong price realization for transportation equipment, with Class 8, dump trucks, and heavy haul trucks achieving incredible prices. Close to 10,000 bidders from 67 countries registered for the three-day auction. Approximately 93% of the equipment was sold to Canadians, including 73% sold to an Ontario buyer. Other bids came in from as far as Singapore, Peru, and the U.K.

Infrastructure Investment & Green Initiatives Could be Good News for the Trucking Industry: According to a recent publication by ACT Research and Rhein Associates, the Biden administration’s focus includes prioritizing investment in new low-carbon technologies to strengthen the nation’s competitiveness, improve its air quality and add good-paying jobs in a growing economic segment. “The trucking industry has rebounded strongly, with spot freight rates at record highs and increased new truck order intake leading to strong industry outlooks for the medium and heavy-duty segments,” said Kenny Vieth, president and senior analyst for ACT. “The year-long shift to more home deliveries because of COVID continues to influence the trucking industry, and these reduced-distance routes and increasing last mile deliveries are ideal candidates for alternative powertrain adoption.”

The report also notes that, while the trucking industry might escape short-term focus, longer-term efforts, such as infrastructure investment, will be good for truckers, particularly vocational trucks. Analysts also believe green initiatives will drive demand for zero-emission commercial vehicles. “In 2020, truck penetration peaked at just over 32% in a depressed Class 8 market. For smaller displacement engines, non-captive suppliers represented more than 90% market share,” said Andrew Wrobel, senior powertrain analyst for Rhein. “Captive engines account for almost 70% of Class 8 tractor applications, where engines over 14 liters continue to increase share, ending 2020 around 55% share.” When asked about alternative fuels, Wrobel said, “Demand for natural gas-powered trucks has shown modest growth, with further slow growth anticipated, and despite the current pandemic, electric vehicle product development and new introductions continue.”

Class 8 Orders Continued Strong in February: According to data released in early March by ACT Research and FTR, preliminary figures for Class 8 truck orders in the North American market show both month-over-month and year-over-year increases. ACT figures reveal that 43,800 units were ordered during February, up 4% from the prior month and 212% from February 2019. The ACT report also includes data for Classes 5-7, with orders of 25,400 units; down 4% from January but up 12% from a year ago.

“Beyond warmer inflation numbers, there is much to like in the current stream of economic data that indicate broad-based economic activity,” said Kenny Vieth, president and senior analyst for ACT, adding that current economic growth, as has been the case throughout the pandemic, is driven by the goods-producing sectors. “Consumer spending on goods, a red-hot housing market, a reaccelerating manufacturing sector and pent-up inventories combine to provide very good visibility to near- to mid-term freight trends. Contract freight rates are at record levels, as are spot rates, after seasonal adjustment,” he continued. “Without injecting stimulus or infrastructure into the discussion, there is a lot to like about freight, the carrier profit outlook, and by extension the commercial vehicle demand landscape.”

Analysts at FTR showed similar totals for Class 8 net orders in February, reporting 44,000 units, up 3% month over month and up 209% year over year, the second-highest number of orders ever for the month of February. FTR’s report also noted there is intense pressure on freight hauling capacity to get more trucks into service. However, the supply of new trucks is limited due to component and part shortages. In response, fleets continue to place orders in elevated volumes to try to acquire as many tractors as possible. “There is tremendous pent-up demand for trucks. There are severe bottlenecks in the supply chain involving computer chips, wiring harnesses, and a whole host of various parts. OEMs are under intense pressure to deliver as many vehicles as they can, as soon as they can,” said Don Ake, vice president of commercial vehicles for FTR. “The tight capacity has caused spot rates to spike from already elevated levels. Contract rates are rising also. Therefore, fleets have plenty of cash to spend. They desperately need trucks, so they are ordering at near-record levels,” he continued. “The supply chain is so dysfunctional right now and there are so many parts affected, it is difficult to predict when the logjam breaks loose. The vaccine should help component manufacturers find more workers. There are also lengthy waits at the ports causing delays in imported parts.”

Bipartisan Lawmakers Introduce the Drive-Safe Act: In March, a group of bipartisan lawmakers in Congress introduced the DRIVE-Safe Act to address the country’s growing shortage of professional truck drivers by expanding job opportunities for younger members of the trucking workforce, while also strengthening safety training and technology safeguards for those looking to participate in interstate commerce early in their careers. While 49 states permit individuals to obtain a commercial driver’s license before they turn 21, federal regulations prohibit those same drivers from crossing state lines until they turn 21. These restrictions bar a vital population of job seekers from interstate trucking, thereby intensifying the driver shortage as qualified candidates are lost to other industries. The DRIVE-Safe Act would allow certified CDL holders already permitted to drive intrastate the opportunity to participate in a rigorous apprenticeship program designed to help them master interstate driving, while also promoting enhanced safety training for emerging members of the workforce.

Under the proposed legislation, when drivers meet the current requirements to obtain a CDL, they can begin a two-step program of additional training, which includes rigorous performance benchmarks. The program requires them to complete at least 400 hours of on-duty time and 240 hours of driving time with an experienced driver in the cab with them. All trucks used for training in the program must be equipped with safety technology, including active braking collision mitigation systems, video event capture, and a speed governor set at 65 miles per hour or less. Once all of the benchmarks are successfully met, the candidate will be permitted to cross state lines.

The truck driver shortage is expected to grow worse in the coming years as more drivers move into retirement and the demand for freight transportation increases. Over the next decade, it’s projected that the trucking industry will need to hire roughly 1.1 million new drivers, or an average of nearly 110,000 per year, to keep up with demand. The federal ban on interstate commerce for drivers under the age of 21 continues to be a major impediment to recruitment. Enactment of the DRIVE-Safe Act has strong bipartisan support and has long been supported by a coalition of nearly 90 companies and trade associations throughout the supply chain, including manufacturing, agriculture, retail, and restaurant establishments.

Trends in Used Equipment Values
After a pause in 2020 due to COVID-19, new Class 8 truck sales could have a big year, while the secondary market in general continues to be stable. However, prices for late model, low mileage vehicles have been rising due to limited inventories and the fact that buyers continue to look for quality, rather than quantity. The same can be said for the trailer market. On the other hand, glider kit trucks have continued to hold their values regardless of mileage. Throughout the pandemic, the pricing of used transportation equipment in good condition has held up well, reflecting the impact of shutdowns or reduced production levels resulting from the decline in new truck demand. In addition, parts available to make needed repairs on older vehicles have been limited.

According to a report issued by ACT Research, December was a strong month for the used truck sector, as used Class 8 volume increased 11% over November and 27% year-over-year. Despite 2020 being tainted by a crippling global pandemic, used Class 8 truck volumes exceeded 2019 numbers by 25%. The report also noted that year-to-date, average price and tractor age dropped 8%, while miles were down 4%.

Steve Tam, vice president at ACT Research said all three used channels grew, with retail seeing weaker growth than wholesale and auction. “Miles and age continue to support higher pricing, falling 8% and 9%, respectively, compared to 2019,” he stated. The leading truck OEM, Daimler Trucks North America, expects a steadier 2021 for the used market. “Prices are on the rise for used trucks right now,” said Mary Aufdemberg, president and general manager of Daimler Trucks Remarketing. “Inventories are decreasing in the marketplace, but we do expect supply to keep coming.”

The new Class 8 tractor market is also poised for a strong run, with FTR Intel reporting November and December 2020 both topped 50,000 net orders. In April 2020, orders fell below 5,000 as factories shut down to prevent COVID-19 spread and the world itself seemed to stop turning. “As the economy continues to improve, fleets are showing increasing confidence about business conditions in 2021,” said Don Ake, vice president of commercial vehicles for FTR. “Profits are more than sufficient to replace used trucks and freight growth is stimulating expansion demand. Put those dynamics together, and the industry is headed toward a robust year.”