August 2018 The Roemer Report

August 2018: In Like a Lion: Demand for Class 8 Trucks Roaring

Lions of the trucking industry are growling because they are hungry, not for more business, but for more trucks to take advantage of some of the best freight and market conditions in trucking’s history. They’re roaring for new equipment – not only to increase freight-hauling capacity to meet demand—but to access the latest truck and information technologies to gain new efficiencies operationally.

Explaining the Strain

Explaining what’s straining the trucking industry lately isn’t easy because the stress is coming, for the most part, from relatively good places. Wolf Richter, founder of Wolf Street recently offered his insights, along with some impressive statistics that are revealing the trends, or more specifically the challenges straining the industry today.

“Orders for heavy trucks that haul trailers loaded with anything from junk food to oil-field equipment across the U.S. skyrocketed 141% in June compared to a year ago, to 41,800 orders, making it the highest June ever recorded,” he reports, citing recent transportation data provided by FTR Transportation Intelligence. “For the first six months this year,” Richter explains, “order volume of Class 8 trucks surged nearly 90% from a year ago to a phenomenal 235,050 units.”

Investor and author of Testosterone Pit, a guided tour of sorts describing in very colorful language the “crap” that goes on at a large car dealership, he’s become a pithy observer of the human condition as well as several top commercial sectors. As a successful investor he’s take real notice of how “hot” the trucking and freight industry is getting lately and its effect on truck manufacturing.

Because truck manufacturers can’t keep up with such high demand for the additional capacity required by shippers to meet record, rising freight capacity demand, we are now seeing a “Capacity Crisis” in his eyes. But from his perspective, the sharp uptick in demand is symptomatic of the industry’s boom/bust cycle, fortunately a dynamic that will sort itself out and promote better economics in the long run, given a little time.

It’s push me/pull you as per usual and there are inflationary pressures that will be sending shipping rates further up the scale in the near term, but Richter maintains its just the natural order of macroeconomics playing itself out and the industry is headed toward a bit more equilibrium, explaining “in this cyclical business, with all kinds of ebbs and flows, the transportation ‘capacity crisis’ will work itself out over time.”

The outlook from FTR supports his assertions. “April may be the nadir in this cycle as conditions likely will not get significantly worse for shippers over the balance of the year,” according to FTR, whose stats reveal overall year-over-year rate growth, shippers may see stabilization by 2019 as more capacity becomes available. That forecast has real potential, even with international trade being pushed (by necessity many agree) into fairer territory. Despite the statists’ negative short-term views of recent trade policy, it’s clearly time for reform--in spite of the potential- and likely short-lived- economic pain.

Few economies possess the U.S.’s diversity and efficiency (GDP growth v C02 emissions drop for just one measure), or the energy card like we do; and markets are already adjusting to the potential, betting on strong demand for durable goods—durable goods like the significant backlog of orders for capital equipment (Think shiny, Class 8 tractors) to sustain growth – and its potential to fuel growth, especially for employment and its potential to improve wages--especially for drivers.

Todd Tranausky, a senior FTR analyst explained: “Record truck orders should begin hitting the market in the second half of the year, and we are closely watching the driver situation, which will determine if shippers see improvements as the trucks become available.”

New Trucks, New Drivers?

So it seems pretty clear that there’s going to be a convergence of new trucks and new drivers meeting out on the roads in the relatively near term. That’s a confluence of interests that has real potential to make the industry more attractive to drivers, as the latest drivetrain, driver comfort and informatics technologies begin to make their way into mainstream fleet operations.

If you aren’t aware of the digital disruption occurring in the trucking industry, you may need to pay a little closer attention. It is about ELD, about navigation, it is about dispatch, routing, driver health, public safety and it’s all about the free, real-time exchange of data. Otherwise known as DATA -- all those zeroes and ones that make up the information fleets and drivers are now using to make their working environments better, their operational decisions more effective and ultimately, a safer and more lucrative trade for all.

Analysts at PriceWaterhouse Coopers (PwC) offer a long perspective, but stop short of predicting when exactly IT will be driving the driver out of the cockpit. “It [autonomous, self-driving trucks) must still overcome several obstacles,” finds PwC analysts, “including perfecting driverless software so it can operate in crowded urban environments, rather than only on wide-open highways where traffic flows freely.” In spite of futurist’s alarm-sounding, there’s at least a generation to go before this technology will have universal, commercial application. And its not likely to penetrate too deeply into the U.S.’s denser urban environments for far longer.

Future is Here Go Out and Drive It

Decades of advanced automotive engineering are converging with other equally significant technological advances to bring fresh efficiency, safety and driver productivity to trucks and commercial vehicles of all classes.

The specter of autonomous operation is often interpreted by alarmists as a dystopian nightmare of corporate profiteering that eliminates the messy humans, folks with a more sober, near-term outlook see technology playing a more supportive role. Many expect to see enhanced driver effectiveness and performance with more driver-centric features, vocational design improvements and integrations with data and monitoring and maintenance, as well as improvements in automated sensing technologies that are likely to further reduce a lot of the unpleasant surprises that often confront drivers on the road.

With new orders still climbing, trucking’s manufacturers have even more incentive financially to develop new technologies and offer them to buyers; buyers who are willing to mainstream them operationally because they are affordable, demonstrate cost-effective utility and keep drivers happy on the road.

What makes happy drivers? How about a near silent natural gas electromotive hybrid automatic drivetrain, an air-conditioned cab with an interior designed by Maserati, listening to emails and doing some e-filing because the real-time artificial intelligence dispatcher put you with a platoon of similarly laden, configured Class 8s and everybody is rolling smoothly along, so happy together.

Dreaming aside, there is great incentive for fleet owners and truck owner operators right now to accelerate the pace of on-boarding the latest road-ready technologies that will help attract and keep more drivers on the road.