NA Heavy Class 8: Signs of Cooling in an Overheated Market?

Transcription

1 NA Heavy Class 8: Signs of Cooling in an Overheated Market? Kenny Vieth ACT Research Co. JOC Inland Distribution Conference October 6-8, 2015

2 Class 8 Market Conditions Positive alignment of HD demand drivers Fleet profits, still-old fleet, new truck MPG, driver shortage, CSA burden, credit availability, etc. But softness is becoming evident HoS productivity giveback, less pent-up demand, fleet growth above rate of freight creation Large OEM Build Plan misses past two mos. Maxim: Truckers use trucks to haul freight, Truckers buy trucks to make money 2

3 Little Demand-Side Growth in 2015 ATA Truck Loads Index (SA) January '09 - August'15 (2000=0) 115 Index YY% Chg. 1 ATA LOADS INDEX Source, American Trucking Associations, ACT Research Co., LLC: Copyright

4 But a Surge on the Supply-Side 22 Units (000s) U.S. CLASS 8 TRACTOR RETAIL SALES January ' - August '15 Sales above ~11,500 units/mo. represent U.S. tractor fleet growth Actual 6MMA & Fcst Replacement + 2% GDP Above ~13,000, fleet growth rises above freight requirements ~155k-160k AR 2015 is forecast to be the biggest-ever U.S. Class 8 tractor sales year: 208.2k vs k ACT Research Co., LLC: Copyright

5 More Capacity = More Competition U.S. Class 8 Implied Tractor Fleet Utilization Rate Fleet Utilization (%) July'15 Update HOS Fcst. More fleets driving more new trucks suggests a lesslucrative for-hire market: Target Utilization Rate: 90% Better utilization target? Or, will it be drivers who dictate capacity this cycle? ' ACT Research Co., LLC: Copyright

6 Orders Running Below Build (Data through August, annualized) (000s) Past 12 Mo. Orders: NA 8 (AR) Orders: NA 8 (SAAR) Build: NA 8 (AR) Past Past August

7 Tough Comps TOTAL CLASS 8: N.A. BACKLOG & BL/BU RATIO Units (000s) BACKLOG January ' - August '15 BL/BU RATIO (Right Axis) BL/BU Ratio (Months) Multi-year orders booked in Q4 14 suggest that stronger orders are likely to return in Q4 15 ACT Research Co., LLC: Copyright

8 Drag on Future Build TOTAL CLASS 8: N.A. INVENTORY/RETAIL SALES RATIO Units (000s) INVENTORY: Actual & SA January ' - August '15 IN/RS Ratio (Months) IN/RS up 30bps y/y to 2.5 months/53 days at robust August sales rate INRS = Inventory 2.2m = 59.6k 2.0m = 54.4k IN/RS RATIO (Right Axis) RETAIL SALES: Actual & SA ACT Research Co., LLC: Copyright

9 Other Demand Factors Trucker profitability Carrier profitability is a leading indicator of the start of a CV demand cycle Sadly, lagging indicator (coincident at best) on the downside Government regs Immediate: THUD 2-overnight provision of 34-hour reset from 2013 HOS Tandem trailer length law change: 28 to 33 Medium and longer-term rules with demand implications ELD, GHGp2, driver quality rules, CSA tweaks Used equipment Values Changes to the productivity trend Density, Utilization, Modal share 9

10 Carriers Buy Trucks to Make Money (and not pay so much in taxes) 7.0 % TL Carrier Database: Net Profit Margins SA Q1'96 - Q2'15 And fleet profitability is at best-ever levels ACT Research Co., LLC: Copyright 2015

11 Used Prices High but Cooling Used Class 8: Average Retail Selling Price January '- August '15 65 $(000s) per Unit Y/Y % Chg Monthly & 3MMA Used Price as a % of New Price Current value: 43.5% Median value: 36.3% A return to the valuation median would reduce average used truck prices by ~$k ACT Research Co., LLC: Copyright

12 Survey Says: Capacity Rising Faster Than Freight ACT For-Hire Truckload Survey Freight Index Less Capacity Index 75 Index January ' - August ' Improving Deteriorating J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N. ' '11 '12 '13 '14 '15-15 ACT Research Co., LLC: Copyright

13 Spot-Contract Gap Increase: Dry Van DAT Trendlines Dry Van Rate Gap: Contract Minus Spot January '09 - August '15 (2000=0) Rate Price Gap (in Cents) Falloff in spot rates occurring in a period of elevated tractor retail sales with more strong sales to come Source, Transcore Commercial Technology Group, ACT Research Co., LLC: Copyright

14 Summary 2016 another good year for freight, fleet profits but with softening for truckers accelerating by 2 nd half Rising domestic economic growth But strong US$, weak world economy, keeps overall growth spotty Lower energy prices likely to persist New truck purchases above the rate of economic growth will erode growth in contract freight rates by early 2016 When market does roll over, the need to pare inventory will create additional drag on production rates Still working through implications of GHGp2 (2021), but costs could be considerable depending on final rule 14

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