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Trucking Industry Insight | Summer 2018

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This document focuses on a number of topics that affect the trucking industry as a whole, including the rise in truck driver compensation, the outlook for the trucking industry, VW’s possible takeover of Navistar, the Canadian government’s final rule on greenhouse gas (GHG) regulations pertaining to heavy-duty trucks and engines, and Daimler’s creation of an automated truck research and development center. It also includes a brief summary of trends in used equipment values.

Compensation for Truck Drivers on the Rise: Late last March, the American Trucking Associations (ATA) released data from its latest Driver Compensation Study, showing that driver pay has climbed as the rising demand for freight transportation services has heightened the competition for increasingly scarce drivers. “This latest survey, which includes data from more than 100,000 drivers, shows that fleets are reacting to a progressively tight market for drivers by boosting pay, improving benefit packages and offering other enticements to recruit and retain safe and experienced drivers,” said ATA Chief Economist Bob Costello. According to this most recent study, the median salary for a truckload driver working a national, irregular route was over $53,000, representing a $7,000, or 15%, increase from ATA’s last survey taken in 2013. For private fleet drivers, the pay rose to more than $86,000 from $73,000, up nearly 18%. In addition to rising pay, Costello said fleets are offering generous signing bonuses and benefit packages to attract and keep drivers. “Our survey told us that carriers are offering thousands of dollars in bonuses to attract new drivers,” Costello said. “And once drivers are in the door, fleets are offering benefits like paid leave, health insurance and 401(k)s to keep them. “This data demonstrates that fleets are reacting to concerns about the driver shortage by raising pay and working to make the job more attractive,” he said. “I expect that trend to continue as demand for trucking services increases as our economy grows.”

Outlook for Trucking Industry Strong Into 2019: The trucking industry is experiencing its best period of growth in years. The industry is benefitting from low unemployment, booming housing starts and strong online sales growth. In a second quarter conference call with investors, Bob Costello, the ATA’s chief economist, said, “Not since we’ve come out of the Great Recession in 2010 have all of these economic factors come together to provide an environment where freight is this solid.” This strong economic climate for trucking could continue for the next 18 months or more, depending on ongoing negotiations with Mexico and Canada over the North American Free Trade Agreement (NAFTA) and other factors, Costello stated. The vast majority of goods going across the Canadian and Mexican borders are moved by truck. On an annual basis, NAFTA trade supports about $6.6 billion in revenue for the trucking industry and about 31,000 truck driver jobs. Costello also noted that another factor is whether carriers can find enough drivers to meet freight demand. The industry was short about 50,000 drivers in 2017, and that number could rise to 175,000 by 2026. The ATA estimates that driver turnover at big carriers was 87% last year. By comparison, the turnover rate at companies that move smaller loads and parcels packages, was only 9%, likely due to the fact that those drivers make more money and are home more often. Several other factors also bode well for the industry:

  • Freight volume continues to rise. So far in 2018, the total number of loads is up 5.4% compared with the same period a year ago.
  • The number of miles driven per load continues to decrease for full truckload carriers. The average miles driven per haul fell 34% last year to 524 miles, down from nearly 800 miles about 15 years ago.
  • Sales of trucks in the heaviest Class 8 weight segment continue to be strong as demand grows from both leasing companies and motor carriers. ACT Research estimates that manufacturers will receive orders for 305,000 Class 8 trucks this year, a 19% gain from 296,440 vehicles in 2017.
  • Contract and spot freight rates continue to soar. The contract rate average revenue per mile rose 3.5% in 2017. Through the first two months of this year, contract freight rates have jumped 15% per mile.

VW Signals Possible Takeover of Navistar: On April 16, Bloomberg reported that Volkswagen AG’s heavy-vehicle division is open to a takeover of U.S. affiliate Navistar International Corp. as the German company seeks scale to compete with global leaders Daimler AG and Volvo AB. At a Munich press conference held in April, Matthias Gruendler, the Chief Financial Officer for Volkswagen Truck & Bus, indicated that the company might consider increasing its existing stake of just under 17% of Navistar, but also suggested that could trigger a mandatory takeover offer. Although Volkswagen Truck & Bus will be changing its structure to access capital markets in about a year, any purchase could be funded by the Volkswagen parent and not depend on an initial public offering that the truck unit is considering. Gruendler outlined a potential takeover cost of about “$3 billion to $4 billion,” but did not specify dollars or euros. While he declined to comment on a possible time frame for a deal, he said cooperation between the manufacturers is developing well. At the press conference, Andreas Renschler, head of Volkswagen Truck & Bus, also outlined global growth plans that included adding sales in China. The revamp of the heavy-vehicle division marks the most significant structural shift so far for Volkswagen as the world’s biggest carmaker retools for massive change across its industry.

As a result of the news, Navistar shares jumped 7.3% to $39.75 before regular trading in New York. Three days prior, as of April 13, the stock was down 14% for 2018, for a value of $3.7 billion. Volkswagen shares fell 1.3% to 175.02 euros in Frankfurt. That pared the stock’s gain this year to 5.2%, valuing the German company at 87 billion euros ($108 billion).

Canadian Government Publishes Final Rule on Greenhouse Gas, Glider Kits: On May 30, the Canadian Office of Environment and Climate Change published a final rule on GHG regulations pertaining to heavy-duty trucks and engines. The publication provides updated regulations on glider kits, which are new trucks manufactured without engines or transmissions that are then refitted with older engines. According to the final rule, glider kits are allowed as long as one of the following conditions is met:

  • The engine has not reached the end of its useful life since it was manufactured.
  • The engine has accumulated less than 100,000 miles.
  • The engine is at least as recent as the 2010 model year and less than three years have passed since the engine’s original date of manufacture.

The new rule builds on the Heavy-duty Vehicle and Engine GHG Emission Regulations published in March 2013. The objective of the regulations is to reduce GHG emissions in Canada from new on-road heavy-duty vehicles, engines and trailers by establishing more stringent emission standards to combat the effects of climate change. The amendments also align with U.S. GHG emission requirements to minimize the overall regulatory burden for companies operating in the Canada-U.S. market.

Transport Canada, the country’s department of transportation, considers glider kits to be “an assemblage of parts.” At the same time, Canada’s Motor Vehicle Safety Act defines a vehicle as “any vehicle that is capable of being driven or drawn on roads by any means other than muscular power exclusively, but does not include any vehicle designed to run exclusively on rails.” Because glider kits do not meet this definition, they are not considered vehicles. Don Moore, director of Government and Industry Relations at the Canadian Transportation Equipment Association (CTEA), explained that glider kits and their installation can be jurisdictionally tricky. He said original equipment manufacturers (OEM) tend to think of gliders as a “bunch of parts.” Because glider kits are not technically vehicles, they do not fall under Transport Canada’s jurisdiction. However, the manufacturer who builds the glider kit into a functioning truck is subject to the Motor Vehicle Safety Act and Transport Canada’s jurisdiction. “The problem is that the manufacturer typically doesn’t have the documentation to prove compliance with all Canada Motor Vehicle Safety Standards, such as seats, seat belts, glazing,” Moore said. “They have not done any testing, and the OEM is certainly not going to provide any of their documentation, since they consider that documentation confidential intellectual property.” As such, Moore said CTEA advises its vocational truck manufacturer members to avoid gliders because the kits are not certifiable to federal regulations.
Glider kits and emissions standards have also become subjects of contention in the U.S. Last fall, Environmental Protection Agency (EPA) Administrator Scott Pruitt proposed repealing an Obama administration regulation that would limit the number of glider kits manufactured each year. The provision, included in EPA’s 2016 Phase 2 heavy-truck GHG rule, limits the number of non-emissions-compliant gliders built by each company to 300 a year and requires gliders beyond that number to be certified as emissions-compliant for the model year they are built. Several members of Congress, both Democrat and Republican, have asked Pruitt to drop his proposed repeal.

Daimler to Open Automated Truck R&D Center: On June 6, 2018, Daimler Trucks announced the creation of an Automated Truck Research and Development Center, which will be located at its new headquarters in Portland, Ore. The new center will be dedicated to further developing automated driving technology and understanding its impact on society as well as the benefits for customers. It will be part of a global network, including R&D centers in Stuttgart, Germany, and Bangalore, India. Hundreds of engineers at those locations will be dedicated to the topic of automated driving. “We are pioneering technologies across the automated vehicle spectrum that make roads safer and help trucking companies boost productivity,” said Sven Ennerst, head of truck product engineering, global procurement, and Daimler Trucks China. “This center of excellence is part of our global innovation network and supports the Daimler Trucks philosophy of rigorously testing new technologies, ensuring systems are developed safely, and functionality is fully validated before it is released to customers.” Daimler, however, pointed out it doesn’t believe driverless – or fully autonomous – trucks will replace drivers anytime soon. Nevertheless, the technology, it claims, can benefit fleets and help them meet ever-increasing freight demands as the ability to attract and retain quality drivers remains a challenge. The new research center will focus on all aspects of development, testing, and validation of high levels of automation. “Our approach to developing highly automated driving technology will draw upon our proven expertise and long history of commercializing safe, reliable, and fully integrated commercial vehicles,” said Roger Nielsen, president and CEO of Daimler Trucks North America. “We are again aiming for a fully integrated, proven Daimler solution that will provide the best tool for our customers’ needs. We can accomplish this with a combination of vehicle road testing over millions of miles around the globe and advanced simulation. The global collaboration that takes place among research and development teams at Daimler extends to vans, buses and passenger cars, and each advancement is a building block for the future of automated vehicles.”

Trends in Used Equipment Values
According to truck dealers and industry data, a surge in freight is fueling robust sales of used trucks. Sales of used trucks in the heaviest Class 8 weight segment rose 9% in April, compared with the same month last year. “Used truck sales rose to 22,900 in April, up from 21,000 a year earlier”, said Steve Tam, vice president of ACT Research, the recognized leading publisher of commercial vehicle industry data, market analysis and forecasting services for the North American market. “It’s not going to be a runaway year, but we will probably end it with a 5% increase in used truck sales compared with 2017,” Tam told Trucks.com. According to the ATA, the amount of freight hauled by the trucking industry surged 9.5% in April compared with the same month last year, the largest year-over-year increase since October 2017. According to DAT Solutions, which tracks freight and rates, there are about 6.6 loads for every available truck trailer. A year ago, there were 3.5 loads per every van. That’s sparked a buying spree for both new and used trucks. Truckers are buying used trucks as truck manufacturers struggle to keep up with the demand for new trucks and delivery dates, which are stretching out into next year for some models, Tam said. The volume of trade-ins was lower than expected, which led to stronger used truck prices in April, according to the latest used truck report by J.D. Power. The average price for a used 2015 big rig with a sleeper was about $45,500, up 11.7% from March. The report also indicated that in the first four months of 2018 trucks four to six years old sold for 20% more than they did during the same time frame in 2017. However, price increases are likely to fall as more new trucks are delivered to fleets, increasing the inventory of older models, analysts said. J.D. Power expects the supply of used trucks to increase noticeably during the second quarter.