Demand for Class 8 trucks has remained relatively resilient recently, but ACT Research expects a clear softening in big fleet profitability and other ancillary metrics during the rest of 2023. In addition, according to ACT’s latest North American Commercial Vehicle Outlook, the current strong production and sales in the face of weak freight creation will exhaust pent-up demand in 2023 as lower freight rates, higher equipment and borrowing costs, improved equipment availability, and shrinking profits put downward pressure on demand overall.
“Even as the Class 8 market comes under increasing pressure, van trailer demand continues to enjoy secular support from the move to ‘power-only brokerage,’ which has big fleets and logistics companies looking to boost trailer-to-tractor ratios to bolster spot market productivity,” Kenny Vieth, president and senior analyst of ACT Research, said. “We’ve spent most of the past year warning about a potential recession. Admittedly, the economy has proven more resilient than initially envisioned. That said, we think broader economic conditions are softening, and we reiterate our cautious view, including our forecasts for slowing [H2/23] production rates. We continue to expect a shallow recession to materialize, centered on mid-year.”
“The critical factor in forecasting, especially as we look to 2024, is when do those demand headwinds, lower freight volumes and rates, plus higher borrowing costs, compress carrier profits sufficiently to kill the peak-cycle activity? One of the critical heavy vehicle demand components, carrier profitability, is increasingly under pressure. In Q1, the public carriers’ profits took a hit, falling to levels last seen in early 2020. While some of the decline was seasonal, core carrier margins were down 250 bps year over year, and 300 bps below the cycle’s Q4/21 peak. With contract rates expected to deteriorate through 2023, profit margins should continue to narrow.
“Aside from near-term Class 8 demand timing, the immediate wildcard in our forecast remains the debt ceiling. While the Fed plays a major role in determining the interest rates businesses and individuals pay to borrow money, the coming debt ceiling battle may serve to pause business investment, unnerve investors and push interest rates even higher, which could induce a deeper recession sooner.”
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