Falling tariffs, moderating truck prices along the way: ACT Research
Everything comes to an end, and that should be true for everything from high freight rates to high truck prices in the months ahead.
Spot rates are currently in free fall, Tim Denoyer, vice president and principal analyst, observed during a presentation at Seminar 67 in Columbus, Ind. Freight volumes are also relatively flat or down slightly in the face of pressures including inventory replenishment and inflation.
“A freight recession has begun,” ACT Research president and principal analyst Kenny Vieth said, forecasting freight to contract 3.2% next year, after rising 11% in 2021 and 2% this year.
He predicts excess capacity in the trucking industry in 2023, thanks to factors such as strong Class 8 manufacturing volumes and declining freight volumes. The driver shortage is also expected to reappear at the end of next year.
“It’s not good, but it’s not horrible either,” he said of the outlook. Revenue per mile will drop, but remain at “really good” levels.
Lower contract prices
The change in spot rates is expected to lower contract prices over the coming year, he added, noting that many of the current contracts last three to six months. But that compares to double-digit increases seen in 2021 and high single-digit increases in 2022.
ACT Research predicts a modest freight slump through 2022 and 2023, before things begin to pick up in 2024 and 2025. Declining new truck volumes and increasing freight demand should support the eventual recovery .
Employment in truck transportation also rose 4.8% year over year.
Between January and February, talk went from a shortage of drivers to “what a shortage of drivers,” Vieth said. “It’s not that hard to find drivers these days.”
“Larger fleets have a bit more time with driver availability,” Denoyer agreed, “but smaller fleet failures are on the rise.”
Underlying this is the challenge of a growing share of the working population approaching retirement age. “It will be harder to fix,” he said.
The intermodal freight market is also changing.
While the Port of Vancouver remains busy, only nine ships were waiting off the coast of Southern California on Thursday. More marine intermodal freight moved to the east coast, where 44 ships were waiting to unload in Savannah, Georgia.
But the shipping costs also drop, even if it is high season for this kind of work.
“Intermodal spot rates are also decreasing,” Denoyer said.
“There is a small shift in modal share that is likely to occur over the next couple of years as the railways work through the issues they have had,” Vieth predicted, referring to factors such as a shortage of frames.
For truckers, however, much of the attention has been on the truck shortage – and its related impact on list prices.
Vieth expects pent-up equipment demand to continue through 2023, supported by factors such as carriers’ unprecedented earnings and profitability.
Manufacturers continue to be judicious when it comes to increasing their order books, and few orders placed are cancelled, he said.
“Stocks are lean.”
ACT Research also expects the North American market to grow to 390,000 Class 8 trucks in 2026, as fleets purchase trucks in advance to avoid higher costs associated with emissions standards. forthcoming from the California Air Resources Board (CARB) and the US EPA. Volumes would then plunge to 216,000 units in 2027.
Used trucks have actually fetched higher values at auction than when the equipment was new, said Steve Oliver, national sales manager at auctioneers Taylor and Martin.
ACT Research vice president Steve Tam has seen three-year-old trucks sell for as much as $175,000. “Stupid money,” he said of the used equipment market. “If you were going to buy a truck today, you would pay less than you did last month.”
Still, used truck values are expected to stabilize at levels well above traditional levels, Vieth said.
“There is a higher floor on used vehicle prices.”
Many new players entering the trucking industry have caused used equipment prices to skyrocket over the past two and a half years, Oliver added. But, like Vieth, he expects those same buyers to leave the business in the face of rising fuel prices and falling rates.
“The industry has become very inhospitable to new entrants,” Denoyer said.
Truck dealers, facing equipment shortages, have also turned to auctioneers. They accounted for 26% of Taylor and Martin’s revenue in 2020, but reached 39% of sales in 2021 and 44% in the first seven months of 2022.
“We struggled to keep up,” Oliver said, noting how quickly equipment prices changed due to demand.
The auction house usually prices the equipment based on what they can expect to order within 30-45 days. In 2021, the bulk sold for 126% of estimates – even though those sales are usually just over 103% of estimates.
The average tractor was auctioned for US$70,203 in the first quarter of 2022 and $52,316 in the second. Trailer prices also fell, averaging $31,897 in the first quarter and $27,098 in the second.
“There is a very strong relationship between the new truck market and the used truck market,” Tam said, noting that the used truck market is shrinking. “We’re coming down the back of this wave right now and it’s been quite a ride.”
Higher prices to come
But other factors will drive up new truck costs in the near future, including more stringent California Air Resources Board (CARB) and US Environmental Protection Agency (EPA) emissions standards, as well as warranty requirements. related.
“We think the OEMs are probably going to ask for some of that, plus the new technology, so you’re looking at $15,000,” Vieth said.
CARB assumes its modifications will cost around $1,400; the EPA provides $2,000 to $3,000.
Time will tell which estimate turns out to be accurate.