industry review - act research co., llc.- brexit • financial market and/or credit weakness •...

Industry ReviewEconomics, Transportation

&Commercial Vehicles

ACT Research StaffWebinarJanuary 14, 2020

Webinar Overview

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

2

Economic Overview

• US economy decelerating further, but recession avoided

• Manufacturing, Retail, Energy, and Transportation remain vulnerable

• Inflation: headline slightly below 2%; core slightly above 2%

• Federal Reserve comfortable with current policy of 1.50% to 1.75%

• List of risks and uncertainty long, but with low probability of occurrence

6

U.S. Real GDP (2015 – 2021)(% change, annualized)

GDP growth:2018 = 2.9%2019 = 2.3%2020 = 1.8%2021 = 2.0%

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

Vulnerable sectors: Manufacturing, freight, retail, energy.

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Percent

real GDP

forecast

lower bound

upper bound

Trend(10-17)

7

Non-Farm Employment (2015-2019)(Q/Q % annualized)

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2015Q4 2016Q2 2016Q4 2017Q2 2017Q4 2018Q2 2018Q4 2019Q2 2019Q4

% c

han

ge

Trucking

Manu

total employ

Since mid-2018 manufacturing employment has weakened. It turned negative toward end of 2019.

Trucking, with a lag, has followed suit.

Little, so far, to suggest that a recovery or even a flattening has occurred.

8

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

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

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

Tariffs are likely to impact price numbers in early 2020.

Wage increases moderate and manageable.

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

2014Q4 2015Q4 2016Q4 2017Q4 2018Q4 2019Q4 2020Q4 2021Q4

CPI

CPI,forecast

CPI,core

Core,forecast

2% Line

9

Federal Funds Rate(2015 – 2020)

Current fed funds target is 1.50% to 1.75%.

Federal Reserve Policy moderate and measured. Currently comfortable with its stance.

FOMC policy, if necessary, will tend to ERR on the side of caution.

Steady policy unless a significant weakness occurs. FOMC won’t tighten until inflation is over the 2% benchmark and economic activity robust.0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3.25

3.50

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3.25

3.50

Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20

Inte

rest

Ra

te

Federal Funds Rate

10

Uncertainty and Risks

• Tariff and Trade• Spill-over from manufacturing and associated sectors• Election (presidential) uncertainty• Slow growth in global economy, especially Europe and China

- Brexit

• Financial market and/or credit weakness• Fiscal Policy: potential for activism absent• Geopolitical• Federal Reserve errors

11

Transportation and Freight

• 2019 downtrend in manufacturing slowed freight growth• Not enough offsetting strength in consumer/retail/distribution ….• As freight slows, trucking capacity saw fastest growth in 20 years• Supply outstrips demand

- Pricing power migrates to shippers from carriers (asset-holders)• Correction started in 2019, will last into 2020• QUESTION OF THE YEAR – Equilibrium by December 2020?• SHAMELESS PLUG: ACT FREIGHT FORECAST was spot on in 2019

12

Manufacturing Trends

Durables

Nondurables Durables Nondurables

Latest 12 Months (1.3) (1.5)

CAGR since June 2009 2.2 0.5

Growth Trends

Manufacturing declines in 2019

After two strong years in 2017-18

13

Freight Trends

Durables

Nondurables

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

88

94

100

106

112

118

124

130

136

142

148

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Inde

x 20

10 =

100

(SA,

3 m

o m

ov a

vg) ATA Tonnage

CassShipments

Index

ACTFor-Hire

ATA Tonnage

Cass Shipmts

ACT For-Hire

12 month rate of change 3.3 -5.2 0.1CAGR since June 2009 4.0 1.6 3.1

Recent Activity Trends (Annualized %)

In 2019 freight indicators were

mixed

Likely the trend was flattish

14

Truckload Equipment CapacityUS Class 8 Tractor Population (U-11)

•

Biggest increase in

Class 8 population in

20 years

15

DAT Trendlines: Spot Rates (ex FSC)

Weak pricing environment

confirms adverse trends in freight and

capacity

16

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

Green shoot:Our lead indicator

detects early signs of a change

in direction

17

Outlook

• 2019 Story: too little freight, too many trucks• 2020 Story: supply & demand back in balance by Dec

▪ For Sure: Class 8 sales drop, excess supply tamed▪ More speculative: Freight resumes growth

• Consumer solid• Housing rebounds (low interest rates)• Mfg comeback (USMCA, China deal)

• Spot freight rates bottom in H1, increase in H2

18

Track Record for Freight Forecast

•

First year of the Freight Forecast –

scary close, sets a high standard

19

ACT Research Class 8 Tractor Dashboard

Metric Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19

Green Minus Red Tally 9 10 8 9 6 9 8 6 5 2 2 -4 -6 -5 -5 -8 -10 -10 -11 -8 -6 -5 -3 -4 -3Positive Indicators (Green) 9 10 9 10 8 9 9 7 8 6 6 3 3 4 3 1 0 0 0 1 3 3 4 4 4Neutral Indicators 6 5 5 4 5 6 5 7 4 5 5 5 3 2 4 5 5 5 4 5 3 4 4 3 4Negative Indicators (Red) 0 0 1 1 2 0 1 1 3 4 4 7 9 9 8 9 10 10 11 9 9 8 7 8 7

Markit PMI Index 53.9 55.1 55.5 55.3 55.6 56.5 56.4 55.4 55.3 54.7 55.6 55.7 55.3 53.8 54.9 53.0 52.4 52.6 50.5 50.6 50.4 50.3 51.1 51.3 52.6Non-Auto Durables Mfg Output** 2.6 2.4 2.1 2.4 2.4 2.7 3.1 3.3 3.5 3.8 3.7 3.9 4.2 4.4 4.3 3.6 3.2 2.3 1.7 0.8 0.0 -0.3 -0.5 -0.8 -0.6Consumer Spend, Goods only** 5.0 5.2 5.3 5.1 4.7 4.5 4.7 4.4 4.3 4.2 3.7 3.6 3.8 3.0 3.1 2.5 2.5 2.5 2.8 3.4 3.9 4.4 4.9 5.0 5.2Residential Const Expend (real) ** 3.7 3.7 3.6 4.8 5.2 5.1 4.5 2.6 0.3 -2.4 -4.9 -8.7 -11.8 -13.0 -14.0 -14.5 -13.4 -12.8 -11.6 -10.3 -8.7 -5.8 -3.1 -0.2 1.2Dow Jones Trucking Stock Index 765.1 784.1 832.7 820.8 832.2 800.4 849.2 812.1 833.9 860.1 878.8 774.9 799.0 700.0 769.0 812.4 780.4 759.6 692.5 761.4 812.5 816.3 836.2 839.7 852.1

ATA TL Loads** 5.6 6.1 6.0 6.5 6.3 5.7 5.1 4.8 3.9 2.2 1.1 0.7 0.5 -0.4 -0.1 -0.8 -1.1 0.7 1.1 1.4 3.5 4.8 4.6 4.0 4.0DAT Loads/Truck 6.1 7.9 11.8 7.3 6.5 5.9 5.8 7.2 5.2 4.7 3.9 2.8 3.7 4.0 3.8 3.5 2.3 2.1 2.1 3.2 2.9 3.3 2.9 2.3 3.2DAT Aggregate Contract/Spot Spread 2 -3 -13 3 3 5 8 -3 8 19 19 25 22 22 32 37 38 41 41 31 33 35 31 35 34DAT Dry Van Spot Rate* 21.3 21.7 34.3 28.4 28.5 26.7 24.0 26.0 23.4 17.3 8.2 0.1 -1.3 -2.7 -12.8 -9.8 -13.2 -16.4 -18.5 -19.2 -19.0 -15.8 -14.1 -13.1 -12.2ATA TL Loads/US Cl8Tractor Pop Growth Gap -0.4 -0.4 -0.7 -0.4 -0.7 -1.4 -2.0 -2.5 -3.5 -5.5 -6.9 -7.9 -8.6 -9.9 -10.1 -10.9 -11.1 -9.2 -8.5 -7.8 -5.2 -3.4 -3.1 -3.1 -2.6

Cl 8 Cancellations (SA) 1599 2034 2819 3953 4536 2910 4899 4383 6162 7390 7085 6534 6976 5589 4887 5566 2420 2578 3645 6394 4599 3182 3363 1023 1358Cl 8 I/S ratio (SA) 2.48 1.93 2.64 2.04 2.27 2.26 2.40 2.21 2.41 2.45 1.89 2.36 2.38 2.10 2.50 2.29 2.47 2.66 2.88 2.63 2.98 3.23 2.43 3.49 3.33Class 8 Inventory Level (000 SA) 55.5 51.5 54.6 55.2 56.0 56.3 53.7 56.6 62.9 62.1 61.2 59.7 61.9 62.6 69.5 70.4 73.2 75.5 78.2 80.3 82.4 84.6 78.9 78.4 79.3Class 8 Net Orders to Build (6mma,SA) 1.10 1.17 1.34 1.44 1.56 1.57 1.65 1.69 1.72 1.81 1.79 1.77 1.62 1.44 1.18 0.92 0.72 0.59 0.51 0.49 0.47 0.45 0.45 0.48 0.53ACT For Hire - Volume less Capacity 67.4 69.7 63.4 61.1 47.3 59.6 60.9 54.0 56.6 55.2 50.5 55.5 46.0 45.3 45.6 42.7 46.7 45.3 42.1 41.4 58.6 50.4 62.4 52.7 51.9

All measures are levels, except *=Year/Year %

Change and **=12 month CAGR Rate of Change

HD Demand Always Lags the Freight Cycle& Dashboard leads US Tractor orders by ~4 months

Order ramp

begins

Peak C8 build rates & INV cycle begin

Capacity imbalance emerges

INV cycle ends, build cuts imminent

20

Current Market Conditions

Headwaters of demand stream

looking increasingly tired

Order trend stabilizing, if at

low levels

Backlogs shed 179k units y/y

Nov.

Mid and downstream

metrics tip over the precipice

Build rates falling, inventories remain high

Retail sales fall y/y in Q4

Relative measures

heading in wrong directions

BL/BU from 11 to ~5

IN/RS from 2 to ~3

21

0

2

4

6

8

10

12

14

16

18

10 11 12 13 14 15 16 17 18 19

Units (000s)Actual 6MMA

Source: ACT Research Co., LLC: Copyright 2020

January 2010 - November 2019

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

As BL Cushion Fades, Orders Rebound

22

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

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

Despite Collapse, Some Support Remains

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

1

2

3

4

5

6

7

8

9

10

10

20

30

40

50

60

70

10 11 12 13 14 15 16 17 18 19

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



Class 8 Straight Truck with Day Cab: N.A. Backlog & BL/BU

2

4

6

8

10

12

14

50

100

150

200

250

10 11 12 13 14 15 16 17 18 19




NA Class 8 TRACTOR: Backlog & BL/BU Ratio

23

Too Many Unfilled

95.9 90.4

48.8

16.9

38.926.1

15.125.5

1.9

32.7

33.241.9

68K72K

59K 57K

0

20

40

60

80

100

120

Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20 Beyond

Units (000s)

Empty/ForecastFilledBuilt


November 2019 Ending

Class 8 Backlog Fill/OEM Build Plans

Nov.-EndingOpen Build Slots (%)

10 Yr. Avg NovQ1 65% 54%Q2 37% 38%

24

12mma = 15,100

25

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

Build BUPDQ1’19 89.4k 1,418Q2 95.9k 1,499Q3 90.4k 1,459Q4 62.8k 1,064Tot. 340k

Q1’20 65.0k 1,016Q2 57.5 913Q3 52.5 847Q3 49.5 839Tot. 224k

Stock Drawdown Impedes Builds

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

10

20

30

40

50

60

70

80

90Units (000s)

Inventory ActualRS Based Target Inventory



Total Class 8: N.A. Inventory Actual & Target

26

Different Shapes, Different Outcomes

27

US 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

ACT Research Co., LLC: Copyright 2019

90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 2442

44

46

48

50

52

54

56

58

60Percent

Very young tractor fleet gives truckers latitude to stop buyingVocational fleet well balanced across population distribution

Used Class 8 Trucks

Average retail at $47,600 in November➢ -1% m/m, -14% y/y, +3% ytd

Miles (as of late) and age trending upInventory plateaued, for nowSoft demand now limiting factor for salesExports making valiant year-end effort – motivated sellers, softer USD

➢ November -5% m/m, +26% y/y, -8% ytd

28

Are Prices Finding a Bottom?

-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

29

Miles Tick Up, Age Continues to Rise

-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 - November 2019Class 8: U.S. Used Truck Average Age

30

Exports Lower, but Growing

13.514.4

15.0

22.1

15.4

11.813.0

22.7

16.415.3

0

5

10

15

20

25

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19Source: ITC, ACT Research Co., LLC: Copyright 2020

2010 - 2019(Actual through November 2019)

Used Class 8 Tractor Exports

Units (000s)

31

Medium Duty

BL/BU ratio moderatingIN/RS ratio on target; inventory rolls over

- OEM build peaked− Q3’19 = 1,251, Q4’19 = 927, Q1’20 = 985

− November sales softest in three yearsMarket will see lower build and sales in 2020Key MD truck demand drivers staying between the linesHigh volume buyers cutting back

32

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

Classes 5-7 Orders

Truck (000s)

Bus (000s)

RV (000s)

Total* (000s)

Past 12 Mo. 177.5 40.8 16.5 244.2

Past 6 (AR) 159.3 32.3 13.2 213.5

Past 3 (AR) 148.1 30.2 12.5 198.0

November (AR) 128.7 29.6 14.8 185.0

Nov SAAR 183.4

Dec (P) SAAR 219.8* Total includes Step Vans

33

Backlog/Build Pressuring Diminished

1234

30

40

50

60

70

80

90

100

10 11 12 13 14 15 16 17 18 19




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

34

Inventory Persistently High

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

35

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: BEA, ACT Research Co., LLC: Copyright 2020

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)

36

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20RV 12 12 13 15 17 18 21 22 22 16 17Bus 27 27 32 34 37 38 41 43 43 41 44Truck 79 127 143 153 172 181 171 184 208 219 192Total 119 167 188 202 227 237 233 249 273 277 253

119

167188

202227

237 233249

273 277253

0

50

100

150

200

250

300Units (000s)


2010 - 2020

N.A. Classes 5-7 Production

37

U.S. Trailer Market Update – Nov ‘19

• After acceptable October, November orders disappointed- Down 38% m/m

• Inventory drawdown continues, but still very high- Factory +25% y/y and dealer channel reported flush

• BL off 3% m/m, down sequentially 10 of 11 months• BU slowing, but still outpacing order placement• BL/BU remained steady• Large fleets quiet…small to medium players silent

38

A Slow Order Season Underway

• Fleets balancing financials, equipment needs

• Recent huge equipment acquisitions

• Investment plan reassessment

• November well under seasonal expectations0

10

20

30

40

50

60

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

Un

its

in ‘0

00

s

NOVEMBER 2019NET TRAILER ORDERS

19,813 UNITS

2019 2017 2018

Source: ACT Research Co., LLC Copyright 2020

39

Backlog Stumbles into Q2’20

• BL/BU n/c versus Oct• Production slot availability• 2019 urgency…gone• True equipment need?• Fleets aware of conditions• Expect BU rate moderation

to continue0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Materials

Nov'19Oct'19Sep'19Aug'19Jul'19

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

U.S. Total Trailer Backlog in Months

40

BL/BU Almost Continually Shrinking

• Pressure off materials and component supplies since mid-summer

• Build continues to outpace orders

• Expect further production softening (days/rates)

• Likely open slots in Q1’20• Large fleet order pattern

0 1 2 3 4 5 6 7 8 9 10

Materials

Nov'19Oct'19Sep'19Aug'19Jul'19

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

U.S. Total Trailer Backlog in Months

Months

41

Orderboard Now Half of Last Year

-50%

-25%

0%

25%

50%

75%

100%

125%

-

50

100

150

200

250

300

350

Thou

sand

s

Y/Y%Ch (Right) Backlog (Left)• October wiggle• Down y/y since July• Expect further

softening in Dec• Potential price

pressures• Advantage - Fleets

42

Expect Further Production Adjustments

• The “Normal” pattern• Lower rates• Days/Shifts• Staffing last resort

• No indication of order rebound to offset needed changes

-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 - May 2020Year Over Year Percent Change

43

Dec’19 U.S. Trailer Market Thoughts

Still waiting on some players, but initial results indicate…

• Orders will continue to disappoint• Two more days (available) in production schedule m/m

- Don’t expect they were used• BU will ease versus November• Inventory drawdown will occur, but half of seasonal expectations• BL will close down sequentially

44

2020 Forecast Lower, but Still Solid

• 2019 will still set an all-time record

• 2020 forecast revised• 2015-2019 were 5 of Top 6• Flood of new equipment• Young, efficient fleet

• Youngest since 2000

• Still fleet growth in 2020'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Dry Vans 62 120 128 135 155 181 181 183 194 204 140Reefer Vans 28 34 34 36 39 47 47 43 46 50 38Flatbeds 8 15 24 22 26 31 20 24 35 32 22All Others 29 39 45 42 48 50 40 42 48 48 40Total 127 209 231 235 268 308 288 291 323 333 239

127

209231 235

268

308288 291

323 333

239

0

50

100

150

200

250

300

350

400Units (000s)


2010 - 2020

U.S. Trailer Production

45

Build Forecasts

2016 2017 2018 2019 2020

NA Class 8 (000s)

228.3 255.6 324.5 338.5 224.5

NA Classes 5-7 (000s)

232.9 248.7 272.7 276.5 252.5

US TrailerTotal Trailers (000s)

287.5 291.0 323.0 333.4 239.0

46

4440 Middle RoadColumbus, IN 47203

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industry review - act research co., llc.- brexit • financial market and/or credit weakness •...

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