Trucking companies are ordering new trucks at record pace

The trucking industry is
growing at an explosive pace, and manufacturers can barely keep
up.
Matt Cardy/Getty
Images

• The trucking
  industry is red hot, with freight rates up 19.6%
  year-over-year.
• To keep up with demand, freight companies are buying trucks
  at an unusually rapid pace. 
• According to Michael DiCecco of Huntington
  Bank, there’s a six-month backlog for new commercial truck
  orders. Typically, it takes only 10 weeks for a company to
  receive a new truck. 
• But some analysts advise that trucking companies cool
  off — as the industry will slow down by mid- to late
  2019. 

It typically takes just 10 weeks
to receive a new commercial truck. But manufacturers have been so
flooded with orders in 2018 that freight companies are now
waiting six months to receive new trucks.

That’s according to Michael
DiCecco, who is executive managing director of Huntington Bank’s
asset finance sector. Part of Huntington’s $6.5 billion asset
finance business includes lending to trucking companies to buy
new trucks and equipment.

“(The backlog) certainly
indicates demand is there and the manufacturers are struggling to
keep up with order,” DiCecco told Business Insider.

It’s yet another sign that the
freight industry is doing incredibly well. Spot rates were

up 19.6% in August year-over-year in the highest August van
rate ever, according to freight exchange service DAT Solutions. 

August was also an all-time
record month for new truck orders, according to ACT Research. August is
typically one of the slowest months for truck orders.

Orders were up .89% from July,
which also was a record breaking month, and up a remarkable
150.3% year-over-year. Steve Tam, vice president of ACT Research,
called that sort of growth “a departure of traditional
activities.”

New truck orders are up
150.3% year-over-over.
ACT Research,
Andy Kiersz/Business Insider

The past few years were middling
for the trucking industry. In early 2018, rates began ratcheting
up — thanks to a
new law that limited how much truck drivers themselves could
work as well as increased demand across the economy for
trucking. 

During those slower years,
companies didn’t buy new trucks. Now, because the economy as a
whole has picked up, trucking companies are buying new trucks at
such a fast rate that there’s an equipment shortage, said Don
Ake, vice president at freight-equipment research group
FTR.

“You basically have a shortage of
new trucks,” Ake told Business Insider. “That shortage was caused
by a strong increase in demand, due to the economy growing faster
than people expected, and manufacturing being a lot more robust
than people expected.

“So, freight growth this year has
been excellent,” Ake added.

Still, companies shouldn’t invest too lavishly

While the industry is flourishing
now, analysts said they expect this explosive growth to taper
down by mid- to late 2019. 
When that happens, companies will have an
abundance of trucks and nothing to put in them.

“As trucking companies are adding
trucks, at some point we will reach a tipping point of too many
trucks and excess capacity to haul freight,” Tam said. “Once that
happens, we’ll start to see freight rates trending
downward.”

During these periods of growth,
the best companies hedge their bets by not buying too much new
equipment, Ake said. But less keen companies invest too much and
often go bankrupt. 

“You can’t
tell people right now not to buy trucks and not to build trucks,”
Ake said. “They have an opportunity to make
money.”

These sort of cycles are typical
in the trucking industry — unexpected growth, rapid purchasing of
new equipment, the eventual downturn, and finally a contraction
that affects manufacturers, drivers, and freight
companies. 

“We will build too many trucks,
and then any pullback that you have in the economy causes this
large down cycle,” Ake said. “It’s bad for everyone in the
industry, 
but you
can’
t control it.”