201906 act webinar.ppt › ... › 201906-act-webinar.pdf · 2019-06-20 · • housing – headed...

Industry ReviewEconomics, Transportation

&Commercial Vehicles

ACT Research WebinarJune 20, 2019

Overview• Introduction – Steve Tam• Economy – Sam Kahan• Transportation – Kenny Vieth• Freight – Tim Denoyer• Class 8 – Kenny Vieth• Used Trucks/Classes 5-7 – Steve Tam• Trailers – Frank Maly• Q&A/Wrap-up – All

ACT Research Co., LLC, Copyright 20192

Check Out Our You Tube Channel

youtube.com/channel/UCm8bQs2nAzycAzVbrjEkteg


Overview• US Economy:

– Economy decelerating back to the 2.0% area– Unemployment rate historically low ‐mid 3% area– Recession probability low but rising;

• “Rolling recessions” (manufacturing, retail, freight likely)• Inflation:

– Price increases around the 1.5% to 2% range• Energy and commodity prices provide volatility• Wage pressures above 3% but still moderate

– Public’s inflation expectations stable• Interest Rates:

– Fed policy posture data driven, moderate and measured– Policy assumes recession costs greater than rising inflation


U.S. Real GDP(2014 – 2020, % change, annualized)


GDP: Consumption strong, trade deficit drag, and housing flat, and business investment decelerating and vulnerableGDP growth slows to 2% or less in out‐yearsSentiment and investment key to outlook

US Economy Is Slowing,But by How Much?

• Current data is mixed– Manufacturing is weak but labor and consumer firm

• Tariffs– Direct effects small and changes in supply chain stretched out

– What if retaliation spreads– Negative effect on consumer sentiment and investment fading

• Growing worries about economy– Inverted yield curve– Hard to predict policy actions– Threat of active hostilities is rising


Federal Reserve Policy

• A lower funds rate, maybe even 50 basis points, is coming

• Err on the side of caution: cost of a recession greater than threat of higher inflation– Consistent below 2% inflation an added impetus

• Policy reaction to trend not one number• Role of markets and Trump in decision likely to be media fodder


Federal Reserve Policy Moves(2015– 2020)


Fed decisions are conflicted between fear of inflation, ,and fear of economic dislocationFed decisions will be data‐driven, well advertised, and moderateFed remains an independent decision maker

Leading Indicators


• Yield curve: Flattening spread• Inversion: 5 to 8 quarter recession lead

• Purchasing Managers’ Indices: Mfg. proxy• NA joins ROW stagnation

• Commodity prices: Implied machinery demand• Rebounding from weakness in Q4, except copper, coal, grain, NG

• Stock market trends: Earnings drive investment• Rebounded from weakness in Q4, until trade breakdown

• Confidence surveys: Confidence supports spending• Took a hit following government shutdown• Coming back slowly

Narrow Yield Spread


Bad news: Past 7 recessions in the U.S. have been led by a yield curve inversionLess Bad: Those leads tend to range from 12 to 18 months

U.S. Treasury Yield Curve

Source: Federal Reserve Board, ACT Research: Copyright 2019

1.761.84

1.93

2.08

2.23

2.422.53

2.672.79 2.83

2.933.01

2.35 2.38 2.35 2.352.21

1.95 1.90 1.932.03

2.14

2.39

2.58

1M 3M 6M 1Y 2Y 3Y 4Y 5Y 7Y 10Y 20Y 30Y1.50

2.00

2.50

3.00

3.50Percent

Current (5-31) Year-Ago (5-31)

PMI: Not A Lot To Like


>54 51-54 45-51 <45Above Trend Trend Flat RecessionSource: Markit Economics

May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19

Global 53.1 53.0 52.7 52.6 52.2 52.0 52.0 51.5 50.7 50.6 50.5 50.4 49.8

United States 56.4 55.4 55.3 54.7 55.6 55.7 55.3 53.8 54.9 53.0 52.4 52.6 50.5

Canada 56.2 57.1 56.9 56.8 54.8 53.9 54.9 53.6 53.0 52.6 50.5 49.7 49.1

Mexico 51.0 52.1 52.1 50.7 51.7 50.7 49.7 49.7 50.9 52.6 49.8 50.1 50.0

Eurozone 55.5 54.9 55.1 54.6 53.2 52.0 51.8 51.4 50.5 49.3 47.5 47.9 47.7

Germany 56.9 55.9 56.8 55.9 53.7 52.2 51.8 51.5 49.7 47.6 44.1 44.4 44.3

France 54.4 52.5 53.3 53.5 52.5 51.2 50.8 49.7 51.2 51.5 49.7 50.0 50.6

Italy 52.7 53.3 51.5 50.1 50.0 49.2 48.6 49.2 47.8 47.7 47.4 49.1 49.7

Spain 53.4 53.4 52.9 53.0 51.4 51.8 52.6 51.1 52.4 49.9 50.9 51.8 50.1

UK 54.4 54.4 54.0 53.0 53.8 51.1 53.1 54.2 52.6 52.0 55.1 53.1 49.1

Russia 49.8 49.5 48.1 48.9 50.0 51.3 52.6 51.7 50.9 50.1 52.8 51.8 49.8

Japan 52.8 53.0 52.3 52.5 52.5 52.9 52.2 52.6 50.3 48.9 49.2 50.2 49.8

China 51.1 51.0 50.8 50.6 50.0 50.1 50.2 49.7 48.3 49.9 50.8 50.2 50.2

India 51.2 53.1 52.3 51.7 52.2 53.1 54.0 53.2 53.9 54.3 52.6 51.8 52.7

Brazil 50.7 49.8 50.5 51.1 50.9 51.1 52.7 52.6 52.7 53.4 52.8 51.5 50.2

Equities Tell Divergent Stories


Confidence


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

80

85

90

95

100

105

110

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Inde

x (1986 = 100)

NFIB Small Business Optimism Index

0102030405060708090

100110120130140150

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Index

Source: The Conference Board, ACT Research Co., LLC: Copyright 2019

January 2000 - May 2019Conference Board: Consumer Confidence

Index 1985 = 100

Key Freight Generating Sectors


• Retail sales – Jobs and confidence strong, limit downside risk... but pace is slower than last summer

• Capital goods – Flat-to-down trend after steady 2017-18 rise

• Housing – Headed down since summer 2018 - buyer interest shaky, affordability issue, millennials may be tilting away

• Auto sales – May sales over 17m saar after rough patch … we think sales will vary around a 16.5m 2019 average

Retail, auto, cap goods moving sideways – housing in retreat

Recession Checklist


Checklist Checkthe box

Central bank begins a series of interest rate increases (1988, 1994, 1999, 2004, 2015)

Yield curve flat

Banks raise credit standards

Overextended sectors pinched by credit squeeze

Shock hits vulnerable, overextended sectors hard (Gulf War 1990; Tech bubble 2001; housing, oil, credit‐collapse 2008)

Freight Outlook Dims


• Freight volumes ultimately drive Class 8 Demand– Economy generates the freight– Freight generates the profits

• Rate is the primary factor moving margins

– Profitability drives C8 demand

• Freight metrics have stagnated/contracted since mid‐Q3’18– Percentages Y/Y 2018 2019– ATA TL Loads +5.2% +4.5% (April)– Cass Shipments +11.9% ‐6.0% (May)– DAT Spot Rate (aggregate, sa) $1.95 $1.61 (May) (17’05 = $1.58)– DAT spot‐contract rate spread +7.6¢ 39.0¢ (May) (mean = 16.4¢)

In a Nutshell


NET FREIGHT: ACT Freight Composite less HD Tractor Productivity

2008 - 2022 (Year/Year)

Source: ACT Research Co., LLC: Copyright 2019

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

0

2

4

6

8

-2

-4

-6

-8

-10

Y/Y % Chg.

ACT Freight Comp. C8 Productiv ity Net Freight

Slowing economy, Post-ELD-rate-spike-productivity-rebound

Strongest tractor fleet growth in 20 years

U.S. Class 8 U-11 Tractor FleetY/Y % Change

1990 - 2024

ACT Research Co., LLC: Copyright 2019

90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 22 24

0

2

4

6

8

10

-2

-4

-6

-8

-10

Trade War Risk Shifting to Consumer

USTR Proposed China Tariff List 4 keyword cloud:


Another Tariff Pre-Ship?

• Tariff threats drove two unusual peaks in H2’18, then an unusually soft Q1’19.


One of These Is Wrong


-10

-5

0

5

10

15

20

80

90

100

110

120

130

10 11 12 13 14 15 16 17 18 19

Y/Y % Chg.Index (2015=100)

Source: American Trucking Associations, ACT Research Co., LLC: Copyright 2019

January 2010 - May 2019

ATA SA Truck Tonnage Index

Wide Rate Spread


-24

-12

0

12

24

36

$1.10

$1.20

$1.30

$1.40

$1.50

$1.60

$1.70

$1.80

$1.90

$2.00

$2.10

$2.20

09 10 11 12 13 14 15 16 17 18 19

Rate Gap (in cents)Freight Rate ($)Contract - Spot GapContract x fuelSpot x fuelSpot SAGap SA

Source: DAT Solutions, ACT Research Co., LLC: Copyright 2019

January 2009 - March 2019 (2000=100)

DAT Trendlines: Aggregate Revenue per Mile Rate

Whither Spot Rates?


67% sensitivity between 3MMA and spot rates suggests dry van rates headed to ‐22%

Contract Rate Pain Acute in 2H


-25

-15

-5

5

15

25

35

10 11 12 13 14 15 16 17 18 19

Contract Rate Pressure (Cents)

Source: DAT Solutions, ACT Research Co., LLC: Copyright 2019


Dry Van Rate Pressure Analysis:Contract less SA Spot rate relative to target rate spread

Rate Pressure Analysis w/5 month lead (6mma)

Actual Contract Rate Y/Y Chg. (3mma)

•15 cents is roughly 7% downward pressure on contract rates•Contract rates inflected down in May, ‐3.1% y/y

Drivers Found


BLS +2.9% y/y in 2018

Data show private fleets and OOs grew capacity in 2018:NPTC: +10% (p)R: +12% yy Q1ATBS: +12%

Private fleets and OOs not counted as truckers in BLS statistics

-20

-15

-10

-5

0

5

10

15

1200

1250

1300

1350

1400

1450

1500

1550

96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

M/M Jobs Chg. (000s)Employment (000s)

Source: BLS, ACT Research Co., LLC: Copyright 2019

January 1996 - May 2019 (SA)Truck Transportation Employment

We Are Here


More Late Cycle Rate Inflection

Less Demand Collapse Rebalancing

Loose Tight

Fleet Capacity

Freight/Loads May

DAT Demand Index: -71% y/yDAT Supply Index: +11% y/y

Current C8 Market Conditions

• Rear‐view mirror– Robust Build and Retail Sales

• In the intersection – Still crazy‐large backlog & BL/BU– Super low cancellations

• Looking down the road:– Soft freight– Rapid C8 capacity expansion– Softer orders– Peaky looking inventories


USC8Tr Leading Indicator Dashboard


Provide 4‐6 month lead for order activity

ACT Tractor DashboardAggregate Tally w/ 4 Month Lead,U.S. C8 Tractor Net Orders (SA)


2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019.

0369

1215182124273033

-3-6-9

-12-15

Tally

0369121518212427303336394245

-3

ThousandsDashboard Aggregate w/ 4-month leadUSC8TRNOsaUSC8TRNOsa 3mma

May 2019

USC8Tr Dashboard w/ 4-Month Lead


Not designed to predict volumes, but acts as a fair proxy

Carrier Profit Tailwinds into 2019


TL Carrier Database: Core CarriersNet Profit Margin

Q1'93 - Q1'19


'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 .

0.01.02.03.04.05.06.07.08.09.0

-1.0-2.0-3.0-4.0

%

Net Profit Margin4QMA

Green bars coincide with periods of peak Class 8 production

Lines Cross, Build Follows


5

10

15

20

25

30

35

40

45

Units (000s)Build Net Orders 12MMA May OEM BU Plan


January 2001 - June 2019

Total Class 8 N.A.: Net Orders 12 Mo. Avg. & Build

Strong Near-Term Backlog Fill Rates


May-ending % Fill rates compared to 10-year avg.

Jun: 96% v. 87%Q3: 95% v. 76%Q4: 59% v. 51%

Class 8 Backlog Fill/OEM Build PlansMay 2019 Ending


83.5 89.4

62.5

28.2

84.6

50.736.3

15.1

1.14.5

35.6

40.2

45.4

Q4 Q1 Q2 Q3 Q4 Q1 Q22019 2020

0.0

20.0

40.0

60.0

80.0

100.0Thousands

Built Filled Empty/Forecast

Most Likely Near-term Error: Longer Cycle Duration

• Inertia drives upside risk into end of 2019– Relatively strong carrier profits & new truck TCO considerations

extend cycle by extra quarter (or two)

• Current 2019 BU Forecast:– Added a couple K’s due to strong Q2, build plan strength

• 2019 Inertia Alternative:– Move peak 1 qtr. to the right– Exacerbates capacity issues, downwards pressure on 2H’20 – 1H’21


Q1 Q2 Q3 Q4 Total2019 89k 92k 87k 73k 342kBUPD 1,418 1,440 1,411 1,234

Q1 Q2 Q3 Q4 Total2019 89k 92k 90k 81k 353kBUPD 1,418 1,440 1,452 1,374

Peaky


10

20

30

40

50

60

70

80

90Units (000s)

Inventory ActualRS Based Target Inventory



Total Class 8: N.A. Inventory Actual & Target

Inventory target based on 2.2 month IN/RS ratio

Used Class 8 Trucks• Average retail at $52,500 in May (P)

• -2% m/m, +5% y/y, +11% ytd• Miles flat-ish, age trending up• Inventory increasing• Waning demand now limiting factor for sales• Exports remain subdued

– Softening global economy, strong USD– April +9% m/m, -10% y/y, -20% ytd– Central America (Guatemala port) at 32% of imports– Mexico at 27%– Still no sign of Vietnam


Pricing Continues to Soften


-25

0

25

50

10

20

30

40

50

60

09 10 11 12 13 14 15 16 17 18 19

Y/Y % ChangeTotal Reported Price ($000)

Class 8: U.S. Used Truck Average Sale Price

Y/Y % Chg. Monthly 6MMA

January 2009 - Preliminary May 2019Same Dealer Sales

-25

0

25

50

10

20

30

40

50

60

70

80

09 10 11 12 13 14 15 16 17 18 19

Y/Y % ChangeTotal Reported Price ($000)Y/Y % Chg. Monthly 6MMA

January 2009 - Preliminary May 2019

Class 8: U.S. 4 to 5 Year Old Used Truck Average Sale Price4 to 5 year old, 400-500,000 miles legacy

Same Dealer Sales

Miles Flat/Age Creeping Up


-20

-10

0

10

20450

500

550

600

650

09 10 11 12 13 14 15 16 17 18 19

Y/Y % ChangeTotal Reported Miles (000s)

Class 8: U.S. Used Truck Average Miles

Y/Y % Chg. Monthly 6MMA

January 2009 - Preliminary May 2019Same Dealer Sales

48

54

60

66

72

78

84

90

96

102Total Reported (Months)

January 2009 - Preliminary May 2019Class 8: U.S. Used Truck Average Age

Same Dealer Sales

Exports Soften


13.514.4

15.0

22.0

15.5

11.8

13.9

23.1

16.2

13.5

0

5

10

15

20

25

'10 '11 '12 '13 '14 '15 '16 '17 '18 '19Source: ITC, ACT Research Co., LLC: Copyright 2019

2010 - 2019(Actual through April 2019)

Used Class 8 Tractor Exports

Units (000s)

Medium Duty• BL/BU ratio moderating• IN/RS ratio on target as inventory continues to grow

– OEM build peaking• Q1’19 = 1,109, Q2’19 = 1,149, Q3’19 = 1,113, Q4’19 = 1,079

• Market will see sales growth in 2019, build will slip on inventory draw down

• Key MD truck demand drivers staying between the lines:– Consumer confidence lower but remains elevated

• Confident consumers are more willing to spend – Construction (resi/non-resi) and light truck and automotive markets are

especially important to MD trucks; slowing growth/contraction in 2019 will be partially offset by services spending and e-commerce

– State and local governments exhibiting moderate growth


N.A. Classes 5-7 Order Distribution(Data through May 2019, annualized)

* Total includes Step Vans

Classes 5-7 Orders

Truck (000s)

Bus (000s)

RV (000s)

Total* (000s)

Past 12 Mo. 209.9 42.8 19.9 282.1

Past 6 (AR) 195.3 49.2 19.7 274.6

Past 3 (AR) 179.1 56.1 19.2 264.5

May (AR) 173.0 33.3 19.3 244.3

May SAAR 255.7


Backlog/Build Pressuring Abating


1234

30

40

50

60

70

80

90

100

10 11 12 13 14 15 16 17 18 19

BL/BU Ratio (Months)Units (000s)BL/BU Ratio Backlog SA BL/BU Ratio


Total Classes 5-7: N.A. Backlog & BL/BU Ratio

Inventory High, But On Target


1

2

3

4

10

20

30

40

50

60

70

10 11 12 13 14 15 16 17 18 19

IN/RS Ratio (Months)Units (000s)IN/RS Ratio Inventory Retail Sales SA IN/RS Ratio


Total Classes 5-7: N.A. Inventory/Retail Sales Ratio


50,000

100,000

150,000

200,000

250,000

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000Cl 5-7 Truck Sales (SAAR)Light Vehicle Sales (SAAR)

Source: ACT Research Co., LLC, MOTOR INTELLIGENCE

Light Vehicle Sales vs. Cl 5-7 Truck Sales

LIGHT VEHICLE RS Cl 5-7 TRUCK RS Poly. (LIGHT VEHICLE RS) Poly. (Cl 5-7 TRUCK RS)


'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20RV 12 12 13 15 17 18 21 22 22 22 23Bus 27 27 32 34 37 38 41 43 43 43 45Truck 79 127 143 153 172 181 171 184 208 202 202Total 119 167 188 202 227 237 233 249 273 268 271

119

167188

202

227237 233

249273 268 271

0

50

100

150

200

250

300Units (000s) 2010 - 2020

N.A. Classes 5-7 Production

46

U.S. Trailer Market Update

** Preliminary May 2019 Industry Data**• Weak orders…lack of 2020 availability• Backlog approaches 191k

•Down 9% m/m but 14% better y/y• Cancels jumps to 2.7% of orderboard• Build surpasses 30k; 3rd best in history• Daily rate up slightly

• OEMs near full capacity


47

Waiting 2020 Commitments…


• 10.5k NSA ‐ Lowest net since Jul’16 • 12.6k SA ‐ Lowest net since Apr’10 • 6th consecutive month of y/y decline

48

U.S. Trailer Backlog

• 54k below Dec’18 peak

• Y/Y spread shrinking

• BL/BU into Dec’19• Expect BL burn through summer

• 2020 orders could reverse the trend


0

2

4

6

8

10

25

50

75

100

125

150

175

200

225

250

275

10 11 12 13 14 15 16 17 18 19

BL/BU Ratio (Months)Units (000s)BL/BU Ratio Backlog



Trailer Industry Backlog & Backlog/Build Ratio

49

Stable Backlog Horizon


50

Churn in the Backlog…

• May surge• Highest volume since Jun’00 (NSA) or Aug’16(SA)

• 60% Dry Van / 20% Reefer

• Flatbeds high %• Meaningful pressure – 3.3k/mo 2019 avg


0

1

2

30

1

2

3

4

5

6

10 11 12 13 14 15 16 17 18 19

Cancellation RateUnits (000s)

Cancellation Rate Cancellation Volume Volume 6MMA Rate 6MMA



Total Trailers: Cancellations & RateExpressed as a Percentage of Backlog

51

When the 2020 Orderboards do open….

• How solid is the Q4’19 BL?• Don’t book 2020 if concerns over Q4• Dry Vans and Reefers do extend into early 2020, but have remained stable

• Production levels maxed out• Booking “intentions”, but softening econ could generate headwinds to convert



'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20Dry Vans 62 120 128 135 155 181 181 183 194 200 160Reefer Vans 28 34 34 36 39 47 47 43 46 50 48Flatbeds 8 15 24 22 26 31 20 24 35 37 25All Others 29 39 45 42 48 50 40 42 48 44 43Total 127 209 231 235 268 308 288 291 323 331 275

127

209231 235

268

308288 291

323 331

275

0

50

100

150

200

250

300

350Units (000s)


2010 - 2020

U.S. Trailer Production

Build Forecasts

2016 2017 2018 2019 2020

NA Class 8 (000s)

228.3 255.6 324.5 341.7 243.5

NA Classes 5-7 (000s)

232.9 248.7 272.7 267.7 270.7

US TrailerTotal Trailers (000s)

287.5 291.0 323.0 331.2 275.6


Pulling the Threads Together


• Economy: – Current conditions decent, consumers are healthy– Too many known‐unknowns in the short to mid‐term to drive investment

• Yield curve, Mexico border, USMCA, China trade, Brexit, Euro tariffs, the Prez

• Freight & Capacity– Volume indicators down– Wide rate spread suggests growing supply‐demand imbalance, rates falling

• Exogenous– Driver situation has eased: Back to “small‐s” shortage– FE, new techs provide strong TCO considerations– Class 8: Used good now, but a lot of trades coming into a softening market

• Current Conditions– Carrier profits coming down – still benefitting from tailwinds– Strong backlogs will keep things good ‐ until truckers change their minds– When those minds change, inventories become problematic ‐ fast

Questions?

Plan to join us at Seminar #61August 12 – 14

Columbus, Indianawww.actresearch.net/seminars-webinars/upcoming-seminars

Next webinar – New DateSeptember 11th at 11:00 Eastern


ACT Research Company, LLC4440 Middle Road

Columbus, IN 47203

Phone: (812) 379-2085Fax: (812) 378-5997

e-mail: [email protected]

201906 act webinar.ppt › ... › 201906-act-webinar.pdf · 2019-06-20 · • housing – headed...

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