Even as economists and investors debate the potential impact of the Trump administration’s ongoing trade wars, the economy got a swift kick from the heavy-duty truck sector last month, demand for Class 8 rigs tumbling by a full 81% compared with year-earlier levels.
That follows a steady decline since the beginning of the year, though July marked the lowest level of orders for the trucks moving much of America’s freight since 2010.
“Fleets continue to take a wait and see approach to 2020 equipment,” Jonathan Starks, the chief intelligence officer for FTR Transportation Intelligence said in a statement. “Potentially higher equipment costs, uncertain demand, and enough available capacity in the market are keeping order activity at bay.”
Complicating matters: the ongoing series of trade wars kicked off by the Trump administration. In the latest salvo, the White House said it would put tariffs of 10% on another $100 billion of Chinese-made imports. China responded by completely canceling purchases of U.S. agricultural goods.
Not only will trucking companies face the possible loss of business shipping such goods, but they also are vulnerable to a broader economic downturn. The possibility of an extended trade war – or worse – has led to a sharp downturn on the stock market this month.
“The economy and freight are still growing, but the latest manufacturing data is not promising,” FTR Vice President David Ake said last month, adding, “Until the tariff situation is resolved, it is risky to quote prices for 2020. Fleets are also reluctant to accept material surcharges with this much ambiguity present.”
Whatever the reason, the sudden downturn is bad news on a number of levels, starting with companies like Freightliner, Mack and Kenworth which were struggling to cope with sales that were outstripping supplies just a couple years ago.
The trucking industry, as a whole, experienced “a year of dynamic growth” in 2018, according to Bob Costello, the chief economist for the American Trucking Associations, with collective revenues of $796.7 billion, up 14%, or about $100 billion, from the year prior.
That’s not likely to be the case for 2019, however. While federal data showed U.S. GDP was up 2.1% during the second quarter of this year, the components linked to goods transportation rose just 0.5% on an annualized basis, according to FTR. That compares with 3.2% last year, and 5.7% in 2017.
For those who might have to place orders for Class 8 – and smaller – trucks, what is already a slowing growth environment “feels worse” because of how strong the economy and, in particular, the good transportation sector, were during the last several years, said Starks. “Most of the risks,” he added, “seem to be on the downside, especially with tariffs and the overall trade climate.”
According to a preliminary analysis by FTR, orders for Class 8 trucks dropped to 9,800 in July, the first time the number slipped below 10,000 in a decade. Another truck tracking firm, ACT Research, estimated a slightly higher 10,200 for July orders, but that would still mark the lowest figure since February 2010, it said.
A year ago, summer orders were averaging around 52,000 a month.
Even if the current trade wars are resolved amicably, there are other factors that worry trucking industry analysts. That includes an ongoing slowdown in the manufacturing sector. According to the Institute for Supply Management, U.S. factory activity dipped in July, marking the fourth straight monthly downturn, and the lowest level of activity since August 2016.
Even without further hits to the economy, FTR anticipates heavy-duty truck production will dip to 275,000 next year, a 22% decline from the Class 8 forecast of 353,000 rigs for all of 2019.