Slack demand and sudden overcapacity.
When diesel-engine maker Cummins announced its third-quarter earnings debacle on October 28, chief operating officer Rich Freeland had a special word about future production and sales of heavy trucks: “It’s evident now that retail sales [of trucks] and production will be down going forward.”
He wasn’t kidding. But it’s a lot worse than imagined at the time.
Demand for Class 8 trucks, the largest trucks on US highways, had been strong in 2014, and orders were expected to reach a decade high in 2015. Last year, the trucking industry was roaring, and there was talk of shortages of trucks and drivers, a capacity squeeze caused by vibrant order books around the country. Companies were stocking up for the great year 2015.
Optimism was boiling over. Interest rates were at zero. Money was nearly free. The economy would hit escape velocity. Stocks hit new all-time highs. And carriers ordered trucks from truck makers to be able to meet this demand coming down the pike, and truck makers ordered engines from engine makers such as Cummins. And the whole industry was cooking. Then summer 2015 came around.
Retail sales had been disappointing. Escape velocity had turned out to be an illusion. Inventories around the country had built up to a historic glut. And companies began trimming their orders. Suddenly demand for transportation slowed while capacity soared. In this scenario of slack demand and overcapacity, the load-to-truck ratio, published by transportation data provider DAT, collapsed to the lowest level in years.
DAT calls the ratio “a sensitive, real-time indicator of the balance between spot market demand and capacity.” It’s a function of the number of loads for every truck posted on DAT Load Boards. By July, the ratio for van-type trailers was down to 1.8, the lowest in years.
Usually the load-to-truck ratio picks up in November, the middle of shipping season. It picked up this year too: from a terrible 1.5 in October to a still terrible 1.8 in November. In November of banner-year 2014, it was 3.5. In the more typical November of 2013, it was 2.5.
Since late last year, DAT’s van load-to-truck ratio has been heading south. The chart shows how every month this year, the ratio (red line) has been below the ratio of the same month in 2014 (blue line). November’s ratio of 1.8 was a dizzying 49% below November last year:
Trucking is a gauge of the real economy. It tracks exports and imports, manufacturing, distribution, retail, and other sectors. And the sudden slowdown in the trucking industry is worrisome.
But it’s more than just a gauge: now the consequences are hitting manufacturing. In November, according to a report by ACT Research cited by the Wall Street Journal, orders for Class 8 trucks plunged to 16,600, down 36% from October, and down a stunning 60% year-over-year.
Without seasonal adjustments, it was the lowest number of orders since September 2012, and seasonally adjusted, it was the lowest since August 2010, according to ACT Research. Freight intelligence provider FTR figured that orders for Class 8 trucks made for the worst November since 2009.
A “major disappointment,” it said with elegant understatement about this total collapse.
Trucking companies have seen the future: a toxic mix of overcapacity and slack demand, even during peak shipping season, when retailers stock up for the holiday extravaganza. But retailers are having a hard time. Thanksgiving weekend sales at brick-and-mortar stores were outright awful. And now they’re sitting on a historic inventory glut [read… There Better Be a Miracle for Retailers].
As retailers cut their orders, fewer trucks are needed to transport the merchandise, and it ricochets through the economy.
Trucking companies are responding to this situation, as Cummins and other companies have warned since this fall, but now they’re responding much more sharply than previously imagined they would. Hence the total collapse of orders for Class 8 trucks.
Truck manufactures, their engine and component suppliers, trailer manufacturers, in short the entire industry building equipment for trucking companies – they’re all getting hit hard. And this is going to cascade from there.
Truck maker Navistar already features on the list of “distressed” issuers of junk bonds. This is where investors are now getting bloodied as the Great Credit Bubble implodes from the bottom up. Read… “Distress” in US Corporate Debt Spikes to 2009 Level
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But..but…but…we added 211K new jobs in November! Time to celebrate. And spend.
So what if those $35/hr. jobs building trucks have been traded in for $9/hr. flipping hamburgers. 5% unemployment is still 5%.
…Right?
And on Google News I just saw …
“Just days after two Muslims were accused of gunning down 14 people in California, a Reuters/Ipsos poll shows 51 percent of Americans view Muslims living in the United States the same as any other community, while only 14.6 percent are generally fearful.”
http://www.thestar.com.my/news/world/2015/12/05/most-americans-see-muslims-like-any-other-group-after-california-shooting–reutersipsos-poll/
Which is higher on the BS meter?
Regards,
Cooter
That 14% might be right with over 2 mil guns legally purchased in Nov, along with all the other preps, taking the fear edge off. The rest not worried are in denial.
It is funny. After I posted, I thought it might be misunderstood here. The reality is as an IT professional I have worked in/around Muslim culture off/on over my career primarily due to the H1 visa sort of stuff. Some at major US corps.
As individuals at the time, I don’t think I had a “security” problem ever. Never crossed my mind. I do recall being sent to an off site meeting by a arab mix boss right after 9/11 because frankly he didn’t want to fly. That was interesting because I was young, didn’t have credit cards due to my humble beginnings, and the consulting company I worked for had to arrange car, air fare, and hotel and I had to take cash. Weird arrangement with a lot of things that could go wrong.
Let me share my most “impressionistic” experience from that period of my life.
I worked at a major fortune 500 company (in IT as a contractor – they are in the top 20 right now) where the CIO was of MENA descent and he carefully selected a cabal of MENA upper level management (we are talking exclusive across the board – 100% from everything I saw – in our offices at HQ) many of whom where co-grads of the same MENA university system or relatives. I am not exaggerating. I lived in AR for a while and this org chart was more inbred (no offense AR, just lived there and saw the rural).
It was there I first experienced racial discrimination, where I was pushed out of a team lead job due to race (I was one of three or four white guys in the whole complex – most of which were vets which is ironic). I eventually went to HR with evidence that the IT organization was charging internal business units 10 man years of work for 1.5 man year jobs and using the rest as slush funds at a major consulting company that had close ties to the CIO and his lackeys.
They told me to find another job (after taking detailed notes). I will never forget the size of the rock on that lady’s finger that was taking notes. WTF.
Anyway, after several years there I figured I had a future somewhere else and bailed. I know some muslims that bailed too (the ethical kind) who also reported similar situations to management. But there were plenty that stayed behind to ride the graft and incompetence. While I haven’t kept up, to my knowledge many are still there today (or at least some small number of years ago).
So, while that sounds horrible, they didn’t murder anyone. So, let’s keep some perspective. If a PhD or a MS of some engineering discipline wants to move to the US, I don’t care to be honest. That crowd that I mentioned were *highly educated* and had enough credentials to earn their way in to the US, one way or the other.
For more on the cultural angles of this whole situation I described, the best write up I have found was called “Why Arabs Lose Wars” which I think is available here:
http://www.meforum.org/441/why-arabs-lose-wars
I recall this as a foreign policy magazine article and at quick glance looks to be the same. Good background on culture, attitudes, and such that explain the above.
Today, I think what we are facing is a totally different crowd. We are talking tens of thousands of essentially uneducated warm bodies – an influx of “blue collar” type folks who are going to have similar attitudes, but a much more “primal” way of organizing themselves and viewing themselves relative to others – particularly in US culture with Hooters (beer, wings, and well – hooters), wimmin without full head dress, and you get the idea.
I think our President, and our political class, are out of their F**king minds. I kind of look at this as an assault on our nation – it is reckless.
I plan to ask my general manager about weapon carry at work before the year is out – just a timing issue at this point. I feel the only option for Americans at this point is to carry in every single place, if they are prepared and qualified, they are allowed.
Not sure if the tone or content of my post is allowed here, but it is honest and heartfelt.
Regards,
Cooter
Capital expenditures seem to lead the iceberg. 2016 is shaping up to be a year of giving back. The DXY rising is starting to show effects and the ripple through will be close behind.
The elephant in the room continues to be automation and the declining need for employees. Disruptive technology, like most tech advances, seems to lead to a reduction in workforce compensation for whatever industry its applied towards.
That’s been the case since the 1970’s but no one gave a flying fig because it was happening to the great, unwashed masses like Joe Sixpack in the flyover states. Now it’s hitting “real” people there’s no time and no political power left to devise an altered system that doesn’t just feed people into the shredder of ever-greater corporate efficiencies. Each robber baron only needs a retinue of 10-12 eager flunkeys and gophers to service his needs. The rest can stand on street corners as a reminder to those who fail to co-operate what will happen to them.
CAE
Technology is funded by capital. So long as interest rates remain near zero, capital will continue to crowd out labor.
So it is not technology per se, it is the subsidy to capital by Central Banks that is accelerating the loss of jobs.
And cheap capital finances mergers and acquisitions, resulting in more job loss.
Just a couple of questions. How many purchases were done before the Tier 4 emissions regs went in effect? How much of Amazons stuff get hauled on trucks to distribution centers?
ah yes emmissions regulation this time (tier 4). It is always a tech nightmare. I deal with this everyday. From manufacturers, to dealers to independant repair shops it means a massive new expense in maintenance, hardware/software & equipment up-grades. Poor consumers keep asking why that light comes on in the dash & why it cost so damn much to service motor vehicles. Modern vehicles are almost impossible too diagnose and fix. I see many new car dealerships with their service departments with litterally hundreds of cars back logged–late models too, many still under warranty !! The technical skill needed to service these cars so far exceeds the ability of the techs it is mind bongling. No wonder VW found it much easier just to cheat the soft ware….I guarantee you many, many more are doing the same thing……Tier 4 is thechnologically impossible to meet with a reliable, affordable, mass produced internal combustion engine. No wonder we are seeing record numbers of recalls from all manufacturers across the board……This situation is very ripe for major corruption & payoffs to regulators to look the other way.
I now work in the automobile sector here in Australia. It is a job – at least I have one.
It is a funny market. The high end stuff (Mercs, BMW’s Porsches, Jags) is doing really well. You see the high end stuff all over the place now.
Our little neighbourhood has had a huge influx of people with those kind of cars over the past two years. Makes me feel that we should move – our car doesn’t match the neighbourhood anymore. Yeah, seeing A$150,000 cars parked in the garages and driveways, well you know……….
The other ordinary stuff……….sometimes it is a good week and sometimes it is bad. Used cars are having a tough time.
Where I work we were quite fortunate as a big competitor quit the market and the service department has picked up some of their business. I don’t know what the arrangement was for the recs to come to us for service. ($$$ …… ?????)
That pick up in business has helped a little.
The next couple of weeks before Christmas is usually one of the busiest times of the year. Last year it was chaos and mayhem with huge number of cars booked for service.
So far it hasn’t been that busy, but I guess I’ll have to wait and see what happens over the next couple of weeks. It should then pick up the week after New Years for a week or so and then flatline.
As far as recalls are concerned, there are always recalls going on. Half of the service business only has a few going on now.
The other half is busy from the Japanese airbag mess. It has provided a huge increase in that part of the business for them which has taken up the slack.
Once that is finished or the parts run out again and they’ll be back to well under capacity and probably back to losing money or at best breaking even.
A SWAG from talking to customers is that the economy here isn’t doing very well with lots of pressure on people from increases in basic costs.
Long time residents are not happy with the way the country is going and this is especially so in regards to immigration – in particular those coming from the ME.
The older folks all talk about real estate prices and how much houses are selling for.
There are a huge number of houses on the auction block here in Melbourne and still pretty good clearance rates considering the huge number of properties.
Sydney is is the dumps, but Melbourne is doing ok. My area is doing quite well with houses still selling fast.
Only one on the market in the neighbourhood for A$825,000. Across the village there are a few more for sale and one townhouse project has now sold out ($A850,000 – A$1.2 million range). Lots of houses are being knocked down.
Lee, thanks for the great update on economic activity in your area in Melbourne. This kind of boots-on-the-ground info is always important!
I was at a Japanese car dealer very recently with my son. They claim to manufacture and sell an electric car but they don’t have one in the showroom or on the lot. The salesman said he was new and didn’t know anything about them. I hate to be the suspicious sort but my son and I were of one mind on it. They are pretending to make electric cars to meet the crazy standards.
Everyone is losing money on their electric cars. The problem is and always has been the battery. A big enough a battery is very expensive, and so the car can’t be sold at a profit for a competitive price. Tesla loses a ton of money on each car, as does Fiat, Nissan, BMW, Mercedes…. So there’s no interest in making and selling a lot.
I would observe that if someone buys a thing on Amazon rather than somewhere else, the answer to your question would be “it nets out to zero”. Maybe not exactly, but generally speaking I think that would suffice.
Not sure if there was an emissions gaming to truck orders – haven’t seen anything on that topic.
Got links?
Regards,
Cooter
I am one of those $35.00/ hr truck factory workers (it is actually $33) and the wheels are definitely coming off on truck orders. The construction/mining market is way down, and all the oil fracking (high profit margin) truck market is gone. Money is made on specialty trucks, not cookie-cutter highway trucks, so we have already lost the best part of our market. Another factor affecting the market are EPA regulations. Ten years ago 70+% of our orders were for Caterpillar engines. But Cat had so many problems with their 2007 EPA regulation engines that they completely dropped out of highway truck market when the 2010 EPA requirements rolled around. In our facility alone, that was 25,000 engines a year. New EPA regulations take affect in 2017. So that is another monkey wrench in the works. Normally, we would see an upturn in orders the year before the regulations, but 2016 will be a rough year. The whole truck manufacturing industry is having layoffs, shortened work weeks, and are pulling orders forward to keep the assembly line running. It is going to be a rough year.
That’s ultimately how carbon regulation works I think. Not by reducing the actual carbon footprint of certain activities or processes (i.e. diesel engines), but reducing the activities themselves. If an engine can’t be effectively manufactured to meet ever more suffocating regulations, that engine — and possibly that truck that it drives — will no longer be made. Viola, problem solved. Eventually, all you are left with a fleet of tiny — if “green” — trucks.
Either that, or you take the Volkswagen route.
I will leave the multicultural topic alone except to say there are lot of cultures that are cancerous to the Western work ethic and meritocracy.
And they only add to the social/economic overhead loaded on the private sector taxpayer in Western countries.
My observations in trucking. 3 years ago we were manufacturing and shipping 500 tons into the oil patch every week on trucks. I noticed things slowing down and made the decision to close this particular plant. Today, all my competitors are closed up too. The oil patch is buying NOTHING.
My observation is that between 20 and 30 truckloads per day that used to go past my front door has now dropped to zero.
The Cat dealer is laying off staff and closing locations. All mining operations are eating their capital assets.
And government employees, who never felt the 08 recession, still mosey along. Recession ?? What recession ??
I think the golden goose is well and truly cooked. Listened to a story the other day about how 25,000 Syrian refugees would boost the Canadian economy !! Yeah, and poop is pudding.
K
Cooter- nice to see you are still around.
I have a friend with a trucking business, started out straight from school when it belonged to his father.
Not a big business but when he was just 20 his father died and he was the owner.
Almost went bankrupt within a year, but slaved day and night and shrunk the business and just, only just survived. Happened again a couple of years later when the economy was ht and again before he was eve 30.
Survived both times.
What is he doing now?.
He has already cancelled his new truck orders earlier this year, even cost him dearly to cancel
and has selling trucks and laying off drivers every week since. Even to the extent of selling the most valuable trucks and replacing them with much older trucks bought for peanuts.
Now he is already well under trucked and under drivered, but he says even though whats left is at breaking point to match customer orders and even often late, and customer satisfaction is going down he grins and bears it.
He reckons as the lay offs bankruptcies and the collapse will just keep rolling on as the economy takes one leg down after another and even when he at at less than half size compared to today and they are even though now trying to put two pints in a pint pot, it will still get to the point when there is just a quarter pint of customer when his pot is down to a half pint.
If hes right again this time, he says, he will be able to buy trucks for cents on the dollar at the bottom and he’s hoarding as much cash as the business can stand and just waiting for that day. Until that time if you want a truck make me an offer that’s half decent and its yours,
I declined.
I wish him the best of luck. We need more business folks like that, rather than the kind that survive on privilege and regulation (lobby).
Regards,
Cooter
Gil
Just an observation in trucking. Except for the down payment, on a new or used truck, there are really no barriers to entry. Though for an individual, government paper may become the wall before you ever shift gears in a truck.
Trucking is wages, fuel, tires and depreciation (wear and tear). If you buy an older truck, you pay in repairs and maintenance (which also means downtime- no revenue). The solution was to buy a new truck. Unfortunately the quality and technology in new trucks can give you just as much down time as an old truck.
And I don’t know the price of mare piss, but that is one thing that was being used to meet the EPA limits.
Trucking, like mining, is a business where, if and when you make money, you are always forced to replace your worn out fleet. Ergo, no long term net cash flow.
I always get a giggle out of “Gold Rush” where they act like their Revenue is their bottom line. What a pile of worn out equipment.
From a once proud industry it is now a shunned industry.
My 30 year old Toyota PU is getting a little tired. I’m thinking of picking up one of those right hand drive Japanese mini-trucks. Glorified atv with a cab, heater, and truck bed….but practical. Does this count?
This is obviously tongue in cheek, kind of, but indicates a POV about the trucking industry. Certainly, Trucking makes for a great reflection on the stae of the economy, provided the economy is people buying things they don’t need with money they don’t have.
In the looming future of scaling back and living within our means, necessary freight should be transported by rail, refurbished rail. The future of trucking does not appear to be healthy, at all.
Why? This is well worth reading.
http://peakoilbarrel.com/oil-forecast-from-a-reputable-firm/#more-10458
Cooter, regarding your experiences with foreign IT colleagues. My first computer boss was an Indian Brahman with an MBA. He hired me because he needed assembly language programmers and we were hard to come by. Overall, he was alright, over bearing but respectful.
In my career which was mostly in consulting and finance, I have found that bosses tend to hire people like themselves. The Indians hire more Indians, avoiding the women whenever possible. In finance you see the same thing with Jewish bosses, they tend to hire Jews. I worked for Irish bosses and they hired many Irish guys. I look Irish so I’m sure that helped.
Overall, I found a lot of segregation in the computer business, by gender, by religion, and by national origin. The problem with this is that the firms stop being meritocracies and become employment warehouses. It gets very demoralizing when the good workers get push out by the dead weight.
I have a fleet of 28 trucks and a large truck repair business. I stopped buying new trucks mostly because the new DPF bs rules from the demotards. I ordered a ton of new Volvo’s in 2014 and have no new need for more at the moment. The previous years spikes could have been more from the new requirements forcing me to sell my old reliables and buy the new pos trucks. With all the DPF and EGR issues now, the repair business is booming…..
I wonder why, considering the considerable influence that industry has with respect to Congress, they are unable to bridle the fanatical minions of political correctness at the EPA? Has their policy of all out war against the President destroyed any chance they may have of influencing the Executive Branch?
What is really weird about this issue is that, within the last few months I have read at least three separate articles which said there is a severe driver shortage. But, I’m currently a driver (have been for the last 6 years and on and off since the early 80’s) and there has always been somebody saying there’s a severe driver shortage. I have never believed it, though just based on what I have seen with my own eyes. For example, I have seen driver wages decreasing on average over that time (accounting for inflation, of course), I have also seen that there are never any shortages of product on store shelves or lots, or anywhere else, and I have never seen noticeable increase in freight rates (an increase would indicate a shortage of available trucks). So, based on these things, how can there be a driver shortage?? Also, with the severe downturn in truck sales mentioned by this article, how can there be a shortage of drivers?? But, just wait — sure enough if you watch, you will find another article telling you that there is a severe driver shortage.
You’re suffering from cognitive dissonance, Tim. When what you see with your eyes doesn’t match with what you you’re told. And whatever shadowy power that is can keep this weird lie running for what seems forever due to their money, power and connections. They have a plan and we don’t know what it is.