January 6, 2020

FTR: Trucking fleets "very cautious" amid freight market uncertainty in 2020

Firms follow "wait and see" approach as good fleets make money and weak fleets exit the industry, FTR says.

By DC Velocity Staff

Trucking fleets in North America are being "very cautious" amid uncertainty about the forces acting on freight markets in 2020, and are buying only enough new trucks to meet demand for the next few months, according to a report from industry consulting firm FTR.

The preliminary count for North American Class 8 orders for December 2019 "remained stable" at 20,000 units, Bloomington, Ind.-based FTR said. That number continues the industry's average of just under 20,000 units a month throughout the fourth quarter. That rate is "basically right at replacement demand," indicating that fleets do not plan to expand their capacity in the new year, FTR found.

"This is as balanced and stable as you are going to see in Class 8 ordering," Don Ake, FTR's vice president commercial vehicles, said in a release. "Fleets are ordering trucks according to their standard replacement cycles and also for normal delivery cycles. They are not speculating about the future direction of the freight market because there is too much uncertainty. This is a 'wait and see' approach.  

December's order count capped off a weak year for new truck orders, marking the first time in 2019 that the industry finally caught up to its red-hot pace of truck orders in 2018. The report echoes similar findings by FTR for previous months, as fleets have acted cautious in the face of a highly uncertain business environment roiled by trade and political turmoil.

"The freight market is strong, but growth has stalled. The good fleets are making money, the weak fleets are leaving the industry. It is a rebalancing environment," Ake said. "Fleets have the funds to replace old units and with a growing economy, they have the confidence to do so. However, the equipment market is in a holding pattern due to economic and political factors. The political uncertainty will only intensify up to the election."

FTR's analysis meshed with a report today from the investment firm Baird Equity Research, which predicted that the transportation and logistics sector would continue to be "soft" until the current freight cycle bottoms out during 2020 and begins to recover in the second half of the year.

"Trends through year-end 2019 remained soft, consistent with expectations for a weak 'peak' shipping season and still-challenged industrial trends in both the U.S. and globally," Baird's senior research analyst, Benjamin Hartford, said in a release. "Industry growth rates, broadly speaking, have not yet troughed, with weak readings across modes, highlighted by weak rail volume growth and expectations for a competitive truckload pricing bid season."

Baird's measure of the market was informed by the most recent Purchasing Managers' Index (PMI), an economic indicator that shows the prevailing direction of economic trends in the manufacturing and service sectors.

Looking at the economy overall, December's U.S. ISM PMI reading of 47.2 fell sequentially from November's 48.1, marking a new low point for the current business cycle and falling below economists' estimate of 49.0), Baird said. And in a more specific measure of freight growth, the "new orders" sub-component of the PMI also fell sequentially to 46.8, its lowest reading in over a decade (since April 2009).

Despite those gloomy numbers, Baird says the cycle is probably near its end. "In total, we see 2020 as shaping up to be a year in which fundamentals remain soft but one that represents a bottom in the current freight cycle," Hartford said in the release. "We view low-/mid-single-digit declines [year over year] as likely, but expect the pace of declines to moderate throughout [the first half of 2020]. Spot pricing growth could turn positive in [the second quarter]."

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