Signs that the Trucking Boom Has Peaked

This is why the trucking business is so cyclical – and you can see it coming.

Trucking is a cyclical business. And there are now signs that the phenomenal surge this year has peaked, and while it remains at high levels, has started to back off.

The latest sign: In September trucking companies ordered 42,278 class-8 trucks – the heavy trucks that haul the products of the goods-based economy across the US. This is down from the 52,000-orders range in July and August, which had been all-time records. While sharply off these records, September is nevertheless the 10th best month ever recorded, according to transportation data provider FTR:

For the first nine months of this year, order volume of class-8 trucks has jumped by 106% compared to the same period a year ago.

The chart below shows the percentage change of class-8 truck orders compared to the same month a year earlier. It shows just how cyclical this business is, going from the effects of the “transportation recession” on truck orders in 2015 and 2016 – orders plunged to the lowest level since 2009, triggering layoffs at truck and engine makers – to the phenomenal boom in orders and equipment shortages this year, which too is now tapering off:

Clearly, orders of any kind can’t grow in an exponential manner for very long. These huge record-setting orders were in part based on truckers’ perception that we better order now because there’s a growing backlog and we might never get our orders if we wait too long. Everyone rushed to get their orders in ahead of the others. Now the dust is settling, and truckers will get a better view on what they actually need.

So what would it take for the second chart above to once again produce these dreadful red hanging columns, as it did during the transportation recession?

If orders in October fall to 35,000 – which is still fairly strong, historically – they will be below October 2017, and the next column would be red. In November, 32,000 or fewer orders would create a red column, in December fewer than 36,800 orders. Next year, orders would have to beat the record-setting boom we saw this year to avoid turning red in year-over-year comparisons. This will be highly unlikely.

So perhaps as early as Q4 this year but no later than mid-2019, we will see a grouping of red columns in the chart above.

This doesn’t mean that the industry will “collapse.” It simply means that in trucking – and in the broader goods-based economy as well, but to a lesser extent – cyclicality is alive and well, and is part of the deal. There are up-cycles, and there are down-cycles. This year, we have seen one of the strongest up-cycles in trucking history, after a very tough “transportation recession,” which had followed a very powerful up-cycle that had peaked in 2014. Now the cycle is swinging back.

Over the past 12 months, class-8 truck orders have reached nearly 500,000 according to FTR data. Truck manufacturers are currently cranking out trucks as fast as they can, at an annual rate of about 320,000 units. The order surge late last year and so far this year has created a record backlog now reaching 11 months, according to ACT Research. Any month with orders significantly over 27,000 units contributes to the backlog.

But if orders next August drop to for example 26,000, it would imply a 50% year-over-year plunge in orders, and it would create a deep red column in the chart above. That’s what the industry will be up against.

If orders stay near this 26,000-level, the industry will revert to some kind of balance. But generally, that’s not how reversion to the mean works. Instead, there are periods when the industry goes haywire ordering trucks. When these trucks are being delivered in large numbers, overcapacity appears, which creates pressures on freight rates, and when trucking companies see their revenues drop, they slash their orders to the bone. And after the backlog is worked through or canceled, truck manufacturers are once again going on their “right-sizing” binges. And the cycle starts all over again.

The cost of shipping surges, no holds barred. But…  What Truckers & Railroads Said About the Economy: Blistering Demand is Backing Off, Cyclicality Lives

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  23 comments for “Signs that the Trucking Boom Has Peaked

  1. Ambrose Bierce says:

    So is USG ordering any of these trucks? Their buying cycles have more to do with funding.

    • Wolf Richter says:

      Compared to the huge commercial fleets buying class 8 trucks, the USG is not a big buyer (USPS and some other entities buy some class 8, but not by the thousands a month, and they usually run their trucks until the axles falls off). USPS is however getting ready to replace its several-decades-old delivery trucks. Those will be specially made for USPS. It will be a huge order, carried out over years. Last I heard they were looking at various fuel types, plus electric.

  2. Rob says:

    I have already noticed the slowdown here in Los Angeles with my trucking business, the time may be near to sell my Peterbilt stock aka PCAR.
    Rates hopefully will stay on the higher side since I just rebuilt a Cummins motor 2013 with 657,000 miles, cost 56,000.00 dollars, more than double the cost of a Cat rebuild that I did a few years ago.

    • Hey Driver says:

      That’s crazy. Unless it’s a serious large car or all spec’ed out for heavy haul the truck isn’t worth the price of the overhaul.

      I just sold my 2011 Cascadia, 540K miles for $29K.

    • DUGTRUX says:

      Bullshit.. No one who is in the biz would spend that… on a rebuild… you think Im new????

  3. james wordsworth says:

    Who would have thought higher rates might have an impact on spending on big items. Also of interest, the US federal govt finished its interest report for the year. Largest interest expense in history! $523 billion in interest payments, and with rates going higher and so much US federal debt short term it is going to be even higher next year …. and so the deficit will soar even more.

    • John Taylor says:

      I don’t think the Fed rates have anything to do with the cyclicality of trucking.

      The cyclicality could be from short-term ramp ups (and downs) due to inventory buildup in case of supply chain trouble anticipated from tariffs, capital spending brought forward from repatriated cash due to the tax breaks, or cycles related to energy and/or mining. Some things are just cyclical or short term in nature, regardless of Fed rates.

    • jest says:

      Wow!! I thought my credit card debt was high!
      Why are the months so unequal? don’t make sense!
      thanks for the info. very interesting.

  4. Bogapau says:

    Confirmed from the front lines… no disruption means back to organic supply and demand. Those drooling for complete destruction by hurricane season are now licking their chops and hoping for the next trigger to surface…

    Wolf, a source/article on overall current state inventory levels would be fun to read about. Thank you for what you do!

  5. Tom Pfotzer says:

    Yeah, Wolf. Thanks for what you do. Key part of my daily reading.

    Now, on the subject of that new book of yours. Ya got no time. OK fine, so structure the book around your posts, and get dbl mileage from your posting. How?

    Set out a theme: The re-balancing of the U.S. economy. That’s what this all about, right? Interest rates, tariffs, etc. Globalization’s hit the wall, Walmart’s remembering the “Made in USA” theme, maybe it’s time for you to plot that course.

    Posts? Cap investment. Interest rates. Capital flows to U.S. Technology of production (driverless cars/trucks, energy storage, U.S production of computer components), not consumption (e.g. Facebook, Netflix, et. al).
    Every post is the core of a chapter.

    Sell the theme to your publisher, then do the posts, each of which is a chapter.

    Dbl duty for each post.

    Good luck.

    • Wolf Richter says:

      Thanks for the encouragement and the ideas. The book continues gurgling around my mind. My own weekly podcast comes first though. Working on it…

  6. A Reader Here says:

    But this fails to mention one key aspect is the dearth of drivers which is a massive problem. They can order all they want, someone has to drive the trucks.

    • Wolf Richter says:

      If trucking companies paid a lot more, they could find or train more drivers. And they’re paying a little more, but not a lot more. That’s the crux. Trucking companies don’t like this solution (for very understandable reasons).

  7. Max Power says:

    Housing, autos, trucking, consumer confidence at peak, etc. — lots of little tell-tale signs that the economy is in the process of peaking.

    Contrary to what many think (especially in the equities markets), the business cycle has not been repealed.

    I think the most unnerving thing right now is that in the midst of all this, the US government appears to be running a pro-cyclical fiscal policy, contrary to any economic logic or sense!

    Fun times.

    • jest says:

      Yeah, it seems its all coming down..look at the industries.. the housing builders, housing supplies, banks, etc, etc..they peaked months ago! There are more yearly lows than highs! and the SPX is (before today ) a few percent from an all time high! short term 225 monthly highs and over 1000 monthly lows..its all deteriorated badly! Good article on truckers ..thanks

    • Crysangle says:

      The fiscal policy being run now is counter-cyclical e.g.

      IF you start from the assumption that it is an extension of previous “similar” policy. As fiscal policy might be very roughly counted as net tax change (tax reduction in current circumstance) + change in deficit spending, the current picture is counted by many as a further economic boost.

      However, there is also the balance of federal reserve monetary policy, and that is working in the opposite direction, by raising rates and shrinking the balance sheet. This effectively decreases the supply of money.

      However again, the above policies may see a return of investment to the US, which would increase money supply.

      Given that QE and other has led to not really knowing properly what part of any cycle anything is really in, it is very hard to say exactly which direction the policy is except managed. Wolf likes to remind that the term “gradual” is used , which is less creepy than terms like “stealth” and “austerity” that we are used to this side of the pond at least…but it still makes me think of a jet engine test bed were thrust is very slowly increased and everyone expects it to blow at some moment…which explains why people keep pointing at the way it is vibrating, say they hear an odd pitch etc.

      Lots of fun… except the test bed is real life :-/

      (And I hope I got that all right, someone will correct me otherwise… it’s that fiscal is about taxes and I “dislike” taxes so I don’t bother about it too much because it generally makes me feel miserable)

  8. cd says:

    the pull back was overdue, no different than housing and auto…

    market is still pretty healthy, if the R’s stay in control, 2020 will be a serious time to reduce bullish positions….were in a cyclical bull market, tons of money still sloshing around looking for better yields…banks should do well from here, foreign money pouring into safe haven here….

    lets see what the next innovation wave takes us….

    • fajensen says:

      I dunno. Stocks seem very twitchy lately.

      On the OMX-Nordic market we see these sudden, a day or less, 5-6 even double digit percentage moves. In “good” stocks too, not the penny thrash. Pretty unnerving.

      I would probably buy Danske Bank over their money laundering scandal. It keeps getting worse and the stock keeps falling. At some point more bad news comes out and the stock doesn’t drop further. That is the time to buy.

      Especially if they go into “let’s clean out all the skeletons”-mode. It’s a while yet, they are still in the “deny, obfuscate, delay”-phase of the scandal.

      DANSKE.CO is “systemically important” so there is a backstop. Which may mean it doesn’t go exactly as low as it should or could block the “cleansing”.

  9. Setarcos says:

    Wondering where the trucks are manufactured? Headline in WSJ indicating that auto manufacturers are considering shifting manufacturing back to North America. Wow.

  10. Jim T. says:

    This is the kind of research and information you can’t get anywhere else. Kudos to the Wolf and his team.

  11. robt says:

    ” … growing backlog and we might never get our orders”

    That’s reminiscent of the tech hardware backlog many years ago when everyone was double and triple ordering with different makers … then the huge backlog suddenly evaporated when there was a bit of a slowdown, deliveries were made, and the excess orders were cancelled. It happens to some degree when there is high demand, occasionally the backlog shrinkage is severe.

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