The market for Class 8 trucks in 2024 is unlikely to be primarily driven by the same factor that dominated 2020 through 2023: the global pandemic. As we enter into more “normalcy,” we are at bottom-of-cycle levels regarding freight demand in a very manageable consumer goods inventory environment. This means a lack of demand for over-the-road freight and a continuance of the same theme of the past 18 months.
Going into the new year, there is an overcapacity of trucks and trailers. With some forecasting only 1% to 1.5% GDP growth over the next year, it will feel much like a recession. This is especially likely given that 2024 is a major election year, which traditionally brings economic uncertainty and stagnant decision-making regarding infrastructure. A counterbalance to these somewhat anemic factors is the anticipated 2027 EPA mandate ushering in the first significant emissions standards regulations since 2007. The mandate is expected to drive a large prebuy of commercial vehicles that will be exempt from the emissions standards coming into effect in January 2027.
With new technologies and OEM costs, a 2027 EPA-compliant tractor may cost between 10% and 12% more than its predecessors. Fleet operators will view purchasing pre-emissions units as a mandatory investment, driving purchasing during the years before required compliance.
Navigating a soft economic environment while also looking to prepare and invest for anticipated EPA changes intelligently, however, will be tricky for companies of all sizes. This is particularly true for small to midsized operators, and 2024 is close enough to the EPA change deadline for prebuy activities to be reflected in purchase order metrics.
See also: Trucking By the Numbers 2023
Additionally, while there has been much discussion about the impact of the recent Yellow Corp. bankruptcy on the market, it should be noted that the spec of Yellow’s trucks and trailers and their average age precludes the fleet from being universally appealing to the general trucking community at large. (Yellow was No. 6 on the 2023 FleetOwner 500: For-Hire.) The overall truck and trailer fleet was old, comprised of single-axle day cab trucks, and a large volume of less-than-optimal-length van trailers.
A high volume of the operator’s trucks and trailers were beyond, or right on the cusp of going beyond, their remaining useful life, and these assets are currently widely dispersed across the country at more than 150 locations. As a result, we expect the actual downward price pressure associated with these excess assets being offered in the U.S. marketplace in 2024 and beyond will likely be far less than some have feared.
As a result, it now appears that the fleet’s disposal will be spread throughout the market, with a material portion going for either scrap or use outside of the U.S. As with so many other companies that have gone out of business in the past, it seems that these assets will be absorbed by the market and go quietly into the night.
However, there is no question that Yellow will remain part of the oversupply narrative during 2024. More than anything, the company represents the largest casualty of the roller coaster LTL freight world over the past five years. With the freight market constriction in 2023, Yellow’s exit is, in a manner of speaking, a major correction in the freight space in one single move.
See also: First wave of auctioned Yellow terminals set to fetch $1.9B
Lastly, Mexico has a strong currency and economy poised for growth. Mexican fleet operators need updated trucks and trailers since their commercial fleet assets have been the oldest on average since 1990. This will have a positive impact on new demand from OEMs and used demand from the U.S., helping to clear the way for new inventory utilization in the U.S. There are all sorts of opposing factors that suggest truck and trailer values will neither materially suffer nor benefit from prevailing conditions, making 2024 a somewhat stable, albeit challenging, year for the industry during this cyclical low.
Factors that will continue to affect value
Outside of prevailing macroeconomic market conditions, many factors that affect fleet value seem to hold true. When investing in the commercial transportation space, knowing your customer and understanding their fleet purchasing and acquisition practices, maintenance programs, safety records, and industry focus have major implications regarding collateral values. Is there continuity in the fleet?
Operating a homogenous group of trucks and trailers creates cost savings and predictability regarding service and maintenance costs. It also streamlines third-party support from dealers and parts suppliers. When a company expands through acquisitions, it may experience short- and long-term challenges if it ends up with fleet assets from different years, makes, models, specifications, maintenance histories, and even differing cosmetic appearances.
See also: Class 8 orders: ‘Solid, rather than stellar’
When engaging with borrowers in the transportation market involving Class 8 truck assets, lenders should be aware that while an operation may appear organized and buttoned up on a spreadsheet, a physical inspection during an appraisal process can often be extraordinarily revealing and does affect value. Long haul freight operations rack up the miles, and in that industry segment, mileage is the primary factor impacting asset values.
Vocational-oriented businesses like recycling and waste disposal, however, mean fewer miles incurred but also require operating in corrosive and harsh environments where maintenance is crucial and appearance can and will be affected by the areas in which they operate. Working with a trusted and experienced appraiser is essential to understanding these nuances and how they influence appraisal values and monetization options.
Mitch Hunter is director of transportation, & construction advisory at Hilco Global. He is responsible for business development, sourcing, and relationship management within Hilco’s expanding transportation, energy services, and heavy equipment sectors in valuation and asset acquisition/ liquidation practices.
Bryan Courcier is SVP of transportation & construction advisory within Hilco Valuation Services. He is responsible for business development, sourcing, and relationship management within Hilco’s expanding transportation, energy services, and heavy equipment sectors in valuation and asset acquisition/liquidation practices. Courcier also serves as COO at two of Hilco’s operating companies within the commercial transportation space: H19 Capital, headquartered in Indianapolis, Indiana, and H19 Sutton Leasing in Detroit, Michigan, with roughly $400 million in combined transportation lease portfolio currently under management.
