New truck orders running below replacement demand should boost carrier profits in 2020
Story by:@ FreightWaves
The Seasonally Adjusted Annual Rate (SAAR) for new Class 8 truck orders in 2019 is trending at approximately 150,000. Note that this number includes orders for interstate, intrastate and private fleets.
We estimate total replacement demand in the neighborhood of 250,000 to 300,000 trucks annually based on there being roughly 1.6 million total for-hire tractors in the market and an 18 percent replacement rate (roughly six years).
This 275,000 replacement rate at the midpoint could be conservative and understated because it works out to just a 12 percent replacement rate (or roughly an eight-year replacement cycle) relative to the 2.3 million total trucks in the market including private fleets.
Therefore, the trucking market is looking at a shortfall of 125,000 trucks in 2019 compared to replacement demand. Relative to the 2.3 million in total tractors including private fleets, this equates to more than 5 percent of capacity being taken out of the market.
When combined with recent volumes (OTVI.USA) increasing almost 5 percent year-over-year for the last two months, we think the setup for the trucking market in 2020 is beginning to look quite attractive.
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Source: SONAR (ORDERS.CL8), ACT, Bank of America Merrill Lynch
Source: FreightWaves, ACT, Bank of America Merrill Lynch
Source and credits: freightwaves.com // iTrucker / Mario Pawlowski