Demand for tractors is no longer necessarily a measure of market health

Demand for tractors is no longer necessarily a measure of market health

Photo: Jim Allen – FreightWaves

Chart for the week: ACT Research Equipment Orders – Class 8 SONAR: ORDERS.CL8

Class 8 truck orders have remained unusually strong through the first few months of 2024, topping last February by more than 20%, according to ACT Research. Semi-haulers typically dominated this category and were a good indicator of the health of the industry, but like many indicators, the effects of this value have changed.

Ask transportation providers about the state of the national freight market, and they’ll all say the same thing: It’s terrible. National truckload carriers are already tempering investors’ expectations in the first quarter.

Long-term contract rates for dry van freight continue to contract, showing a decline of more than 7% year over year in early March. In other words, there is little reason to expect this category of truck orders to show signs of strengthening.

ACT offers some explanations, noting that private fleet growth and a certain level of increased professional spending thanks to government spending on infrastructure and transportation efforts to nearby areas are supporting demand levels.

This makes sense, given how the domestic shipping market has broken down since the pandemic began in 2020.

Looking at rejection rates by trailer type, the flatbed (FOTRI) market has had a very different trajectory than refrigerated (ROTRI) and dry van (VOTRI). Bid rejection rates for flatbed trucks took some time to rise, peaking after refrigeration and trucks began to decline.

This was largely due to the type of shipping being consumer goods. Flatbed freight is trending towards industrial and construction activity, which has been choked by supply chain and production constraints in 2020-2021.

The flat panel market was healthier after the pandemic because it received less attention and fewer new entrants during that period. The increasing national rejection rate for Flatbed supports the concept that demand for heavy equipment is high in terms of professional efforts as well as in this truckload segment.

The less-than-truckload market has also had a different experience than the broader trucking market, thanks in part to the failure of the nation’s third-largest carrier, Yellow, last year.

LTL contract rates (LCWT1) tend to follow dry truckloads with a lag of six to nine months. Just as LTL contracts showed signs of weakness last spring, news broke about Yellow’s problems with the Teamsters. This appears to be helping keep prices high as shippers rush to diversify their supplier base away from the struggling carrier.

Although the LTL space has not been completely buffered against the general conditions of the trucking market, it has certainly got a strong buffer and has been able to maintain more pricing discipline than other truckload providers. Todd Maiden recently reported on ArcBest as a prime example of this effect.

Taking a sample of publicly traded truckload carriers, most reported a year-over-year decline in average number of trucks.

The two exceptions to this sample are related to acquisitions. Knight-Swift acquired US Xpress, and Schneider acquired M&M Transport Services. Its fleet has not grown beyond the consolidation.

The point is that the narrative that Class 8 demand growth is a combination of ongoing fleet renewal and investment outside of the charter truckload environment has strong support.

A better indicator of the health of the industry is the average price of used trucks, as shown above for 3-year-old (UT3) models reported by ACT Research. Prices fell after the spot market collapse in 2022 and have been falling ever since. This data point has its biases as well but seems more relevant than new orders to explain the current market.

As has been the story with many traditional high-level macroeconomic indicators, Class 8 demand volume’s relationship with its environment and its ability to interpret it has changed. Understanding value beyond conventional thought has become increasingly important.

About the chart for the week

The FreightWaves Chart of the Week is a specific chart from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is selected from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week, a market expert will post a chart, along with comments, directly on the front page. The week’s chart will then be archived on for future reference.

SONAR aggregates data from hundreds of sources, presenting the data in charts and maps and providing commentary on what shipping market experts want to know about the industry in real time.

The data science and product teams at FreightWaves release new datasets every week and enhance the customer experience.

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