Freight demand may not increase until 2010, truck and trailer orders are down and the economy doesn’t look to be rebounding anytime in the near future, according to FTR Associates’ North American Commercial Truck and Trailer Outlook Report.
“The freight environment can still be described as weak,” the report said. “With housing in a steep recession, the auto markets in a sharp downturn and consumers under severe stress, there are very few commodities where aggregate demand is holding up. Exports continue to support economic growth but much of this freight is not handled by truck.”
The report noted that many fleets have reported their freight demand has fallen substantially in the past six weeks, adding to concern that it will not rebound in the second half of 2009 as originally hoped but stay slow until 2010.
Orders remain weak, with trailers and medium-duty truck sales plummeting over the past several months and Class 8 demand declining, albeit at a smaller rate, FTR said, adding that there will be far less of a “pre-buy” ahead of EPA 2010 than there was in 2007.
“There is no doubt that the EPA mandate did change buying patterns in 2006-07, and will have an impact in 2009-2010, although we don’t see nearly the ‘prebuy’ effect in 2009 as in 2006,” the report said. “The main reason is that the economy was strong in the 1H of 2006 and truckers were making money to modernize the fleet. Freight in 2009 will only start to accelerate mid-year. There won’t be time, freight volumes, or adequate trucker profits to support a big ‘pre-buy’ in 2009, although there may be a small one.”
Backlogs for all equipment remains at historically low levels, FTR said, keeping manufacturers from increasing production over the short term. Inventories for trailers and Class 8 vehicles are at “modest levels,” but medium-duty is overstocked, thereby prevent further building levels in 2009.
In addition, forecasts for Class 8 vehicles have fallen by 35,000 trucks and could be down 60,000 if there is no pre-buy. Inventories have been cut in half since they peaked at 66,157 in February 2007, falling to 36,260 in July 2008. FTR forecasts shipments to decline 1.9% in 2008 to 197,500 units, rise 14.9% in 2009 to 226,800 units and decrease 18% in 2010 to 186,100 units.
Class 4 through 7 vehicles have been even weaker. According to the report, Class 4 sales have had double-digit year-to-year declines for the past six months, Class 5 sales are down 20% year-to-year, Class 6 sales are down 40% year-to-year, and Class 7 sales are down 36.4% year-to-year. Factory shipments for Classes 4 to 5 will grow slightly in 2009 and 2010, but 6 and 7 will continue to plummet.
Trailer production continues to fall and FTR doesn’t see relief until 2010, with total trailer production year-to-date at 100,041 units, compared to 161,545 for the same time period in 2007 and 187,124 in 2006. This can be attributed to greater durability of newer dry van trailers and the large number of trailers produced in 2005 and 2006, the report said.
A current surplus of 53,000 drivers in the second quarter this year will reverse when freight demand returns, leading to increased competition for workers and a possible driver shortage, FTR said.
The overall economy should see two or three more very weak quarters before the economy rebounds, although the housing slump is showing no sign of a bottom.
“Wall Street is in turmoil, with bank takeovers, bankruptcy, and bailout actions sending credit markets into crisis mode,” the report said. “Employment has declined all year and there are growing signs of a more pronounced global slowdown. This could mean a sharper, deeper, and longer downturn.”
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