The year 2007 proved a tough period for the trucking industry. The total market for heavy trucks (Class 8) in North America declined by 40 per cent to 207,847 trucks, compared with 348,866 trucks in 2006. The decrease is a consequence of large pre-buy volumes during 2006, the softer US economy with lower freight volumes during 2007 and a drop-off in housing construction. It was difficult for manufacturers to anticipate the extent to which freight conditions and the overall economy worsened as the year progressed. The housing downturn and the related mortgage crisis significantly affected truck tonnage. In 2007, new housing starts were markedly down by 24.7 per cent from 2006. The damage is extending into 2008, with February home starts down 28.4 per cent year-over-year.
In January, new home sales were at their lowest level since 1995. Home sales were struggling before the sub-prime crisis, but it has now become even more difficult for consumers to receive home loans. Without strong consumer demand for building materials, there is less housing-related freight to transport.
Large fleet customers have been severely impacted by this weak freight environment. Though there was some pickup in tonnage during the last part of 2007, tonnage levels remain below what they were during the first half of 2006.
Is there light at the end of the tunnel? The American Trucking Association's (ATA) truck tonnage index has increased over three consecutive months, but they hesitate to say whether freight is truly recovering. Cuts in consumer spending due to record fuel prices, as well as decreasing home values and an unstable job market could cause further weakness.
And industry experts differ in their opinions on tonnage forecasts. ACT Research is now projecting a decline in tonnage for 2008. Now that final data has been collected, ACT has revised its estimated tonnage forecast just this month to reflect a 2 to 3 per cent decline from previous levels through the first two quarters of 2008.
With the economic stimulus package recently signed by the US President, and the Fed acting to decrease its rate by another three-quarters of a point to 2.25 per cent, the economy should be moving toward recovery by the second half of the year, but there are clearly no guarantees.
Diesel fuel prices also made news in 2007, as temporary shortages of experienced personnel, equipment and construction materials in the oil industry contributed to the rising costs. The additional adverse factors are the increasing global demand for diesel and political instability in major oil-producing regions. Oil prices have been pushed to well over the sustainable level, to around $110 per barrel. At nearly $4 per gallon, fuel expenditures continue to significantly eat away at our customers’ bottomlines, which in turn affects truck purchases.
ATA is now predicting a nearly 20 per cent increase in fuel expenditure by the trucking industry, which could further delay a recovery in truck purchases. In fact, ATA confirms that for some fleets fuel costs are beginning to overtake labor costs as their largest single expense.
Last year, Class 8 market share slipped below expectation primarily due to deteriorating freight conditions which affected the large on-highway fleet operators.
Demand in North America remains low, reflecting the weakening economy. This has resulted in lower profitability in the transport industry along with a relatively high level of inventories of new trucks at the dealers.
Market forecasting is difficult, but current expectations are a demand for trucks in 2008 on the same level as in 2007. The North American market for Class 8 trucks is expected to face major challenges over the next five years due to a sluggish economy and a major change in emissions legislation due in 2010.
