Managing Asset Portfolios Through Inflationary Times

by Patrick Gaskins

Patrick Gaskins, Senior Vice President Fleet Solutions at Corcentric Fleet Solutions, oversees both sales and operations for fleet offerings. Gaskins has grown the fleet services area by implementing an asset management database and a data-driven approach to providing clients with visibility into all areas of their fleet spend. He joined Corcentric in 2010, bringing over 30 years of experience as a financial services professional in the transportation industry.

Patrick Gaskins, senior vice president of fleet solutions at Corcentric, reviews the past year’s ups and downs. 2022 has been a true anomaly, and it is making everyone reconsider how they finance new equipment.

Market variables are all over the board. Over the past year, we have seen housing prices rise by almost 60% in some markets. In the heavy truck market, asset prices have increased about 20% and we continue to see surcharges resulting from the increased cost of materials. In addition to the increasing asset costs, interest rates are on the rise and are forecast to go even higher.

Historical trends do not apply in today’s market; 2022 is truly an anomaly, and what will happen in 2023 is anybody’s guess. In the fourth quarter of 2021 and the first quarter of 2022, we saw used tractor pricing go higher than ever before, and in many cases, used transportation equipment was selling for more than it was purchased for new. Used tractors became a retirement fund for many small fleets. Today, we are seeing used equipment prices drop dramatically, compared to the all-time highs six months ago, but they still are significantly higher than long-term historic values.

The combination of higher equipment costs and rising interest rates will force people to re-evaluate the way they finance new equipment. CAPEX decisions will be critical and extended order-to-delivery times will require buyers to place orders 12 to 24 months in advance. Selecting the most flexible long-term financing options will be the key to adjusting to the ever-changing markets ahead.

In addition to asset value, volatile supply chain issues continue to plague the economy, but there are some positive indicators. Freight volume is up for the month and is up year-over-year. This is great news for used truck values because used transportation asset values depend on the strength of freight volume and spot market rates. This is because almost 85% of the freight hauled in the United States is hauled by carriers that operate less than 10 trucks, and they are the buyers of used trucks. They also rely heavily on the spot market for freight.

The continued challenge of manufacturing new equipment and getting it to market also has helped to keep used inventory in check and pricing somewhat stable.

We have to be careful when analyzing market trends and conditions and not react to a snapshot in time but rather take a long-term multi-year view.

Looking at all market indicators, you can quickly conclude that there are no solid short-term trends that will give us the long-term answer. Commodity prices are up, the supply chain is still an issue, fuel prices are still well above 2021 levels but trending downward, new and used equipment prices are climbing, the Fed is increasing interest rates and the word “recession” is being tossed about.

So, with all of that said, lenders can learn a lot about the strength or weakness of their portfolios by watching the market trends that affect their borrowers.

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