The market for heavy commercial vehicles faces a weak outlook for the coming two years, due to a confluence of factors, according to a study released Thursday.
Three factors weighing on the sector include: demand, supply, and timing, according to the Columbus, Ind.-based analyst and forecasting firm ACT Research. Among those, variables like the oversupply of equipment have been on the radar for a long time, while others, like the growing weakness in manufacturing and the broader economy, have come on slowly and inexorably over several months, the firm said.
"The speed at which the economy is progressing, or not in the case of the manufacturing sector, is insufficient to absorb the capacity overhang that was built in 2019. If railroad and port activity are any indication, the freight slowdown is accelerating into year's end and is as broad-based as it is disconcerting," Kenny Vieth, ACT's president and senior analyst, said in a release.
"ACT estimates that truckers purchased around 4 percentage points to 5 percentage points of capacity above the economically prescribed rate in 2019, leaving the industry awash in excess equipment, most of which was added by private fleets," Vieth said.
The report follows two other grim forecasts for the trucking sector released this week, the first showing that U.S. truckers hauled less freight in November and trucking companies saw higher driver turnover in the third quarter; and the second finding that carrier profitability is heading toward tougher business conditions in 2020.
The solution to the market's imbalance will require a "visible spark" that propels higher growth levels in the U.S. economy, Vieth said. "This has to occur in time to drive heavy duty market improvement into 2021," he said. "The process for this goes something like: Rising freight absorbs capacity, spot rates improve, contract rates recover, orders accelerate and backlog growth ensues, and then with comfort in new demand levels, supply chain are ramped. That connect-the-dots process will unlikely be finished in time to materially improve activity into 2021."
ACT Research: Three Components Drive ACT Research Forecast Cuts to CV Demand through 2021https://t.co/PlVYPANZ0A— ACT Research (@actresearch) December 26, 2019