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Trucking Industry Insight | Summer 2021


This document focuses on a number of topics that pertain to the trucking industry as a whole, including the Senate’s push to repeal the excise tax on new trucks, factors contributing to the driver shortage, top concerns among drivers, challenges in meeting the demand for Class 8 trucks, and the Senate’s passage of the $1 trillion infrastructure bill in August. It also includes a brief summary of trends in used equipment values.

Hot Topics
U.S Senators Push to Repeal Excise Tax on New Trucks: Two U.S. senators, Ben Cardin (D-Md.) and Todd Young (R-Ind.), have proposed repealing the excise tax on new trucks as an effort to modernize the freight industry. Specifically, they’ve introduced the bipartisan Modern, Clean and Safe Trucks Act of 2021, which would repeal the 12% federal excise tax on new truck and trailer purchases. This tax is currently among the highest percentage excise tax levied on any product and has been in place for more than a century.

“Our tax policy is one of the most effective ways Congress can encourage cleaner and greener technology. The current federal excise tax has become a barrier to the progress,” said Cardin in a joint statement on July 22. “Our legislation will spur growth and competitiveness while making our roads safer and less polluted.” “It’s time to repeal this outdated and onerous tax on our Hoosier truckers,” added Young. “Our bipartisan bill will open the floodgates to investment in safer and cleaner trucks and trailers that will benefit our economy and the environment.”

Key stakeholders also have expressed support for repealing the tax, citing industry analysts who have determined that the World War I-era excise tax is capable of adding about $21,000 to the cost of a new truck or trailer. “Cummins supports Senators Young and Cardin’s effort to repeal the outdated and burdensome federal excise tax on heavy duty trucks. This tax penalizes those who want to adopt the cleanest, most advanced technologies to reduce emissions and improve safety, and repealing it will help ensure the most efficient technologies are being deployed. We applaud Senators Young and Cardin’s leadership on this issue important to the environment, our customers and our communities,” said Jennifer Rumsey, president and chief operating officer of engine maker Cummins Inc., in a statement that accompanied the senators’ announcement.

Driver Shortage Linked to Lifestyle Concessions: According to Bob Costello, American Trucking Association’s chief economist, the persistent truck driver shortage is a complicated issue tied in part to quality-of-life considerations. Costello noted that the trucking industry needed an additional 60,800 truckers in 2018, a shortfall that is expected to grow to 105,000 drivers by 2023 unless recruitment efforts improve. On July 20, at a meeting of the Federal Motor Carrier Safety Administration’s (FMCSA) Motor Carrier Safety Advisory Committee he identified various factors that are worsening the driver shortage. Those factors ranged from lifestyle issues to the pandemic’s adverse effect on departments of motor vehicles and driver schools.

According to Costello, in 2020 turnover rates for large truckload drivers were 90% for on-the-road operations, versus 20% for local operations. Contributing to the turnover are a number of other factors, including driver treatment by shippers, receivers and fleets. In addition, fleets will try to recruit each other’s drivers, sometimes offering the opportunity to drive new trucks. Another factor associated with the driver shortage is FMCSA’s Drug and Alcohol Clearinghouse, a database of information on commercial driver license holders’ drug and alcohol violations. Many truckers who have been issued drug violations have not started the procedures necessary to re-enter the industry.

“In today’s market, freight is good,” Costello said. “There’s a lot of freight out there. Rates generally are up. I don’t know of a trucking company that doesn’t want to grow their fleet in that environment. They’re actually contracting.” To explain this contraction in fleet equipment, he suggested that fleets are having difficulty adding drivers and selling parked trucks. He also said equipment has been leased on independent contractors going to the spot market.

Equipment & Compensation Remain Top Driver Concerns: According to data gathered by the Professional Driver Agency (PDA), for the sixth consecutive quarter equipment continues to be the top concern among professional truck drivers. As in the two previous quarters, the two concerns most often mentioned by drivers were equipment (34%) and compensation issues (24%). “For the sixth quarter in a row, equipment and compensation issues continue to be the top driver issue,” said Scott Dismuke, PDA’s director of operations. The fact that these two issues are at the top is not an anomaly. As we have examined the data, drivers that experience equipment issues, also experience compensation issues weeks later as a result of being in the shop.” Dismuke noted that while pay, home time, and driver respect get most of the attention when it comes to driver feedback, equipment issues are proving to be a key retention factor for carriers trying to keep drivers. “If a driver is consistently in the shop for breakdowns, they are not logging miles,” said Dismuke. “If they are not logging miles, then they are not making the pay that a company promises. If they are not making the pay being promised, they are receiving multiple calls from recruiters each day trying to lure them away.”

Operations issues were third on the list of driver concerns for the fifth straight quarter. Driver feedback about operations continues to center on driver/manager communication issues. Dismuke noted that communication issues have spiked over the last three quarters and will continue to be a key to retaining drivers in this market. Communication issues are up 15% since the fourth quarter of 2020. “As we have said previously, for drivers, communication is about respect,” Dismuke said. “Whether it is pay, home time or responding to a driver’s questions, keeping drivers in the communication loop and responding to them goes a long way to relieving driver frustration.” “Those carriers that proactively communicate with their drivers, attempt to reduce frustration and minimize a driver’s time in the shop are the best prepared to keep drivers during this time.” Dismuke stated that PDA continues to see driver churn that was present in the first quarter. As long as freight remains strong and the driver market remains tight, the PDA expects that trend to continue for the foreseeable future.

July Class 8 Truck Orders Trail Demand: In July, Class 8 truck orders significantly trailed the demand for new equipment as manufacturers overcome by supply shortages cannot build enough trucks. According to ACT Research, preliminary North America net orders totaled 25,800 units, unchanged from the 25,809 orders booked in June. “In 2018, there was an explosion of orders across the industry, as dealers raced to get their places in rapidly growing out-year backlog queues,” said Kenny Vieth, ACT president and senior analyst. Current demand, he said, is even higher than the summer months three years ago when orders surpassed 50,000 units in consecutive months.

Gross domestic product growth exceeding 6%, capacity constraints across multiple shipping modes, and near-record trucking freight rates are contributing to huge carrier profits. The shortage of new equipment has trickled down to the used market where prices are as much as 60% above a year ago for late-model, lower-mileage trucks. “While conditions are in place to sell out 2022 backlogs in a very short time horizon, the industry appears to be approaching order distribution much differently this year,” Vieth said. Manufacturers like Peterbilt and Kenworth parent PACCAR Inc. are sold out for 2021 and having conversations with key customers about what they can reasonably expect for production in 2022.

According to PACCAR CEO Preston Feight, an undersupply of semiconductor chips remains a major issue that has led to holding 6,500 trucks for completion when parts become available. “We have about 1.6 months of inventory at the dealers,” Feight said. “And I think the industry is 1.9 or 2 months of inventory, so that bodes well for a strong extended demand cycle.” Daimler Truck and Volvo Group both indicated more semiconductor-related shortages could lead to downtime in the second half of the year, similar to that experienced in the first half. “With this great demand, great market, customers are looking for trucks as quickly as they can get them. And we’re building as quickly as we can get them,” Feight said.

Trucking Industry Applauds Passage of $1 Trillion Infrastructure Bill: On August 10, the U.S. Senate approved legislation aimed at modernizing the country’s mobility networks, freight corridors and transit systems. After weeks of bipartisan negotiations, senators voted 69-30 to pass the Infrastructure Investment and Jobs Act, a $1 trillion measure consisting of President Biden’s infrastructure and climate change proposals from his “build back better” agenda. The legislation would dedicate about $550 billion in new funds to improve highways, bridges, tunnels and a transportation system in need of major upgrades, according to the American Society of Civil Engineers.

The bill would devote about $100 billion for roads and bridges, $66 billion for freight and passenger rail, $65 billion for broadband internet, $46 billion for severe weather-resilience, or climate change, operations, $39 billion for transit and $25 billion for airports. Key freight stakeholders have praised the Senate’s work on the infrastructure legislation. American Trucking Associations President Chris Spear noted, “Americans, and the hardworking men and women who carry this economy on trucks, have waited long enough for Washington to act on our decaying infrastructure.”

Regarding trucking policy, the legislation would approve an apprenticeship for truckers younger than 21 to operate commercial vehicles interstate, as well as establish a truck-leasing task force. It would also direct the secretary of transportation to further research side-underride guards for commercial vehicles, require the U.S. Department of Transportation to analyze the effectiveness of electronic logging devices, and require certain commercial motor vehicles to be equipped with an automatic emergency braking system. Additionally, the bill would reauthorize the premier federal highway law, which expires at the end of September. The bill would be funded, in part, by unused federal pandemic emergency aid, as well as certain tax enforcement measures. In the latest report card issued by the American Society of Civil Engineers, the country’s infrastructure received a “C-” grade.

After the infrastructure bill’s passage by the Senate, Majority Leader Chuck Schumer (D-N.Y.) outlined a $3.5 trillion budget plan meant to set in motion debate on climate change and “human infrastructure” proposals. The budget plan, which us being criticized by Republican leaders, would require a simple majority to pass in the Senate. With the Senate’s passage of the infrastructure bill, it now advances to the House where its outcome is uncertain. Adding to that uncertainty is the fact that Speaker Nancy Pelosi (D-Calif.) said she intends to link the $3.5 trillion budget plan with the infrastructure bill when she kicks off the chamber’s legislative process on both matters.

Trends in Used Equipment Values
Prices for late model, low mileage vehicles have been rising due to limited inventories and buyers who continue to look for quality, rather than quantity. In fact, the average sales price for a used Class 8 vehicle sold in May set the all-time record, jumping ahead of April’s claim to that title, as the strong demand for trucks continues to outpace the available supply. The average price was $58,652 compared with $57,371 in April and $41,027 a year earlier, and experts believe it’s going to remain a very strong year for pricing. At the same time, the average 3-year-old used Class 8 sold for a record $95,562. It’s important to note that the average prices indicated above apply to Class 8 vehicles in general. Actual pricing can vary widely based on the condition, manufacturer, specific type of vehicle (e.g., sleeper trucks, day cabs, mixer trucks, concrete pumps, garbage trucks, etc.) and other specifications. With respect to dry van trailers in particular, Irontrax has observed that some used vehicles are transacting for more than new ones, due largely to limited supply. “I think we are starting to see the rate in the growth of pricing slowdown. But I think we will probably continue to see prices increasing through the remainder of this year just given all the underlying fundamentals or dynamics,” said ACT Vice President Steve Tam. “And so, we are just going to have to work through it. It was in June of last year when things started to take off.

On the new truck side, preliminary orders of Class 8 trucks took a relative breather in June with about 26,000 bookings, 11% more than May and 61% better than the COVID-impacted number in June a year ago. July orders were virtually unchanged, but rose 25% year-over-year. The issue holding back orders is that fleets know they cannot get delivery of the equipment until well into next year as manufacturers navigate supply constraints headlined by a critical shortfall of semiconductors critical to various operations. Still, the volume of orders in June and July is considered positive because they indicate the order cycle bottomed out at 24,000 orders in May. FTR, the industry source for Transportation Intelligence, expects a surge of orders when manufacturers start booking orders for 2022.