Domestic Trade Is Disintegrating: Heavy Truck Orders Plunge To Lowest Since 2010

Tyler Durden's picture

Who says you need trade and logistics to maintain the S&P within 2% of its all time high? Not the Fed, that's who, and it's a wonderful thing because the state of US heavy trucking - the backbone of domestic trade infrastructure and logistical supply chains - suggests the US economy is in a far more dire state than the Fed would ever admit.

According to the latest data from ACT Research released today, June orders for new heavy-duty, or Class 8, trucks plunged to just 13,100, the lowest number since 2010 according to the WSJ (and since 2012 according to Bloomberg, but no need to split hairs here) indicating that trucking companies - the forward-looking bedrock of any viable recovery along with rails - expect little relief from a weak freight market and sluggish economic growth. This month’s order activity was the lowest monthly total since July 2012 and the worst June since 2009.

As the WSJ reports, Trucking companies ordered 13,100 Class 8 trucks, which are used for long-haul routes, the fewest orders since the third quarter of 2010 and a more-than 30% drop from last year. With the manufacturing levels depressed thanks in part due to the strong dollar, and retail inventory levels high, freight volumes have not kept up with the ramp up in truck orders in recent years, leading to overcapacity, said Kenny Vieth, ACT’s president. Truck orders plummeted last fall and have held at low levels throughout 2016. “In a nutshell, Class 8 sales far outpaced freight creation through 2015 and early 2016, causing a capacity glut, which the industry is now paying for” with lower profits, Mr. Vieth said.

That is one explanation. Another is that traditional clients of the OEMs have far better visibility into the order book, and contrary to the rosy projections presented by the Institute for Supply Management, the future is dreadful enough to put all future orders on indefinite hold.

Meanwhile, trucking companies including Swift Transportation have said in recent months they are shifting some vehicles to the spot market and idling others in order to manage the tougher market.

“Fleets are cautious as freight demand has cooled off this year,” said Don Ake, vice president of commercial vehicles at FTR, another research firm which reported similar order numbers. “There are enough trucks to handle freight right now with carriers [in] a wait-and-see mode before adding trucks or replacing older units.”

Which is another way of saying nobody wants to spend on growth because it simply is not there.

Ake added that “the Class 8 market is stuck in a holding pattern, at the bottom end of this cycle. This is what the summer looks like in a market down cycle, so we can expect this level of activity for a couple more months."

There was some optimism: "We do anticipate higher orders later this year.  However, the volume of orders will be determined by the strength of the economy and freight activity at that time."

As the WSJ adds, in another sign of a weakened freight market, the American Trucking Associations said Wednesday that driver turnover at large truckload fleets, which traditionally have trouble keeping drivers, decreased 13 percentage points in the first quarter to 89%--the lowest level since the second quarter of 2015.

“The decline in turnover is reflective of the softening in the freight economy during the first quarter,” said Bob Costello, chief economist at the ATA. And that, in turn, is reflective of the softening in the US and global economy, a softening which today appears set to push the S&P500 back over 2,100 yet again.

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trollster's picture
trollster (not verified) Jul 6, 2016 3:37 PM

Not "since Lehman", so a long way to fall further.

ss123's picture

And the market keeps ramping up...

knukles's picture

It's because of all the electric cars

(What they tell us in California.)

peddling-fiction's picture

Anyone claiming America’s economy is in decline is 'peddling fiction'

https://www.youtube.com/watch?v=PndJjTCDJmw

Look at Biden´s and Ryan´s faces. They do not flinch at all.

Not only domestic trade is disintegrating, but also this weak, slow thread. <chuckle>

flyonmywall's picture

That, and all the bullcrap emissions stuff that the EPA has mandated on diesels, jacking up the cost. It's more cost effective to get an older, non- or pre-bin 5 emissions truck rebuilt, than to get a new one, which gets worse fuel mileage than an old one due to all the unreliable emissions equipment.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) flyonmywall Jul 6, 2016 3:43 PM

Also most of the trucking companies updated their fleet like a year or so ago so the drop in orders was expected since these are long-lived assets

Winston Churchill's picture

Just awaiting the Tesla 18 wheeler.
0-60 in three days,battery lasts two.

Kprime's picture

the battery lasts two days?  maybe, but the downside is the battery takes up 85% of the allowable trailer load.

de3de8's picture

Definitely part of this equation, keeping pre-emission trucks on road longer than past. Urea cost alone a significant add, not to mention maintenance nightmare of current spec trucks.

The Bell Rang's picture

Bullish...............

xyzcracker's picture

They all bought new trucks 2 years ago.

Hungman's picture

Yes every trucking company in the nation decided 2014 was the year to buy trucks. It has nothing to do with the horrible economy or the fact that no one is buying anything or that 2014 was this cycles peak.

ajkreider's picture

I thnk he means that 2014 was the height of the fracking boom.  And all those trucks were needed to haul sand and fluid.  Now they are being retasked.  I'm guessing that if you tried, you could have figured that out on your own.

RealistDuJour's picture

So... How's that Baltic Dry Index doing?  Ignore the man behind the curtain? 

Winston Churchill's picture

Marching back to its 2008 high of 15k.
Just a tad below 700.

silverer's picture

Just looked at the curve. Up, but flattening. Will be interesting to see the trend from here.

Berspankme's picture

Trucking companies should just pronounce themselves GREEN, talk about batteries and act like Elon Musk. Maybe they can get welfare too like Musk

Professorlocknload's picture

You could put a hell of a wide screen tv on a self driving semi muskmobile,,,,Harry Potter in 3D.

silverer's picture

The whole trucking industry is suffering from a number of ills that weren't present just a few short years ago. The main issue is the regulatory environment, resulting in an increased cost of running trucks. Also, the newest heavy trucks, in plain English, suck. The best trucks were built 10-15 years ago. Ask any heavy truck diesel mechanic. Overcooked emissions systems have compromised reliability and longevity. When I talk to drivers, they mostly say "not a good occupation to go into anymore".

rz the 1st's picture

The increase in .gov regs is a large problem, to be sure.

The new fancy emission systems are not designed for short haul capability.

You have to be able to get them hot, and keep them that way to be effective in keeping the systems from having to be re-genned constantly.

A lot of the short haul guys I know are getting their ECMs fiddled and just being rid of the load of crap.

The ones I've had a chance to talk to report better power, better mileage, better driving experience.

Of course, your big fleets are stuck with the dodgy systems, crappy mileage, and near constant maintainence.

Which is OK by me, seeing how I work in a dealership.

If I would ever be bitten with the bug to go truckin' (not likely)

I'd buy me a '99 FLD, tear it down to the rails, rebuild it all, replace all the wiring, put a million miles on it, and get the hell out of the business.

Oh yeah, I'd never set foot in California, either. the stories I hear coming out of there are horrendous.

Keep stackin..... 

Youri Carma's picture

Heavy Truck Orders Plunge To Lowest Since 2010 while: "Going forward, we expect the shift towards trucking from intermodal rail to continue."

Truck traffic, their team notes, is up 5.5% year-over-year as of May, giving the impression of a solid expansion in the U.S.

"Keep this in mind when using either index as a stand-alone measure of economic activity!" conclude the analysts. "Neither is painting a clear picture."

"We can say quite confidently that relative shifts between intermodal rail and truck tonnage are in large part driven by changes in oil prices," wrote the analysts.

FROM: Why Warren Buffett's Favorite Indicator Isn't Giving an Accurate Read of the U.S. Economy - The oil crash changed the calculus for freight http://www.bloomberg.com/news/articles/2016-07-05/why-warren-buffett-s-f...

AIR FREIGHT

Lufthansa Sees Air Freight Yields in ‘Landslide’ Drop on Glut http://www.bloomberg.com/news/articles/2016-07-05/lufthansa-sees-air-fre...

“At the moment we have great problems in air freight, in Germany as well as across Europe,” Peter Gerber, who heads Lufthansa’s cargo operations, said late Monday at a briefing in Frankfurt.

Global growth has slowed, and global trade no longer grows faster than economic activity.

Persian Gulf carriers keep adding capacity although it does not pay off, and capacity growth currently is three times greater than demand growth.”

Delta Leads Airline Drop After Passenger Revenue Gauge Weakens http://www.bloomberg.com/news/articles/2016-07-05/delta-leads-airline-dr...

Cathay Pacific’s Slump Makes Singapore Airlines Look Good: Chart http://www.bloomberg.com/news/articles/2016-07-04/cathay-pacific-s-slump...

SimpleJackBlack's picture
SimpleJackBlack (not verified) Jul 7, 2016 5:16 AM

Who the hell wants to order a heavy truck anyways.