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Truck Market Poised For Breakthrough in 2018-2020

After a bit of a slump next year, the North American Class 8 market will turn up in 2018 based on a combination of factors, according to Kenny Vieth, president of ACT Research, in a Stifel Capital Markets call Friday.

The North American Class 8 market was considerably weaker during the first 10 months of 2016 vs. the same time the prior year. The United States, which accounts for 81% of the market, saw a year-over-year Class 8 decline in that time of 47%. Canada, which is 9% of the market, saw a 26% decline in Class 8.

As reported by Fleet Owner, the group expects this year should close out at about 228,000 class 8 trucks built before a continued downward trajectory into 2017, when just over 200,000 units are expected to be manufactured for the North American market,

“We’ve just got too many trucks and not enough freight,” Vieth surmised.

However, several are likely to help the market pick back up starting in 2018, when ACT predicts about 243,000 Class 8 trucks will be built, with perhaps an even bigger upsurge beyond that.

“If everything goes according to the script that I have written, the conditions should be in place for a very nice Class 8 market in 2019 and 2020,” he said.

Vieth pointed out that the Trump Administration’s proposals to push tax cuts, ease the tide of regulations and make large infrastructure investments could begin to bear fruit for the economy and, in turn, trucking after 2018.

“Whether it’s labor, environmental or safety, those (regulations) had been increasing headwinds for business and are likely to be mitigated.”

Even if the new administration ultimately lightens the regulatory burden, Vieth said not to expect GHG Phase II requirements to evaporate. “I think the paybacks are so good on aerodynamics and parasitic drag that even if the Greenhouse Gas Phase II rules get rolled back, the vast majority of that mandate is going to happen because of the bang for the buck for fuel economy relative to cost,” he contended.

“I think the vast majority of the GHG Phase II proposal is almost ‘baked in the cake,’ regardless of what the Trump Administration does.”

A meaningful change in trucking is on the way with electronic logging devices, or ELDs, ACT believes. The group speculates that the coming ELD mandate is likely to squeeze perhaps significant capacity out of the market.

Midsize truckload carriers, which make up about 10% of the market, will lose about 5% of their numbers, or about 4,000 trucks, ACT predicts. Small truckload carriers, which make up about 20% of the market, will lose a more substantial portion of their total at 10%, which amounts to 16,000 trucks.

ACT believes owner-operators will be most affected. Those make up 30% of the market, and they could lose 15% of their 240,000 total, or about 36,000 trucks. All accounted for, ACT estimates that the ELD fallout will amount to 56,000 trucks, which is 3.7% of total tract fleet capacity or 7.0% of for-hire fleet capacity.

“This is a pretty meaningful takeout,” Vieth said.

Shippers and insurers eventually could become a factor in fleets having ELDs, he contended.  “Now that it becomes a law, do shippers and insurers start to care about whether the brokered truckers they’re hiring are compliant?” he pointed out. “At some point, this probably starts to matter.”

ACT believes that the current buying/ replacement rates for tractors are on a cyclical schedule that will pick up as 2017 progresses and continue climbing from 2018 into much of 2020. And around 2018, other market forces could make for some bright years for Class 8 in North America before the cycle falls off naturally in 2021.

“We do think there’s a trade cycle. All of the trucks that were bought in 2012, ’13, ’14 and ’15, as we look out to 2020, our [tractor] trade cycle model begins to ramp up pretty well,” Vieth said. “So if trucker profitability is in place then, there’s likely to be a decent trade cycle as we look out to the end of the decade.”

Read full Fleet Owner story here.

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