Next Phase in Trucking Boom-Bust Cycle Has Started

From “capacity panic” to “overcapacity” in less than a year?

This is one of the most cyclical industries, with legendary boom-and-bust cycles: Orders for Class-8 trucks plunged 67% in March compared to March last year, to 15,200 orders, the lowest March for orders since 2010, according to FTR Transportation Intelligence. These are the heavy trucks that haul consumer goods, equipment, commodities, and supplies across the US. This plunge comes after orders had already plunged 58% year-over-year in February and January and 43% in December.

The chart shows the percent change of Class-8 truck orders for each month compared to the same month a year earlier. The year-over-year collapse in orders over the past four months are of the same or greater magnitude as those during the last transportation recession in 2015 and 2016:

The recipients of these orders are the truck manufacturers Peterbilt  and Kenworth (divisions of Paccar); Navistar International; Freightliner and Western Star (divisions of Daimler); and Mack Trucks and Volvo Trucks (divisions of Volvo Group).

The industry is notorious for over-ordering, which then, once these trucks are built, leads to overcapacity, at which point freight rates take a hit. Trucking companies see this coming and slash their orders in advance. Hence the bust that inevitably follows the boom.

The last transportation recession in 2015 and 2016 led to waves of layoffs at truck and engine manufacturers. But at the moment, truck manufacturers are sitting on what was a historic backlog of orders dating from the phenomenal boom that peaked last August at 52,400 orders, as this chart of total monthly class-8 truck orders shows (data via FTR):

With the plunge in orders over the past five months, manufacturers are burning through their historic backlog, “as the market tries to rebalance and establish some semblance of normality,” FTR points out.

“These are extraordinary market conditions,” said Don Ake, VP of commercial vehicles at FTR. “Most fleets ordered well in advance of their need for trucks in 2019. OEM production slots were scarce in 2018 and supplier constraints caused disruptions in supply, so fleets didn’t want to get shutout this year. Now so many build slots have been reserved, fleets that are currently placing orders for delivery this year don’t have many options.”

“Even though the economy and freight growth appear to be slowing, it has not impacted OEM line rates as of yet. Fleets are still putting more trucks in service and competing in a still decent freight market. It is expected that Class 8 sales will moderate sometime before the end of the year, as industry capacity begins to catch up with the freight surge that began in 2018.”

Shipments by all modes of transportation – truck, rail, air, and barge – have been trending down for month after blistering record levels last May, and have now dropped on a year-over-year basis for the third month in row, according to the Cass Freight Index. In February, the last data available, they dropped 2.1% from February last year:

The national average line haul spot rate, including fuel surcharges, for van trailers in March dropped 13% year-over-year – from $2.15 per mile to $1.86 per mile, according to DAT.

The dropping line haul rates and rising trucking capacity – after the spike in rates and the capacity panic last year – provides some relief for shippers, such as industrial companies or retailers that had been complaining in their earnings reports about freight rates and shipping bottlenecks.

This relief shows up in FTR’s Shippers Conditions Index, which combines freight demand, freight rates, fleet capacity, and fuel price into an index value to gauge the temperature of the freight market – including trucking, rail, and intermodal – from the shippers’ point of view.

A positive index value signals “good, optimistic conditions” for shippers. A value around zero represents a neutral operating environment. A negative value signals “bad, pessimistic conditions” for shippers. The index for January, released at the end of March was the third month in a row in positive territory, if barely, and thus balanced, after what had been a nightmare for shippers last year (data via FTR):

So the trucking industry is letting off some air pressure. Shippers are breathing a sigh of relief instead of complaining in their earnings reports about the bottlenecks and surging freight rates. And truck manufacturers are still exuberant, but keeping a worried eye on their backlog, hoping that the plunge in orders will turn into waves of new orders before the backlog has been exhausted. But given how this has worked out in the past, it is more likely that this historic boom in orders is turning to actual trucks on the road with impeccable timing just when demand from shippers is slowing, and then “overcapacity” will do its magic once again.

Ford wisely kept its mouth shut. The problem with Mercedes and BMW is that they don’t yet sell luxury pickups, though they’re finally figuring it out. Read…  Q1 Carmageddon for GM, Fiat-Chrysler, Toyota, Nissan, Mercedes, Mazda…

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  50 comments for “Next Phase in Trucking Boom-Bust Cycle Has Started

  1. Howard Fritz says:

    There are reasons to be wary, because of trucking’s highly cyclical nature, and there are signs that all may not be well in the broader economy, like the yield curve inversion Wolf also wrote about:

    I’m assuming it is because this part of the value chain feels the bullwhip effect more so further down the chain, but I could be way off base.

    That said it appears that the fundamentals of the economy are doing well so there’s nothing to worry about, hopefully.

    • Setarcos says:

      The 3mo/10yr inversion was very temporary. The 2yr/10yr didn’t invert. But a little sag in the curve persists.

      Seems like the FED is like a 2 ton gorilla moving around from seat to seat inside the same plane it is also trying to fly with little fuel … while the planes of other countries fly along side very closely. EU planes are 737 max and have been flying on fumes.

  2. Yes please says:

    Wolf, you ever decide on a location for a meet up?

    • Wolf Richter says:

      Working on it. This is tougher than it seemed, given the size of the awesome crowd. The venues are wanting to charge me an arm and a leg to reserve enough space. I’ll announce it as soon as I work something out.

      • Lisa says:

        how about online- interactive meetup?

        • Richard says:

          It would take me about 5 minutes to get a new job driving a truck the economy is booming, Trucking is booming. Trucks are made better they last longer you don’t have to keep buying them.

      • Brad Smith says:

        The second graph is representative of reality. Comparing percentages is vector quantity. Comparing actual units is a scalar and an accurate comparison.

        • Wolf Richter says:

          Year-over-year change (first chart) is one of the most fundamental metrics anywhere, from corporate revenues and earnings to inflation data. It’s everywhere. And it is very useful. I agree that actual units also serve their purpose and are very useful, hence the second chart. So you get both.

      • Dano says:

        Might I suggest an outdoor venue in Napa or Sonoma?

    • Danny Patterson says:

      It’s hard a job in my area that pays 40 years exp. Pay not much different now than 10 yrs ago

    • Lester says:

      I saw this happening in October it hastened my retirement.

  3. J.M.Keynes says:

    – I think there is also something else in play. And that thing is called “Just In Time Delivery”.
    – Companies have reduced their inventories to a bare minimum to reduce costs. And that means that there is (much) more volatility in supply and demand. Hence the violent up & down swings in demand & production.

  4. Vince says:

    Too many greedy folk in the trucking industry…it is slave labor.. let the machines drive those trucks and it will more fatalities on the roads then they can handle…. bunch of dummies run trucking industry

  5. fred63 says:

    What we need ? MORE luxury pickups? Maybe Rolls-Royce , Ferrari and Maseratti will enter that field. Pickup trucks are already OVER priced.

    • Prairies says:

      This seems like it is under the wrong article, don’t see truck freight being solved by light vehicle sales.

    • Travis says:

      Perhaps the govt. should let us keep the extra money we make ( that’s called capital)….instead of always finding a way,or b.s. reasoning to get it away from us ! Big freight companies,and govt. are in each others pocket all the time….getting rid of that relationship right there,would show huge financial gains right out of the gate for the rest of us,owner/operator,and company drivers. Then,limit the amount of trucks built in a year….that brings up a demand for drivers,and freight,and mechanics,etc.. That’s called cash flow,and that’s how we economize our markets….not by asking the govt. for help,but by telling them what we want,and acting upon EVERYBODY’S needs !

  6. Silver Fortune says:

    File this under yet another reason I’d never want to be a trucker.

    A lot of respect for those that do, having to deal with boom-bust cycles, sitting for hours on end, dealing with traffic regulations, etc.

    • Harleygwr says:

      Its not a bad job if you’re union and local. However over the road and common carrier forget about it. The pay rate for over the road is border line criminal . Some of the tractors out there need to be junked there’s plenty of loads but the pay is terrible. These outfits should provide quality equipment I know I would not drive that junk

  7. Serge says:

    This can easily trigger the recession, a lot of companies bought brand new trucks last year, gave drivers a raise of 12-15%. But now we see average rate of $1.5 a mile. So let me calculate something for you, equipment cost about $5000 with insurance, driver cost based on 10000 miles is $5-6000. Fuel is about $5000 a month. So trucking companies are not breaking even right now. Add office expenses, dispatchers, load board etc and you are in the negative for each truck. I don’t know how long they can survive for, but owners will start defaulting on payments and start returning trucks back to the dealer.

    • Bryant Ramsey says:

      Very well explained! These authors in the blog have absolutely no clue on the trucking industry. Rates are at a very low point. I drive a truck everyday and have yet to see a profit this year. I’m wondering when the recession will catch everyone by surprise.

      • BadInfluence says:

        I agree with you last year this time I was avg 2.80 a mile this year 1.20 a mile. Since government wants to regulate every aspect of the trucking industry why haven’t they done something about the most important thing to truckers O/O’s and Company drivers alike….DRIVER PAY!! There should be a minimum mileage amount brokers can charge of like $2.75 a mile or more. Its absolutely ridiculous out here now, I cant pay my Bill’s having to rob Peter to pay Paul. If goes on much longer I’ll have no choice but to get rid of my truck and find something else to do. When are Shippers/Receivers going to realise that if they keep doing this it will come back to bite then hard in their wallets when they have put everyone out of business with ridiculously low freight rates. Government needs to implement a minimum hauling wage needs to be above $2.75 a mile. I make less today than I made in the 80’s. Ridiculous!!

        • Will says:

          The last thing we need is more government. They screw up everything they put a regulation on. So we the 2.5 to 3 million independent need to stop taking cheap freight. Let the mega carriers eat up all the cheapest freight until they max their capacity. Then those of us who have been sitting fill in at a appropriate rate. Too many guys driving the miles chasing the penny just park it and pull for dollars. No More government.

        • John says:

          Don’t forget the ever creeping “demand” that a driver now has to be held hostage 3-6 hours, instead of the customarily 2 hours before the shipper/receiver will even consider paying detention? They demand we be there at an appointed time, yet once we are there, they could care less. It’s OK for them to make us wait but be damned if the truck is a few minutes late. You made and demanded the driver meets your appointment, you knew we were coming. Yet that carries not one ounce of weight. We can’t win for losing – sit for hours on end uncompensated, then rush, rush, rush in an attempt to make sure delivery is on time at the back end. Miss the delivery or next pickup and brokers vehemently threaten you with heavy fines. What happened to the industry paying attention to our clock (oh, forgot they could care less)?

    • Kelly says:

      These numbers don’t all add up. Especially the driver and fuel. If you’re paying 60k a year in fuel you’re doing many things wrong, heavy haul, oversize, livestock excluded. I have an 03 Columbia average 7.7 pulling reefer now was well over 8 tanking. I have friends in older and newer trucks getting 8 and some closing in on 9.

      • Serge says:

        Kelly, I operate 7 trucks and some of them with in 3 years old. I have never seen over 8 mpg. Unless they are always driving empty. Average diesel price $3/gal. If you doing 7mpg then it .42 cents a mile. 10000 miles is $4200, add idling every night you will be at $5000 easy. With reefer you need to add another $800-$1000 for the month. I would double check your business expenses again.

  8. Mean Chicken says:

    It’s getting hot in here! :)

  9. Scotty Tucker Jr. says:

    Maybe if the states and DOT werent pocket raping truckers and trucking companies there would be more noney in the pot for companies to purchase equipment etc. The dot and states are taking and taking and taking as if they want to destroy the trucking industry…there is a WAR here against the trucking industry….yes. i said a WAR. the DOT is at WAR with the trucking industry and truckers are doing nothing

    • John says:

      My Comment!! As an old timer, with 42 years in the industry, thru the 70,s and 80s, when trucking was trucking, if you ran a strike, you were either Beatin up or shot!! To today’s environment!! Where all the money has been stolen out of the industry, by greedy people, and big companies, it keeps going the way it is, pretty soon we will All be walking to Pittsburgh for our shoes!! I’m making a very Broad statement, because it’s the whole industry in General!! The Greeder get Richer!! The little Guy, You and Me!! Fight for Every Penny!! Always Chasing that Carrot!! And know one gives a Shit !!!!!

  10. Steve Wray says:

    I’m with Serge. As an owner operator with my own authority I have felt the heat over the last 6 months. My last 2 quarters have suffered a great blow because big companies are able to take this 1970s rate I can not afford to move freight out of my pocket. I hope things get back to normal soon. These rates for Flatbed and stepdeck should be at $4.00 a mile and I’m seeing them move at 1.65 a mile. How can anyone afford to make money at these rates. Meanwhile brokers are making just as much or more than the truck is making. Something needs to be done.

    • Zic says:

      You take a load for $1000. The Broker is charging $1100 to $1500.
      Sure, he keeps you moving but you have no profit. Lose a tire and you’ve lost more.
      The broker takes the wife and kids on vacation. You’re going backwards.

    • lee martin says:

      Steve, don’t paint all brokers with a corrupt brush, look at their MC# and use that for a rule of thumb. Brokers that have had the same MC# for 25 + years did not get old by ripping off owner operators.

      • D says:

        Who regulates brokers? No one. They rape you for as much as they can. Dot regulates how much I can drive which in turn regulates how much money I can make but brokers are regulated so they they just take whatever they want.

    • Rowen says:

      What you’re describing in your field is happening across all industries at an accelerating rate. In reality, you the owner-operator are really no different from the worker on the line. The “middle men” (the “consolidators” whether they’re corporations, brokers, prescription benefits managers, meat packers, chicken processors, etc) are hammering prices on the actual suppliers, while increasing their prices. Just this week, a bunch of food processors are suing the chicken oligopoly (Tyson, Perdue) for artificially raising wholesale prices. Technology + capital meant death for suppliers.

      Unwinding this consolidation would take a concerted effort by monetary authorities and government regulators. Honestly, I have no faith that the public has the backbone to stomach the changes necessary for this unwind. We didn’t have it 2008. Meanwhile, I’m just gonna pick up nickels in front of this consolidation.

    • Yamilet L Almeida says:

      All comment are right and really need to make some changes, the truck industry is on collapse sooner.

    • Kay Beeman says:

      Hi. I am a new driver. I went to trucking school through crst. Not working for them though, I got off my trainers truck for driving and texting on third day ( she was repeatedly running off the road and jerking back on while I was in the sleeper berth). Anyway, she threw me under the bus when I complained about it. I want to find someone to team with that isn’t trying to run me 14 hours a day. I know a lot of people do it, but just starting out I need a kind soul to give me what these big fleets don’t. Alley backing and good trucking maneuvering skills. They would keep people if the trainers weren’t just interested in making your miles without working too hard. I went out with another dry van company called Western Express. I was a week in, went to Colorado over Vail pass in the snow. Tough stuff. But, I did it. Deal breaker was my trainer put meth ( or at least I think so because I was itchy and stayed up all night) in my water before handing it to me while I drovem. I felt it was a safety issue, and asked for a new trainer. The CA terminal did not have my back, did not test me or her. However, through corporate they said they would fly me out for flatbed training next week in Nashville. Again going out with a corporate trainer. I would love to find someone non- smoking easy going… definitely drug and alcohol free that is motivated and safety minded to work with. ideally both driving 8 hours each and shutting down and get a full 8 hours good regular sleep. Maybe I am dreaming. I really believe you are out there. Then I could work your truck solo if needed after some more backing. I have not had the opportunity to back and take my time to get out and look as needed because my trainers wanted to just have me follow their pointing fingers in because they were in a hurry. The reference points taught to me are not always good because of different setups. I need a lot to practice in a bit, I am great on straight line. Let me know.
      Thank you. I can be out for a long time and keep running.

  11. Petunia says:

    Nobody mentioned that the US Post Office is picking up the last leg of many orders. They also do the first leg of returns. I rarely pay for shipping so many of my orders get delivered by USPS. This has to affect shipping rates in the industry.

    • Paulo says:

      Same in Canada, Petunia.

      We used to get stuff delivered by Fed Ex. It hit a contractor for the last leg. The contractor would show up in a van and honk his horn in the driveway. There was no signage on his van, and if we didn’t immediately run out he bailed. (It’s not like we sit around with our shoes on waiting to run outside). Now, we get a rural Canada Post delivery. The service is awesome. Being rural we know the lady who has the contract. I just ordered some auto parts and she tracked my wife down in the backyard in her potting shed. She said, “I knew the order was important and that Paul was waiting for it”. This is a contractor and not an employee on the clock so I cannot say enough good things about the service.

      USPS will not take heavy packages so the US vendors I use hire Fed Ex. I won’t take delivery from UPS (brown shirt guys) because they do a crappy job in Canada. (They even damaged a tractor I ordered from Arkansas a few years back. Now how do you damage a tractor in the back of a truck?) Local trucking companies, Fed Ex, and Canada Post are top knotch. The lady who runs the local post office says since online surged packages/parcels are most of their business and Canada Post is doing very well from it.

      • Petunia says:

        I wish I could say good things about my postal service, but it has been horrible where I am. After some complaints it has gotten better but it’s still fingers crossed every time I order something.

      • Prairies says:

        These days I trust Canada Post more than Loomis or Fedex. The condition of the parcels are quite different. My courier providers bring me opened or damaged boxes regularly but my Canada Post items rarely suffer a dent.

  12. Ram says:

    Wolf, How about Jacksonville Florida. For a meet up. Tahnks

  13. Lune says:

    Kind of a tangent, but I’m curious why trucking orders are so cyclical (i.e. on a year-to-year basis). Are professional trucking companies unable to plan their equipment needs on a yearly basis? I imagine deliveries are pretty smooth (no one’s stupid enough to ramp a factory up and down every month, unless you’re Tesla :-), so why the extreme cyclical nature of the orders?

    • Jim says:

      It’s actually pretty simple. Class 8 trucks are nearly all made to order, so there is always some amount of lead time. General lifecycles for these vehicles can be planned (about 3-5 years for new trucks in large fleets) but there are plenty of damaged, destroyed or otherwise unprofitable equipment that needs to be replaced at unexpected times. Add to that the constantly changing demand across the industry. Now every company does their best to manage these factors, but there are natural surges in orders for each company which is then multiplied across the industry. Some times you just get a lot of companies that end up needing a higher than average number of trucks all in the same time frame.

      I’d also like to point out that the past 15 or so years have been especially volatile due to the new emissions equipment required on these trucks. There were many, many problems with these new systems (specifically around 2007-8 and 2010-12) that led to higher operating costs. This, along with some other advances in technology, had driven many fleets, big and small, to turn over more of their equipment in a shorter time. This, coupled with the spike in freight demand last year and the introduction of ELD’s (and the perception that it would create tighter capacity), are what contributed to the recent spike of orders.

      So, if my “simple” answer was too much, then try this: Every company has their own replacement schedule with highs and lows. Sometimes, for various reasons, many companies hit a high point at the same time, then everyone panics and puts in more orders ahead of schedule. Eventually everything gets caught up and things settle down for a bit before the next occurrence.

      I’m envisioning waves coalescing as they race toward the beach and… Ok, I’ll stop now

  14. Ohio says:

    I will answer Lune from a manufacturer’s view. The companies building trucks run wide open right to the edge of the cliff. When orders are dropping, they want to make sure they get the trucks built before they are canceled. When orders are strong, they want to pump out as many trucks as possible so a buyer does not switch to another brand before the truck is delivered. Unfortunately for the workers, they become just a commodity. Work all the overtime you can because you may be laid off next quarter. Everything is JIT, including labor.
    On a different note, for those of you familiar with Kenworth W900 and T800 models, the last ones from the Chillicothe Ohio plant (largest Kenworth plant) will be built April 19th. Those same models were built in 1988 when I started in the trucking industry, and I am sad to see them go. The T800 was just a well constructed truck that could take a beating and keep on working, and the W900 decked out in the full chrome package was a Trucker’s truck, even with that huge hood completing hiding the two cars sitting in front of your massive bumper and grille.
    I think the T8 and W9 will still be built in Mexico and Renton, mostly for export. The newer T880 and W990 are like cars-too much plastic and automotive fasteners instead of screws and chrome.

  15. Ken says:

    I’m always receptive to reasoned arguments and data; such as the one’s offered in this analysis. Yet the Dow jones transportation index has exceeded the years high and is pushing higher.

    Or does the maket just not care about data anymore now that a rate cut (they think) is on the table.

  16. ohio says:

    Just to let you know how boom-bust trucking can be on the manufacturing side. I remember once when we hired some new employees and they received their layoff notices before they collected their first paycheck. Again, labor is just another commodity.

  17. Tash says:

    Anyone have any tips on how a small woman owned trucking company can land good contracts?

  18. Frank says:

    I got 3 boys I told them don’t even think about it driving a truck..its a dead end job I hope they hear me and listen

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