Except for trailers, changes to medium duty and Class 8 forecasts this month were small, as published in the latest release of the North American commercial vehicle forecast.
“The trailer forecast receives a more substantive haircut this month, driven primarily by Class 8 overcapacity persisting longer in 2024, weighing heavily on carrier profitability in a period where carriers are more likely to continue spending on Class 8 units due to an expensive EPA mandate landing in 2027,” according to Kenny Vieth, ACT’s President and Senior Analyst.
“There is a historically strong relationship between carrier profits and vehicle demand. Once a quarter, we get to look at the publicly traded truckload carriers’ financial performance. The opening stanza of 2024 was notably bad for the very good carriers who make up the group. In Q1, profit margins collapsed to a 14-year low 2.6% (3.0% seasonally adjusted)”, he added. “While the profitability drop was in part seasonal, tractor capacity additions through 2023’s freight recession, and into 2024, have left carriers contending with below-operating-cost spot freight rates in an overcapacitized market. This in turn is holding down the group’s ability to boost contact rates, and thereby, profits.”
Vieth concluded, “We revisited our trailer forecasts based on these near-term considerations: carrier profits, overstocked trailer dealer inventories that are proving hard to move, a short and soft peak order season, and increasingly diminished backlogs.”
NA CV Forecast Report Overview
The NA CV forecast reports on the trucking industry forecast, providing a status of commercial vehicle demand, tactical and strategic market analysis and forecasts ranging out five years. The report’s objective is to give OEMs, suppliers, investors, and other interested market participants the information they need to make informed decisions in what is traditionally a deeply cyclical market. The report provides a complete overview of the North American markets, touching on relevant demand drivers starting with forward-looking activity metrics, orders and backlogs. Information included in this report covers build and retail sales forecasts and current market conditions for medium- and heavy-duty trucks/tractors, and trailers, North American macroeconomics by country, freight and carrier market performance, used equipment valuation trends, and regulatory environment analysis and impacts.
ACT Research Overview
ACT Research is recognized as the leading publisher of commercial vehicle truck, trailer, and bus industry data, market analysis and forecasts for the North America and China markets. ACT’s analytical services are used by all major North American truck and trailer manufacturers and their suppliers, as well as banking and investment companies. ACT Research is a contributor to the Blue Chip Economic Indicators and a member of the Wall Street Journal Economic Forecast Panel. ACT Research executives have received peer recognition, including election to the Board of Directors of the National Association for Business Economics, appointment as Consulting Economist to the National Private Truck Council, and the Lawrence R. Klein Award for Blue Chip Economic Indicators’ Most Accurate Economic Forecast over a four-year period. ACT Research senior staff members have earned accolades including Chicago Federal Reserve Automotive Outlook Symposium Best Overall Forecast, Wall Street Journal Top Economic Outlook, and USA Today Top 10 Economic Forecasters. More information can be found at www.actresearch.net.
Additional Resources
After pushing our 2024 North America Class 8 production forecast up the previous two months, the forecast is left essentially unchanged in April, as published in the latest release of the North American commercial vehicle forecast. While 2024 retail expectations were unchanged, ACT’s Class 8 production forecast ticked up on a massive production beat relative to expectations in February.
“With the preliminary look at March orders indicating that demand may finally be cooling from non-fundamental levels, and recognizing that Q2 through mid-Q3 is the historically weakest period of the year for orders, we are more comfortable with the 2024 forecast from here,” according to Kenny Vieth, ACT’s President and Senior Analyst.
“With spot rates still at sharp operating loss levels into early April, and carrier profitability halved in the past two years, we continue to pose the question, who’s buying Class 8 tractors at the bottom of the cycle? Certainly, it is not embattled for-hire TL fleets. Our answer over the past year has been private fleets, who have reclaimed freight from load boards and taken market share from for-hire markets.”
He added, “Our expectation that the sharp contraction in for-hire carrier profits would force the market to rebalance in 2024 has given way to private fleets heeding OEMs’ cautions about 2027 costs three years ahead of the EPA’s Clean Truck mandate. Current estimates are putting the day one cost of the mandate, inclusive of taxes, at around $30k per Class 8 unit. Most of that added cost is tied to the warranty and useful life extensions. With around 40% of Class 8 buyers purchasing warranty extensions due to high-mileage operations (for-hire TL), not all carriers will feel the regulation’s bite equally.”
Vieth concluded, “Given the anticipated pre-EPA’27 mandate demand swell into 2026, supply chain integrity is an especially critical CV activity in 2027. Private fleet capacity positioning is just one part of the ‘this purchasing cycle is different’ story along with ongoing domestic vocational and Mexico market strength.”
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