Heavy-duty truck market ‘doesn’t get much better than this,’ analyst says

The truck freight market in the United States softened in the first quarter, from the previous period, according to a recent U.S. Bank report. But first-quarter softening is not unusual as the volumes are typically lower in the period compared to the previous one. Meanwhile, the heavy-duty truck market remains as strong as ever.

In the first-quarter U.S. Bank Freight Payment Index, Bob Costello, chief economist for American Trucking Associations, noted the severe winter weather in February “put additional stress on supply chains, resulting in factories being closed and people unable to work. Many supply chains were also impacted by input shortages during the quarter, with microchips being the most notable example.”

Freight spending declined compared to a rise in the fourth quarter, according to the report. However, the market “remained very tight because the level of spending stayed high and increased from a year earlier.”

Household spending has been strong as most received federal stimulus money. Also, household savings have risen over the past year. Factory output is expected to rise and home construction should remain strong. Both are expected to contribute to rising freight volumes along with “solid retail sales,” Costello added.

In March, the shipments component of the Cass Freight Index rose 10%, from the same month in 2020. Over the same period, the expenditures component of the index increased by 27.5% to the third record high in the past four months. ACT Research analyst Tim Denoyer, author of the Cass Freight Index, said accelerating growth in the shipments index is expected to continue, and “2021 is setting up to be an extraordinarily strong year across the U.S. freight network. Since the strong rebound early in March from the polar vortex, rail trends have continued modestly above normal seasonal patterns.

“While the strong freight market dynamics are primarily driven by the consumer sector, the industrial side of the U.S. economy continues to be challenged by supply chain shortages, mainly related to semiconductors,” Denoyer added. “In addition to strong demand and tight equipment supply, the driver shortage is a major factor in the freight market equation. While it’s a complex issue, the record low driver availability here in early 2021 has perhaps played an even larger role in driving freight rates to record levels recently than the truck production challenges.”

According to a recent ACT Research report, the North American heavy-duty truck market “doesn’t get much better than this.”

Kenny Vieth, president and senior analyst for ACT Research, said demand for commercial vehicles in North America is “about as good as we’ve seen in 35 years of monitoring heavy-duty market conditions. Times are so good that demand is far outrunning the industry’s ability to supply right now, and that will likely remain the case into autumn and perhaps even through the winter. This would mark an unusual extension of peak demand for a period not impacted by an emissions-related prebuy.”

Vieth also compared the cycle of the COVID-19 pandemic to the Great Recession and that the ups and down have elapsed in only 25% of the time. “COVID triggered a super-compressed cycle, resulting in incredible pressure on supply chains to respond – and on a synchronized global level,” he added. “When you add in considerations unique to the COVID period, like workplace safety measures, wearing PPE, worker absenteeism, and government and employer activity restrictions, it’s amazing that the bullwhip effect hasn’t been even tougher.”

In a separate report, Vieth said the rise in spot freight rates is expected to lead to an increase in contract rates. And low business inventories and backed-up ports on both U.S. coasts have contributed to a freight backlog that should result in continued demand for freight transportation services, he noted.