industry review · 2019. 11. 13. · current market conditions • headwaters of demand stream...

Industry ReviewEconomics, Transportation

&Commercial Vehicles

ACT Research StaffWebinarNovember 12, 2019

Webinar Overview• Introduction - Steve Tam• Economy - Sam Kahan• Freight Transportation - Tim Denoyer• Class 8 – Jim Meil• Used Trucks/Classes 5-7 - Steve Tam• Trailers - Frank Maly• Q&A/Wrap-up - All

2

Economic Overview• U.S. economy decelerating but will avoid recession

• Manufacturing and Transportation most vulnerable sectors

• More downside risks than positive surprises

• Sentiment, consumer and business, are the key variables to watch

• Federal Reserve policy measured, moderate, and comfortable

6

U.S. Real GDP (2014 – 2021)(% change, annualized)

GDP growth:2018 = 2.9%2019 = 2.3%2020 = 1.7%2021 = 1.7%

GDP: Consumption strong, trade deficit drag. Business investment positive even as it slows.

Vulnerable sectors: Manufacturing, freight, retail, housing.

7

-1.5-1.0-0.50.00.51.01.52.02.53.03.54.04.55.0

-1.5-1.0-0.50.00.51.01.52.02.53.03.54.04.55.0

Percent

real GDP

forecast

lower bound

upper bound

Trend(10-17)

Consumer Price Index (Total, Core) (2015 to 2021),(% Change, Y/Y)

Headline inflation likely to be below the 2% mark, (Q/Q) while core rate (Q/Q) is above 2%.

Swings in energy and commodities are major source of price volatility.

Tariffs are likely to impact numbers in Q4’19 and early 2020.

Wage increases moderate and manageable.

8

Federal Funds Rate(2015 – 2020)

Federal Reserve Policy moderate and measured

FOMC policy has been to ERR on the side of caution. Currently comfortable with its stance.

Current fed funds target is 1.75% to 1.50%

Steady policy unless a significant weakness occurs. FOMC won’t tighten until inflation is over the 2% benchmark and economic activity robust.

9

Volatility at Work• Figuring out direction of economy in coming weeks difficult because of

volatility

• Some accommodation about Tariffs, is on horizon, but, in our opinion, will only be a partial one. Trump speaks tonight; what he says about Phase 1 is important.

• Economic up and down. October Industrial Production will drop -0.5% but with GM settlement will jump in November.

• Tariffs imposed in early 2019 should soften economic activity and raise prices but then reverse in mid 2020.

• Brexit postponed to January is good; but uncertainty is still there, not so good.

10

Freight DemandFreight still in recession, separating pre-ship noise

Signs of broadening freight downturn

Key Factors: trade, manufacturing, inventories and private fleetsNear-term outlook for pre-tariff inventory build, payback early-2020

Downtrends tend to last 1-2 years; this one started late-2018

Trade war a key risk to the forecast, raising 2020 recession risk

11

Consumers Still Looking Good

Confidence a little shakier recently, but spending trends healthy

12

Freight Intensive Sectors Lose Traction

-20

-15

-10

-5

0

5

10

15

20100

150

200

250

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Y/Y % Chg.Index

Source: Federal Reserve Board, ACT Research Co., LLC: Copyright 2019

January 2005 - August 2019

S&P Case-Shiller 20-City Housing Price IndexIndex: January 2000=100

-4

-2

0

2

4

6

90

95

100

105

110

10 11 12 13 14 15 16 17 18 19

Y/Y % Chg.Index

Source: Federal Reserve, ACT Research Co., LLC: Copyright 2019

January 2010 - September 2019

Industrial Production Index: ManufacturingIndex 2008 = 100 SA

13

Freight Recession Worsening?

Q4 should end down less than this on GM restart, but…

14

1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19TD*Intermodal 2.6% 5.3% 6.2% 6.6% 5.5% 5.3% 4.8% 3.6% -1.3% -4.6% -4.7% -6.8%Chemicals 0.6% 4.2% 2.3% 2.3% 1.7% 3.5% 6.1% 4.3% -0.3% 1.1% -2.3% -3.3%Metals 8.7% 12.0% 9.8% 8.7% 2.8% 5.1% 5.2% 5.4% 0.7% -2.1% -4.6% -12.6%Automotive 1.1% -0.5% -6.4% -1.7% -4.6% 0.7% 4.0% 0.1% -1.9% 0.1% -0.4% -12.4%Petroleum -7.7% -6.9% -6.7% 8.2% 6.4% 16.4% 35.8% 29.0% 18.8% 24.2% 9.8% 1.4%Minerals/Sand 13.7% 17.1% 14.4% 17.1% 3.4% 6.3% -1.9% -11.3% -5.8% -9.7% -4.4% -5.5%Paper/Lumber -3.8% -0.6% -0.5% 1.3% -0.8% 4.5% 5.4% 1.2% -0.8% -4.9% -8.2% -7.1%Grain/Food 4.0% 7.5% -9.3% -6.9% -5.3% 3.4% 6.8% 0.2% -1.7% -1.0% -3.4% -3.2%Coal 14.3% 17.2% 1.6% -3.9% -2.4% -1.0% -3.1% 2.0% -6.4% -0.9% -8.7% -13.3%Total 4.3% 6.7% 3.0% 3.5% 2.0% 4.2% 4.4% 3.0% -1.5% -2.4% -4.2% -7.2%Carloads, ex-Intermodal 5.8% 7.9% 0.3% 0.9% -1.0% 3.2% 4.0% 2.5% -1.6% -0.5% -3.8% -7.6%Source: Company reports; ACT Research Co. LLC. Copyright 2019

*Through w eek 44

y/y % changeNorth American Rail Volumes by Segment

Freight Recession Still Not Over

July/August respite fades in Sept/Oct; partly GM strike

-20

-10

0

10

20

2011 2012 2013 2014 2015 2016 2017 2018 2019

% chg, y/y, 4wma

North American Railroad Volumes

Total Intermodal Metals & Chemicals

Source: Association of American Railroads, ACT Research Co., LLC: Copyright 2019

2011 - 2019 (Week 44)

-15

-10

-5

0

5

10

15

20

09 10 11 12 13 14 15 16 17 18 19

LTL Tonnage, Y/Y %

Cass Shipments Index, Y/Y %

Source: Cass Information Systems, Company reports, ACT Research Co., LLC: Copyright 2019

January 2009 - October 2019

LTL Tonnage and Cass Shipments Index

15

TL Loads Boosted By Pre-Ship, Low Cost

Pre-tariff shipping helped Q3, hangover in early-2020With big trade caveat, freight should stabilize/grow in 2020/2021

-30

-20

-10

0

10

20

30

40

400

600

800

1000

1200

1400

1600

1800

2000

2200

2400

10 11 12 13 14 15 16 17 18 19

Y/Y % Chg.TEUs (000s)

Y/Y % Change

Import TEUs (000s)

Import TEUs, SA (000s)

Source: ACT Research Co., LLC: Copyright 2019


N.A. Ports: Inbound Loaded Containers

Note: Port of Vancouver added in 2013 and Lazaro Cardenas added in 2015. Y/Y changes are adjusted to normalize.

16

Freight Hauling Supply & RatesClass 8 tractor build near historic records

Active truckload fleet +7% y/y, will be +12% 2-yr stacked in Q1’20Record September US Cl8 tractor retail sales

Orders are down, but production and sales response lagging, so capacity rebalancing has yet to begin

Carrier profits still elevated but under increasing pressureSharply lower tractor sales and ongoing consumer growth support mid-

2020 spot rate upturn

17

Active Class 8 Tractor Fleet

“We’re not an industry that deals well with prosperity.” – President and COO of Ruan, 3,700-tractor private TL, June 2019

Active tractor capacity up 10% from early 2018 - and still growing

Will still be up 5% y/y in Q1’20, on a +7% Q1’19 comp

18

Truckload Contract Rate Downturn Begins

Contract rates -2% in Q3’19 and getting worse by the day

-10

-5

0

5

10

15

20

$1.20

$1.40

$1.60

$1.80

$2.00

$2.20

$2.40

$2.60

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 42010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Y/Y % Chg.DollarsY/Y % Chg Total Revenue Per Loaded Mile, Net Fuel


Q1'10 - Q4'21 Forecast

TL Carrier Database: Total Revenue Per Loaded Mile, Net Fuel

19

Carrier Margins On the Precipice

Margins still at record levels; drop to 5%-6% range not too shabby

-200

-100

0

100

200

300

400

500

600

700

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 42010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Margin Y/Y, bp%Margin Change, Y/YNet Income Margin, Core CarriersNet income margin, core carriers, SA


Q1'10 - Q4'20

TL Carrier Database: Net Income Margin, Core Carriers

20

Bottoming Process Beginning

SLI showing less negative upturn off severe lows

-60

-40

-20

0

20

40

60

11 12 13 14 15 16 17 18 19

Y/Y % Chg.

DAT Spot Rates & ACT Spot Leading Indicator: Dry Vans (ex FSC)

DAT Dry Van Spot Y/Y % ChangeACT Spot Leading Indicator, advanced 3 monthsACT SLI 3MMA, advanced 3 months

Source: DAT Solutions, ACT Research Co., LLC: Copyright 2019

January 2011 - October 2019

21

Current Market Conditions• Headwaters of demand stream looking increasingly tired

• Order trend continues to deteriorate, but end in sight• Backlogs dropping ~18k/month through September

• Mid and downstream metrics at the precipice• Build rates hit cycle peak in June-July, wobbling by October• Retail sales remain strong; carriers still spending into year-end

• Relative measures heading in wrong directions• BL/BU from 11 to <5• IN/RS from 2 to ~3

22

Weak Orders, Falling Backlogs

Net Orders (thru Oct prelim)14,370 YTD monthly average

2

4

6

8

10

12

14

50

100

150

200

250

300

350

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

BL/BU Ratio (Months)Units (000s)BL/BU Ratio Backlog SA BL/BU Ratio



Total Class 8: N.A. Backlog & BL/BU Ratio

October BL Forecast: Prelim. NO less OEM BU plans = BL likely down to around 127k

23

A Different Look at Fleet Age MetricsUS C8 Tractor Retail Sales: Past 8 Years/Past 15 Years

1990 - 2024

ACT Research Co., LLC: Copyright 2019

90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 2448

50

52

54

56

58

60

62

64

66Percent

US C8 Truck Retail Sales: Past 10 Years/Past 20 Years

1990 - 2024


90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 2440

42

44

46

48

50

52

54

56

58

60Percent

• 2018-19 matches 2005-06 for record NA Cl8 tractor retail sales peak • Young fleet gives truckers latitude to stop buying• Vocational fleet well balanced across population distribution

24

Order Pullback Broad-based

Preliminary October NO: 22,200 units (17.9k SA)

0

2

4

6

8

10

12

14

16

18

10 11 12 13 14 15 16 17 18 19

Units (000s)Actual 6MMA



Class 8 Tractor with Day Cab: N.A. Net Orders

0

5

10

15

20

25

30

10 11 12 13 14 15 16 17 18 19




Class 8 Tractor with Sleeper: N.A. Net Orders

0

2

4

6

8

10

12

14

16

10 11 12 13 14 15 16 17 18 19




Class 8 Straight Truck with Day Cab: N.A. Net Orders

25

Big Holes Starting in Q1Class 8 Backlog Fill/OEM Build Plans

September 2019 EndingBuild Forecasts from Nov. Outlook


89.4 95.0 90.4

61.8

29.818.1 22.1

8.2

35.239.9 34.4

Q1 Q2 Q3 Q4 Q1 Q2 Q32019 2020

0.0

20.0

40.0

60.0

80.0

100.0Thousands

Built Filled Empty /Forecast

56.570.1 58.065.0

26

Build Makes the Turn

Orders estimated through Q4: assumed at 65k

5

10

15

20

25

30

35

40

45Units (000s)

Build Net Orders 12MMA



Total Class 8 N.A.: Net Orders 12 Mo. Avg. & Build

27

Qtly Fcst: Implied BuildBuild BUPD

Q1’19 89.4k 1,418Q2 95.9k 1,499Q3 90.4k 1,459Q4 70.1k 1,187Tot. 346k

Q1’20 65.0k 1,016Q2 58.0 921Q3 56.5 911Q4 54.0 915Tot. 234k

-50

0

50

100

400

600

800

1000

1200

1400

1600

10 11 12 13 14 15 16 17 18 19 20

Y/Y % ChangeUnits Per Day

Build/Day Y/Y % Chg.


January 2010 - April 2020

Total Class 8: N.A. Build Per Day

Large BL holes in Q1 suggest down days/weeks likely

28

U.S. CLASS 8 TRACTORS Retail Sales

January '10 - December '19f


10 11 12 13 14 15 16 17 18 190

5

10

15

20

25Units (000s)

Replacement2% GDP Fleet Grow th

First Rule of Holes: Stop DiggingRetail sales & Inventory sustained too high for too long

Replacement + New demand: ~13K u/m

0

1

2

310

20

30

40

50

60

70

80

90

10 11 12 13 14 15 16 17 18 19

IN/RS Ratio (Months)Units (000s)Inventory Inventory SA Retail SalesRetail Sales SA IN/RS Ratio IN/RS Ratio SA



Total Class 8: N.A. Inventory/Retail Sales Ratio

29

Inventory CycleIN Cycle Duration

INV Start

INV Peak

+Build/ Month

INV ending

Mos. Build/ Month

Cumm. Impact

94-9518 mos.

22k 40k 1,000/m47u/d

32k 8 1,000/m47u/d

2,000/m94u/d

98-0014

35 63 1,95091

32k 15 2,06096

4,010187

05-0614

53 71 1,30060

47 12 2,00093

3,300153

11-1213

39 59 1,55072

47 6 2,00093

3,550165

14-1515

52 71 1,40065

45 15 1,73080

3,130145

18-1916 (Aug)

54 86 2,00095

45-50 target

30

Getting the forecast right in 2020-2021Upside:• Highly desirable new equipment features (technology, FE)

Secondary market technology pull-through• Carrier profit trough at high ebb (it’s not that bad out there)

Downside:• Trade war(s) devolve US/NA/Global economies into recession

This is a fluid situation• Easing of regulations favors shippers (Personal Conveyance, HoS split-berth)

Timing: • Inventory & capacity equilibrium in Q4’20, then growth – speculative

31

Used Class 8 TrucksAverage retail at $51,500 in September

• -3% m/m, -2% y/y, +7% ytdMiles flat to down, age trending upInventory increasingSoft demand now limiting factor for salesExports remain subdued - slowing global economy, strong USD

• September -8% m/m, -6% y/y, -14% ytd

32

Pricing Start to Slide

-20

-10

0

10

20

30

40

10

20

30

40

50

60

09 10 11 12 13 14 15 16 17 18 19

Y/Y % ChangeTotal ($000)

Class 8: U.S. Used Truck Average Sale Price

Y/Y % Chg. Monthly 6MMA



-40

-20

0

20

40

6030

40

50

60

70

80

09 10 11 12 13 14 15 16 17 18 19

Y/Y % ChangeTotal Reported Price ($000)Y/Y % Chg. Monthly 6MMA



Class 8: U.S. 4 to 5 Year Old Used Truck Average Sale Price4 to 5 year old, 400-500,000 miles legacy

33

Miles Flat to Down/Age Creeping Up

-20

-10

0

10

20

350

400

450

500

550

600

650

09 10 11 12 13 14 15 16 17 18 19

Y/Y % ChangeTotal (000s)

Class 8: U.S. Used Truck Average Miles

Y/Y % Chg. Monthly 6MMA



72

78

84

90

96Total (Months)


January 2009 - September 2019Class 8: U.S. Used Truck Average Age

34

Exports Subdued

13.514.4

15.0

22.1

15.4

11.813.0

22.7

16.4

14.5

0

5

10

15

20

25

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19Source: ITC, ACT Research Co., LLC: Copyright 2019

2010 - 2019(Actual through September 2019)

Used Class 8 Tractor Exports

Units (000s)

35

Medium DutyBL/BU ratio moderatingIN/RS ratio on target; inventory rolls over

• OEM build peaking− Q1’19 = 1,108, Q2’19 = 1,218, Q3’19 = 1,170, Q4’19 = 1,038

Market will see sales growth in 2019, build flat on inventory draw downKey MD truck demand drivers staying between the lines:

• Consumer confidence lower but remains elevated− Confident consumers are more willing to spend

• Construction (resi/non-resi) and light truck and automotive markets are especially important to MD trucks; slowing growth/contraction in 2019 will be partially offset by services spending and e-commerce

• State and local governments exhibiting moderate growth

36

N.A. Classes 5-7 Order Distribution(Data through September 2019, annualized)

Classes 5-7 Orders

Truck (000s)

Bus (000s)

RV (000s)

Total* (000s)

Past 12 Mo. 193.9 41.3 17.3 262.1

Past 6 (AR) 173.7 43.0 15.1 241.8

Past 3 (AR) 164.6 35.8 12.8 221.9

September (AR) 160.5 43.1 11.3 222.3

Sep SAAR 220.5

Oct (P) SAAR 175.7* Total includes Step Vans

37

Backlog/Build Pressuring Diminished

1234

30

40

50

60

70

80

90

100

10 11 12 13 14 15 16 17 18 19

BL/BU Ratio (Months)Units (000s)BL/BU Ratio Backlog SA BL/BU Ratio



Total Classes 5-7: N.A. Backlog & BL/BU Ratio

38

Inventory Persistently High, But In Bounds

1

2

3

4

10

20

30

40

50

60

70

80

10 11 12 13 14 15 16 17 18 19

IN/RS Ratio (Months)Units (000s)IN/RS Ratio Inventory Retail Sales SA IN/RS Ratio



Total Classes 5-7: N.A. Inventory/Retail Sales Ratio

39

50,000

100,000

150,000

200,000

250,000

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000Cl 5-7 Truck Sales (SAAR)Light Vehicle Sales (SAAR)

Source: ACT Research Co., LLC, MOTOR INTELLIGENCE

Light Vehicle Sales vs. Cl 5-7 Truck Sales

LIGHT VEHICLE RS Cl 5-7 TRUCK RS Poly. (LIGHT VEHICLE RS) Poly. (Cl 5-7 TRUCK RS)

40

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20RV 12 12 13 15 17 18 21 22 22 15 17Bus 27 27 32 34 37 38 41 43 43 43 45Truck 79 127 143 153 172 181 171 184 208 224 196Total 119 167 188 202 227 237 233 249 273 282 258

119

167188

202227

237 233249

273 282258

0

50

100

150

200

250

300Units (000s)


2010 - 2020

N.A. Classes 5-7 Production

41

U.S. Trailer Market Update

• Order season has started• Lackluster interest

• So different than a few of quarters ago• Cancel volume still surprising• Build rates strong…well above order intake • Factory inventory only slightly below late summer record• No comments heard on red-tags• Market pressures…pendulum swings to “advantage fleets”

42

A Slow Order Season Underway

• Fleet financial headwinds

• Significant capacity increases

• Serious review of equipment needs

• Following seasonal patterns, but more like 2016

0

10

20

30

40

50

60

J F M A M J J A S O N D

Uni

ts in

‘000

s

SEPTEMBER 2019NET TRAILER ORDERS

18,629 UNITS

2019 2017 2018

Source: ACT Research Co., LLC Copyright 2019

43

A Slow Order Season Underway

• Fleet financial headwinds

• Significant capacity increases

• Serious review of equipment needs

• Following seasonal patterns, but more like 2016

0

10

20

30

40

50

60

J F M A M J J A S O N D

Uni

ts in

‘000

s

YTD SEPTEMBER NET TRAILER ORDERS

2016 – 135K2019 – 136K

2016 2019

Source: ACT Research Co., LLC Copyright 2019

44

Backlog Finally Breaks into 2020

• BL edged into 2020 in July• Closed Sep just into Feb’20• 2019 production schedule

continues to churn• Fleets know 2020 slots

available• Component pressure?

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Materials

Sep'19Aug'19Jul'19

Jun'19May'19Apr'19Mar'19Feb'19Jan'19Dec'18

U.S. Total Trailer Backlog in Months

45

BL/BU Almost Continually Shrinking

• BL now shortest since Sep’17

• Orders must surpass build rate to stop decline

• Or… production must ease• BL basically at component

lead times0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Materials

Sep'19Aug'19Jul'19

Jun'19May'19Apr'19Mar'19Feb'19Jan'19Dec'18

U.S. Total Trailer Backlog in Months

Months

46

Orderboard Now Declining Y/Y

-50%

-25%

0%

25%

50%

75%

100%

125%

-

50

100

150

200

250

300

350

Thou

sand

s

Y/Y%Ch (Right) Backlog (Left)

• July was first Y/Y BL decline since Fall’17

• Expect further declines as year closes

• Softening pressure on parts/materials availability

• Potential price pressures

• Advantage - Fleets

47

Production Will East Into Q1’20

• Standard Pattern• Lower rates• Days/Shifts• Staffing last resort

• Early y/y 2020 comps will be weak

• Waiting order support

-40

-20

0

20

40

60

80

100

120

250

500

750

1000

1250

1500

10 11 12 13 14 15 16 17 18 19 20

Y/Y % ChangeUnits

Total Trailers: Build Per Day

Build/Day Y/Y % Change


January 2010 - March 2020Year Over Year Percent Change

48

2020 Forecast Lower, but Still Solid

• 2019 projected at all-time record

• 2015-2019 were 5 of Top 6• 2000-2009 Avg 194k• 2010-2019 Avg 261k• 2020 #12, but at the 2010-

2019 avg '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20Dry Vans 62 120 128 135 155 181 181 183 194 203 160Reefer Vans 28 34 34 36 39 47 47 43 46 50 41Flatbeds 8 15 24 22 26 31 20 24 35 32 23All Others 29 39 45 42 48 50 40 42 48 47 41Total 127 209 231 235 268 308 288 291 323 333 265

127

209231 235

268

308288 291

323 333

265

0

50

100

150

200

250

300

350Units (000s)


2010 - 2020

U.S. Trailer Production

49

Build Forecasts

2016 2017 2018 2019 2020

NA Class 8 (000s)

228.3 255.6 324.5 345.8 233.5

NA Classes 5-7 (000s)

232.9 248.7 272.7 281.6 257.6

US TrailerTotal Trailers (000s)

287.5 291.0 323.0 332.8 265.2

50

4440 Middle RoadColumbus, IN 47203

[email protected]

812.379.2085

mailto:[email protected]

https://www.facebook.com/actresearch/

https://www.linkedin.com/company/act-research-co-llc/?viewAsMember=true

https://twitter.com/actresearch

https://twitter.com/actresearch

https://medium.com/@actresearch

https://actresearch.tumblr.com/

industry review · 2019. 11. 13. · current market conditions • headwaters of demand stream...

Documents