201904 act webinar.pptact research webinar april 18, 2019. overview • introduction – steve tam...

Industry ReviewEconomics, Transportation

&Commercial Vehicles

ACT Research WebinarApril 18, 2019

Overview• Introduction – Steve Tam• Economy, Transportation, Freight, Class 8

– Kenny Vieth• Used Trucks/Classes 5-7 – Steve Tam• Trailers – Frank Maly• Q&A/Wrap-up – All/Steve Tam

ACT Research Co., LLC, Copyright 20192

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Economy• Short to mid‐term

– Fed: no rate cuts in ’19, cessation of QT by Sep. • Hints at economic weakness • And flat/inverting yield spread

– Trade/tariff uncertainty constrains investment– Global economic weakness sapping domestic mfg.

• Germany, Brexit, China– Tax cut tailwinds fading on calendar overlap– Consumers: not much pent‐up demand 10 years into cycle– Freight‐heavy sectors tiring

• Manufacturing; Automotive; Housing• Domestic and global softening risk to commodity prices


Narrow Yield Spread


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

10 11 12 13 14 15 16 17 18 19

Interest Rate (%)1 Year 2 Year 5 Year 10 Year

Source: Federal Reserve Board, ACT Research Co., LLC: Copyright 2019

January 2010 - April 2019U.S. Treasuries, Constant Maturity Rates

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18

Rate Spread (ppts)

Yield SpreadNegative GDP

Source: Federal Reserve Board, ACT Research Co., LLC: Copyright 2019

January 1970 - March 2019

Yield Curve1-Year and 10-Year Treasuries

Bad news: Past 7 recessions in the U.S. have been led by a yield curve inversionLess Bad: Those leads tend to range from 12 to 18 months

Global Manufacturing Economy Slowing


>54 51-54 45-51 <45Above Trend Trend Flat Recession

Source: Markit Economics

Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19

Global 53.3 53.5 53.1 53.0 52.7 52.6 52.2 52.0 52.0 51.5 50.7 50.6 50.6

United States 55.6 56.5 56.4 55.4 55.3 54.7 55.6 55.7 55.3 53.8 54.9 53.0 52.4

Canada 55.7 55.5 56.2 57.1 56.9 56.8 54.8 53.9 54.9 53.6 53.0 52.6 50.5

Mexico 52.4 51.6 51.0 52.1 52.1 50.7 51.7 50.7 49.7 49.7 50.9 52.6 49.8

Eurozone 56.6 56.2 55.5 54.9 55.1 54.6 53.2 52.0 51.8 51.4 50.5 49.3 47.5

Germany 58.2 58.1 56.9 55.9 56.8 55.9 53.7 52.2 51.8 51.5 49.7 47.6 44.1

France 53.7 53.8 54.4 52.5 53.3 53.5 52.5 51.2 50.8 49.7 51.2 51.5 49.7

Italy 55.1 53.5 52.7 53.3 51.5 50.1 50.0 49.2 48.6 49.2 47.8 47.7 47.4

Spain 54.8 54.4 53.4 53.4 52.9 53.0 51.4 51.8 52.6 51.1 52.4 49.9 50.9

UK 55.1 53.9 54.4 54.4 54.0 53.0 53.8 51.1 53.1 54.2 52.6 52.0 55.1

Russia 50.6 51.3 49.8 49.5 48.1 48.9 50.0 51.3 52.6 51.7 50.9 50.1 52.8

Japan 53.1 53.8 52.8 53.0 52.3 52.5 52.5 52.9 52.2 52.6 50.3 48.9 49.2

China 51.0 51.1 51.1 51.0 50.8 50.6 50.0 50.1 50.2 49.7 48.3 49.9 50.8

India 51.0 51.6 51.2 53.1 52.3 51.7 52.2 53.1 54.0 53.2 53.9 54.3 52.6

Brazil 53.4 52.3 50.7 49.8 50.5 51.1 50.9 51.1 52.7 52.6 52.7 53.4 52.8

Recession Checklist


Checklist Checkthe box

Central bank begins a series of interest rate increases (1988, 1994, 1999, 2004, 2015)Yield curve flatBanks raise credit standardsOverextended sectors pinched by credit squeezeShock hits vulnerable, overextended sectors hard (Gulf War 1990; Tech Meltdown 2001; housing, oil, credit-collapse 2008)

USC8Tr Leading Indicator Dashboard


ACT Research Class 8 Tractor DashboardCategory Metric Feb‐18 Mar‐18 Apr‐18 May‐18 Jun‐18 Jul‐18 Aug‐18 Sep‐18 Oct‐18 Nov‐18 Dec‐18 Jan‐19 Feb‐19

Green Minus Red Tally 9 5 8 7 5 3 2 2 -5 -5 -4 -4 -6Positive Indicators (Green) 10 7 8 8 6 6 6 6 3 4 5 4 3Neutral Indicators 4 6 7 6 8 6 5 5 4 2 1 3 3Negative Indicators (Red) 1 2 0 1 1 3 4 4 8 9 9 8 9

ISM‐PMI Index 60.7 59.3 57.9 58.7 60.0 58.4 60.8 59.5 57.5 58.8 54.3 56.6 54.2Non‐Auto Durables Mfg Output** 2.0 2.2 2.5 3.0 3.3 3.4 3.7 3.8 4.0 4.2 4.6 4.6 4.2Consumer Spend, Goods only** 4.5 3.9 3.7 3.7 3.6 3.7 3.6 3.3 3.4 3.9 4.0 4.0 4.0Residential Const Expend (real) ** 3.1 2.4 3.4 3.7 2.5 1.6 -0.4 -3.0 -5.5 -8.0 -10.3 -11.9 -11.0Dow Jones Trucking Stock Index 820.8 832.2 800.4 849.2 812.1 833.9 860.1 878.8 774.9 799.0 700.0 769.0 812.4

Freight ATA TL Loads** 6.5 6.3 5.7 5.1 4.8 3.9 2.2 1.1 0.7 0.5 -0.4 -0.1 0.1DAT Transcore Loads/Truck 10.5 8.9 8.8 8.5 9.7 8.8 8.2 7.1 5.4 6.2 7.2 7.1 6.3DAT Aggregate Contract/Spot Spread 3 2 6 8 -3 8 20 19 25 21 22 28 36DAT Dry Van Spot Rate* 29.7 30.0 26.6 22.6 24.8 22.4 15.6 5.3 -2.3 -3.4 -4.9 -14.6 -12.8ATA TL Loads/US Cl8Tractor Pop Growth Gap -0.4 -0.7 -1.4 -2.0 -2.5 -3.5 -5.5 -6.9 -7.9 -8.6 -9.9 -10.1 -10.1

ACT data Cl 8 Cancellations (SA) 3953 4536 2910 4899 4383 6162 7390 7085 6534 6976 5589 4887 5566Cl 8 I/S ratio (SA) 2.04 2.27 2.26 2.40 2.21 2.41 2.45 1.89 2.36 2.38 2.10 2.50 2.30Class 8 Inventory Level (000 SA) 55.2 56.0 56.3 53.7 56.6 62.9 62.1 61.2 59.7 61.9 62.6 69.5 70.4Class 8 Net Orders to Build (6mma,SA) 1.44 1.56 1.57 1.65 1.69 1.72 1.81 1.79 1.77 1.62 1.45 1.18 0.92ACT For Hire ‐ Volume less Capacity 61.1 47.3 59.6 60.9 54.0 56.6 55.2 50.5 55.5 46.0 45.3 45.6 42.7

All measures are levels, except *=Year/Year % Change and **=12 month CAGR Rate of Change

Macro & Financial

Provide 4‐6 month lead for order activity

USC8Tr Dashboard w/ 4-Month Lead


ACT Tractor DashboardAggregate Tally w/ 4 Month Lead,U.S. C8 Tractor Net Orders (SA)

ACT Research Co., LLC: Copyright 2019

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019.

0369

1215182124273033

-3-6-9

-12

Tally

0369121518212427303336394245

ThousandsDashboard Aggregate w/ 4-month leadUSC8TRNOsaUSC8TRNOsa 3mma

February 2018Not designed to predict volumes, but acts as a fair proxy

In a Nutshell


U.S. Class 8 U-11 PopulationY/Y % Change

1990 - 2024


90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24

0

2

4

6

8

10

-2

-4

-6

-8

-10

NET FREIGHT: ACT Freight Composite less HD Tractor Productivity

2008 - 2022 (Year/Year)

Source: ACT Research Co., LLC: Copyright 2019

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

0

2

4

6

8

-2

-4

-6

-8

-10

Y/Y % Chg.

ACT Freight Comp. C8 Productiv ity Net Freight

Slowing economy, Post-ELD-rate-spike-productivity-rebound

Strongest tractor fleet growth in 20 years

Freight Outlook Dims• Freight volumes ultimately drive Class 8 Demand

– Economy generates the freight– Freight generates the profits– Profitability drives C8 demand

• Freight metrics have stagnated/slowed since mid‐Q3’18– Y/Y 2018 2019– ATA TL Loads 3mma +5.1% ‐0.9% (Feb.)– DAT Spot Rate (sa) $1.93 $1.67 (Mar.)– DAT rate spread (sa) ‐5.7¢ 30.3¢ (mean =16.4¢)– Cass Shipments +11.4% ‐2.1% (Feb.)


Wide Rate Spread


-24

-12

0

12

24

36

$1.10

$1.20

$1.30

$1.40

$1.50

$1.60

$1.70

$1.80

$1.90

$2.00

$2.10

$2.20

09 10 11 12 13 14 15 16 17 18 19

Rate Gap (in cents)Freight Rate ($)Contract - Spot GapContract x fuelSpot x fuelSpot SAGap SA

Source: DAT Solutions, ACT Research Co., LLC: Copyright 2019

January 2009 - March 2019 (2000=100)

DAT Trendlines: Aggregate Revenue per Mile Rate

Productivity Re-engaging


ATA Truck Tonnage Index & ATA Truck Loads IndexJanuary '93 - February '19 (2000=100)

Source: American Trucking Associations, ACT Research Co., LLC: Copyright 2019

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019 .

5060708090

100110120130140150160170

Index

0102030405060708090100

-10-20

% Spread

ATA Loads Index SA 3mmaATA Tonnage

Index SA 3mma

Tonnage-Loads Gap (R)

Notice sharp “density” uptick in 2H’18

Drivers Found


BLS +2.6% yy

Anecdotes suggest that private fleets and OOs added capacity in 2019

NPTC at ACT seminar #60:“Surveyed [private] fleets added 9% to capacity in 2018”

Fleet at NPTC (4-16) “We have drivers coming to us looking for jobs”

Private fleets and OOs not counted as truckers in BLS statistics

-75

-25

1200

1300

1400

1500

1600

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

M/M Jobs Chg. (000s)Employment (000s)

Source: BLS, ACT Research Co., LLC: Copyright 2019

January 1996 - March 2019 (SA)Truck Transportation Employment

We Are Here


More Late Cycle Rate Inflection

Less Demand Collapse Rebalancing

Loose Tight

Fleet Capacity

Freight/Loads March

DAT Demand Index: -54% y/yDAT Supply Index: +36% y/y

Current Market Conditions• Rear‐view mirror

– Robust Build and Retail Sales

• In the intersection – Still crazy‐large backlog & BL/BU– Super low cancellations

• Looking down the road:– Slowing freight growth– Rapid C8 capacity expansion– Softer orders– Peaky looking inventories


Carrier Profit Tailwinds into 2019


TL Carrier Database: Core CarriersNet Profit Margin

Q1'93 - Q4'18


1234123412341234123412341234123412341234123412341234123412341234123412341234123412341234123412341234123493 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0%

Net Profit Margin4QMA

Green bars coincide with periods of peak production

If , the Lines Cross in May


Text Box

5

10

15

20

25

30

35

40

45Units (000s)

Build Net Orders 12MMA



Total Class 8 N.A.: Net Orders 12 Mo. Avg. & Build

Apr.–Aug. Assumptions:NO = 15k/mo.BU = SOI OEM Plan ~30k/mo.

August BL:180kBL/BU: 6.0 months

Strong Near-Term Backlog Fill Rates


Feb.-ending % Fill rates compared to 10-year avg.

Q2: 115% v. 84%Q3: 84% v. 52%Q4: 71% v. 38%

Class 8 Backlog Fill/OEM Build PlansMarch 2019 Ending


83.5 89.4105.8

75.5

49.3

22.0

-13.5

14.4

21.5

Q4 Q1 Q2 Q3 Q4 Q12019 2020

0.0

20.0

40.0

60.0

80.0

100.0Thousands

Built Filled Empty /Forecast

From In-Line to Peaky


10

20

30

40

50

60

70

80Units (000s)

Inventory ActualRS Based Target Inventory



Total Class 8: N.A. Inventory Actual & Target

Inventory target based on 2.2 month IN/RS ratio

Pulling the Threads Together• Economy:

• Current conditions decent, consumers are healthy• Too many known‐unknowns in the short to mid‐term to drive investment

– Flat yield curve, Mexico border, China trade, Brexit, Euro zone, the Prez

• Freight & Capacity• Volume indicators flat to down• Wide rate spread suggests supply‐demand imbalance, falling contract

• Exogenous• Driver situation has eased: Back to “small‐s” shortage• FE, new techs provide strong TCO considerations• Used good now, but big trades coming into a diminishing market

• Current Conditions• Carrier profits coming down ‐ but from record levels• Strong backlogs will keep things good ‐ until truckers change their minds• When those minds change, inventories become problematic ‐ quickly


Significant MPG Strides since EPA’10


U.S. C8 Tractor Fleet Fuel Economy2019-ending U-15 Population


~6mpg27.8%

6.5-7mpg13.3%

>7mpg32.2%

>8mpg26.7%

All C8 units up to EPA'10

EPA'10: 2011-2012

GHGp1: 2013-2016

Pre-GHG2: 2017-2019

Fuel Economy EstimatesU.S. Tractor Fleet MPG

1990 - 2024 Forecast


1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024 .

0

1

2

3

4

5

6

7

8

9

10Fuel Economy (MPG)

0

5

10

15

20

25

30

35

40

45

-5

Current vs. Fleet % Chg.

Current MY vs. Avg. Fleet Fuel Economy

(Right Axis)

Current Model MPG Estimate

Installed Fleet MPG Model

Most Likely Near-term Error: Longer Duration

• Inertia drives upside in 2019– Relatively strong carrier profits & new truck TCO considerations

extend cycle by extra quarter (or two)

• Current 2019 BU Forecast:– Add a couple K’s due to strong March, build plan strength

• 2019 Inertia Alternative:– Move peak 1 qtr. to the right– Exacerbates capacity issues, downwards pressure on 2H’20 – 1H’21


Q1 Q2 Q3 Q4 Total2019 89k 92k 87k 71k 338kBUPD 1,418 1,433 1,374 1,183

Q1 Q2 Q3 Q4 Total2019 89k 92k 90k 81k 352kBUPD 1,418 1,445 1,444 1,373

Used Class 8 Trucks• Average retail at $50,600 in March (P)

• -4% m/m, +4% y/y, +10% ytd• Miles and age trending up• Lack of inventory holding sales back• Exports off to a soft start in 2019

– January -32% m/m, -31% y/y and ytd– Central America (Guatemala port) imported 40% of

January volume– Mexico at 30%– Vietnam (China?) not on the board yet


Price Momentum Slowing

-25

0

25

50

10

20

30

40

50

60

09 10 11 12 13 14 15 16 17 18 19

Y/Y % ChangeTotal Reported Price ($000)

Class 8: U.S. Used Truck Average Sale Price

Y/Y % Chg. Monthly 6MMA

January 2009 - Preliminary March 2019Same Dealer Sales


-25

0

25

50

10

20

30

40

50

60

70

80

09 10 11 12 13 14 15 16 17 18 19

Y/Y % ChangeTotal Reported Price ($000)Y/Y % Chg. Monthly 6MMA

January 2009 - Preliminary March 2019

Class 8: U.S. 4 to 5 Year Old Used Truck Average Sale Price4 to 5 year old, 400-500,000 miles legacy

Same Dealer Sales

Miles & Age On the Rise

-20

-10

0

10

20450

500

550

600

650

09 10 11 12 13 14 15 16 17 18 19

Y/Y % ChangeTotal Reported Miles (000s)

Class 8: U.S. Used Truck Average Miles

Y/Y % Chg. Monthly 6MMA

January 2009 - Preliminary March 2019Same Dealer Sales

60

66

72

78

84

90

96Total Reported (Months)

January 2009 - Preliminary March 2019Class 8: U.S. Used Truck Average Age

Same Dealer Sales


Exports Soften

13.514.4

15.0

22.0

15.5

11.8

13.9

23.1

16.5

14.5

0

5

10

15

20

25

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19Source: ITC, ACT Research Co., LLC: Copyright 2019

2010 - 2019(Actual through January 2019)

Used Class 8 Tractor Exports

Units (000s)


Medium Duty• BL/BU ratio moderating• IN/RS ratio on target as inventory continues to grow

– OEM build creeping up• Q1’19 = 1,114, Q2’19 = 1,144, Q3’19 = 1,150

• Market will see sales growth in 2019, build will slip on inventory draw down

• Key MD truck demand drivers staying between the lines:– Consumer confidence lower but remains elevated

• Confident consumers are more willing to spend

– Construction (resi/non-resi) and light truck and automotive markets are especially important to MD trucks; slowing growth in 2019 will be partially offset by services spending and e-comm

– State and local governments exhibiting moderate growth


N.A. Classes 5-7 Order Distribution(Data through March 2019, annualized)

* Total includes Step Vans

Classes 5-7 Orders

Truck (000s)

Bus (000s)

RV (000s)

Total* (000s)

Past 12 Mo. 215.7 42.1 20.7 286.7

Past 6 (AR) 214.6 39.6 19.6 283.0

Past 3 (AR) 199.7 48.1 22.1 279.0

March (AR) 162.6 56.3 21.0 247.7

March SAAR 227.4


Backlog/Build Pressuring Persists

1234

30

40

50

60

70

80

90

100

10 11 12 13 14 15 16 17 18 19

BL/BU Ratio (Months)Units (000s)BL/BU Ratio Backlog SA BL/BU Ratio


Total Classes 5-7: N.A. Backlog & BL/BU Ratio


Inventory On Target

1

2

3

4

10

20

30

40

50

60

70

10 11 12 13 14 15 16 17 18 19

IN/RS Ratio (Months)Units (000s)IN/RS Ratio Inventory Retail Sales SA IN/RS Ratio


Total Classes 5-7: N.A. Inventory/Retail Sales Ratio


50,000

100,000

150,000

200,000

250,000

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000Cl 5-7 Truck Sales (SAAR)Light Vehicle Sales (SAAR)

Source: ACT Research Co., LLC, MOTOR INTELLIGENCE

Light Vehicle Sales vs. Cl 5-7 Truck Sales

LIGHT VEHICLE RS Cl 5-7 TRUCK RS Poly. (LIGHT VEHICLE RS) Poly. (Cl 5-7 TRUCK RS)


'11 '12 '13 '14 '15 '16 '17 '18 '19 '20RV 12 13 15 17 18 21 22 22 22 23Bus 27 32 34 37 38 41 43 43 43 45Truck 127 143 153 172 181 171 184 208 202 202Total 167 188 202 227 237 233 249 273 268 271

167188

202

227237 233

249273 268 271

0

50

100

150

200

250

300Units (000s) 2011 - 2020

N.A. Classes 5-7 Production


U.S. Trailer Market Update–** Preliminary March 2019 Industry Data**

• Early orders filled 2019 build slots• Backlog has eased since December peak• Orders have softened in response to extended backlogs

• Cancels higher, generally within % target• Build driving the latest story line


U.S. Trailer Backlog


• We’re now working the orderboard

• Well above y/y, but measurably below the peak

• Strong build with easing backlog reduces BL/BU

• Expect BL burn through summer

U.S. Trailer Market… Orders in a Holding Pattern


• Expect continued modest order volumes• 2020 Orderboard opening?

•OEM concern over extending commitments• H2’19 – Mkt Capacity vs Transport Demand

U.S. Trailer Production at Near-Record Levels


• March >30k units• Daily rate helped by red tags

• OEMs building at, or near, efficient capacity•Capacity increases?

• Still hearing materials & component challenges

-40-20020406080100120

5

10

15

20

25

30

35

10 11 12 13 14 15 16 17 18 19

Y/Y % ChangeUnits (000s)

Total Trailers Build

Y/Y % Change Build SA Build


January 2010 - March 2019Year Over Year Percent Change

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20Dry Vans 62 120 128 135 155 181 181 183 194 200 160Reefer Vans 28 34 34 36 39 47 47 43 46 50 48Flatbeds 8 15 24 22 26 31 20 24 35 37 25All Others 29 39 45 42 48 50 40 42 48 44 43Total 127 209 231 235 268 308 288 291 323 331 275

127

209231 235

268

308288 291

323 331

275

0

50

100

150

200

250

300

350Units (000s)


2010 - 2020

U.S. Trailer Production


Build Forecasts

2016 2017 2018 2019 2020

NA Class 8 (000s)

228.3 255.6 324.5 337.0 245.6

NA Classes 5-7 (000s)

232.9 248.7 272.7 267.7 270.7

US TrailerTotal Trailers (000s)

287.5 291.0 323.0 330.6 275.2


Questions?

Next webinarJune 20th at 11:00 Eastern

Plan to join us at Seminar #61August 12 – 14

Columbus, Indianawww.actresearch.net/services/conferences/


ACT Research Company, LLC4440 Middle Road

Columbus, IN 47203

Phone: (812) 379-2085Fax: (812) 378-5997

e-mail: [email protected]

201904 act webinar.pptact research webinar april 18, 2019. overview • introduction – steve tam...

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