As the largest industry gathering of the year, the Mid-America Trucking Show combines lavish truck exhibits with major new product announcements and the energy of some 80,000 attendees roaming through those exhibits over three days. It’s also the perfect venue for gauging the current state of the industry as manufacturers and their customers informally compare perceptions of how things are going and what’s ahead for trucking. And the buzz this year in Louisville is that fleets are back in the market for new trucks, planning to buy at rates we haven’t seen since the entire economy was pounded by the Great Recession.
It’s not that fleets completely stopped buying trucks. Some large fleets made substantial buys over the last two years, replacing older trucks to lower operating costs by taking advantage of significant gains in fuel economy. But overall, heavy- and medium-duty truck sales have fallen below what’s known as the replacement level, i.e., the number of new trucks needed to replace those hitting the end of their normal trade cycle.
The result has been an historic high in the average age of the U.S. truck population, which is now approaching 11 years. On top of that, there’s been no expansion of the overall truck population, something we’d normally expect to see as an economy recovers and freight begins to grow.
Fleets have dragged their feet on replacing older trucks in large part because they’ve been nervous about the recovery’s staying power. And they’ve resisted expanding capacity because they’ve found ways to carry more freight with the same number of trucks, ways that include better optimization software and changes in packaging.
But the word on the MATS show floor is that that reluctance is about to change. As one person I spoke to put it, “the dam is about to burst” as OEMs and dealers now see small and midsized fleets also entering the market for new equipment. And those strong sales recorded in the first months of this year are expected to gather even more steam in 2015.
Why now? There are a lot of reasons. Maintenance costs on all that older equipment are becoming unsupportable. Add the fuel economy gains prompted by federal 2014 greenhouse gas reduction requirements, and any fleet continuing to run old equipment will be at a real competitive disadvantage. And fleets have probably wrung out all the extra operational productivity they could, meaning they won’t be able to just park the oldest, least efficient trucks.
But the real driver, as always, is the economy. GDP is forecast to grow a full point this year and another half point in 2015. That means more freight. And since no new truck capacity has been added in recent years, fleets are already beginning to see freight rates reflecting capacity constraint. That means many now have both the motivation and money to go visit their dealer.
Not everything is rosy for businesses that rely on trucks. Construction, for example, is still far from fully recovered. But in general, if you think it’s time to replace those old trucks you’ve been nursing along, you’d better get your orders in before production spots start drying up and delivery dates start moving way out into the future.