USA: Firm but fragmented

After a long and painful recovery from the burst of the ‘new economy’ bubble, the US trailer market has seen a constant surge of positive news over the last two years or so, with record order activity and production nearing capacity.

The upswing has been so robust that North America’s trailer building community was able to record its second best year ever in 2015 – producing an impressive 302,000 units, almost four times more than in 2009, at the tail end of the Great Recession.

Key to the impressive growth spurt was the United States’ marvellous economic recovery and the unexpected freight demand it caused. The boom came at a time where capacity was still strained after transport businesses had laid off the replacement of older trailers during the recession – particularly in the popular dry van sector. Motivated by the rise in demand, fleets hastily started investing in added trailer capacity again to benefit from the upsurge.

At the same time, new Hour-of-Service regulations decreased productivity by around two per cent, which created additional demand for new trailers to help alleviate the sudden capacity crunch. Adding to the situation was a shortage of truck drivers, which again resulted in carriers buying more trailers to increase the productivity of existing personnel.

Helped by supply chain disruptions due to extreme weather events, such as record snow fall in the winter of 2014, the trailer manufacturing market went from strength to strength until about October 2015, when freight growth began to tumble again and fleets started acting more nervous.

Since then, the consumer sector of the US economy has been holding firm – the job market continues to strengthen, wages are rising and consumer spending is up moderately – but movement on the trailer front has waned notably.

The reason for the sector’s cautiousness lies in the boom itself: Most fleets currently have enough trucks and trailers on hand to haul the available freight, which means most of the new equipment purchases we see at the moment are driven by replacement demand only.

With another Presidential Election looming in November, has the market arrived at a crossroads? Are we seeing the first signs of a large-scale rebalancing between crisis and boom levels? Probably not. What’s safe to say is that the US trailer market is in a very unusual condition in 2016. Usually the segments of the market move in harmony with the diverse US economy and the Class 8, or heavy-duty, truck market. However, this is currently not the case – the overall trailer market has become temporarily decoupled from the truck market, and with it, individual trailer segments are also diverging.

While the Class 8 truck market has shown a significant decline since Q4, 2015 – orders are down 43 per cent so far and production is forecast to drop 26 per cent – trailer demand is holding fairly steady. Production is only expected to fall 7.5 per cent this year, and November 2015 had the third highest trailer orders in history. So, what is happening in the US trailer market that enables it to counteract the current truck market sentiment so strongly?

1. Dry vans continue to drive demand
Dry van demand in the US is still very strong right now due to disruptions in the replacement cycle. The Great Recession caused fleets to delay replacing old trailers that were built in the high production years of 2008-2010, so there could still be up to 200,000 older trailers that need to be replaced. What’s more, fleets are still profitable, albeit it at a different level, so they continue to take deliveries of large quantities of dry vans even as freight demand softens. Because dry vans make up around 60 per cent of the total market, strong dry van sales are the main reason the US trailer market remains healthy while Class 8 sales are falling. As such, dry van production is only expected to drop four per cent this year – a tremendous performance for the first year after a peak in the market. In line with that, order backlogs remain at historically high levels.

2. Refrigerated benefit from a strong harvest
Refrigerated van demand is extremely strong in the US at the moment. A record build number was achieved in 2015, and 2016 is expected to be the second best year on record. Demand in this segment is being generated by a whole range of positive economic factors – not only has freight growth been healthy due to strong harvests of fruits and vegetables, but meat processing also has been very brisk in North America.
There is also still some pent-up replacement demand left over from the Great Recession. On top of that, there has also been an increase of temperature-controlled freight of consumer and industrial products
Also speaking for the refrigerated market segment is a general change in mind-set: More and more US transport businesses are realising that refrigerated vans make drivers more productive, with shipping docks around the countries now being designed so that drivers can drop one load off and immediately leave to pick up the next one. 
A change of mind-set is also occurring in the general population: While frozen convenience foods are becoming increasingly popular, eating out is also on the rise, demanding local and interstate refrigerated transport. In addition, consumers want more fresh and healthy foods, which is causing changes to the distribution network. Finally, environmental regulations are causing some fleets to accelerate refrigerated van replacement, too.

3. The flatbed market is struggling
Even though the US housing market continues to grow, it is not close to being as good as it was in the mid-oughts. Flatbed freight took a huge hit when oil exploration began to decline quickly and significantly; and a recent decline in manufacturing and exports has also hurt this segment. While flatbed sales were robust in 2015, they have since fallen off considerably, and there is no pent-up demand present in this market.
As such, the flatbed trailer market has closely followed the Class 8 market in its descent, with production expected to fall 27 per cent in 2016.

4. Tankers are taking a blow
Tank trailers have suffered the steepest decline of any trailer segment. Demand was strong in 2014 due to a boom in hydraulic fracking and generally increased energy production. When the energy market collapsed, though, most of the tank trailer demand cratered with it. Experts agree this segment will remain subdued in 2016 as the industrial freight sectors that drive tanker demand are in a slow growth mode and not expected to show much change this year.

5. Dump trailers are on the rise
Construction activity in the US remains steady and so does the dump trailer market. In line with this, the Government continues to spend more money on infrastructure projects, especially since some of this work was delayed from the Great Recession when tax revenue fell. As long as the housing market keeps recovering and employment grows, the dump trailer market will continue to do well, experts predict.
While refrigerated and dry vans drive most of the current trailer demand, helped by the waste sector, they have to balance out steep drops in the flatbed and tanker segments. Low-bed, grain, livestock and other specialty trailer segments, meanwhile, tend to move in sync with the general economy. Most of these smaller brackets had a strong 2015, but are expected to soften with recent economic weakness.
That doesn’t necessarily need to be a bad thing, though. The US trailer market is coming off one of its best years ever, so 2016 is still much stronger than expected. The forecast is currently for a very healthy 280,000 units – a figure that will be highly achievable provided manufacturing improves as expected, and there is no economic recession. From here, the market is expected to flatten out around the 250,000 range over the next couple years – so the great rebalancing will likely only occur once the new President has already moved into the White House.

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