Trailer Body Builder | Kauffman Throws Some Rocks at Heavy Duty Equipment Forecast

11.17.17 | Trailer Body Builder

Jeff Kauffman, managing director of Aegis Capital Corporations, said FTR CEO Eric Starks asked him to “throw some rocks at the forecast” in his presentation, “View From the Financial World: An Alternative Heavy Duty Equipment Forecast.”

And so he did.

These weren’t rocks that shattered windows, but they did provide a few noticeable cracks.

For example, Kauffman thinks Don Ake, FTR’s CV equipment expert, overestimated the trailer market with his forecast for 285,300 trailers in 2018, a 1.4% gain over 2017, followed by 280,000 in 2019, 275,000 in 2020, and 278,000 in 2021.

Kauffman’s forecast for 2018 is 265,000, and his estimates for 2019 and 2020 are 5000 below Ake’s.

“I think there are still 150,000 trailers that have yet to be replaced from that late 1990s cycle, so I’m factoring 20,000 to 25,000 trailers a year for replacement versus Don’s 15,000,” Kauffman said. “I agree with Don that there is a bit of a pre-buy going on - less than 10,000 this year, and that’s going to fade next year. I get a 200,000 base, 20,000 for GDP. If the GDP ends up being 3.5% to 4%, add another 20,000 to 25,000. I have 25,000 for replacement, 10,000 potentially for a pre-buy.

“I get a trailer forecast of 265,000, below Don’s 285,000. I’m not going to say Don can’t be right, but my view is that we had energy markets coming back this year. We had construction markets coming back this year. That effect is going to fade. I’m about 5000 below him in 2019 and 2020. I think what everyone got wrong is this is the first cycle we had in 20 years that wasn’t driven by a pre-buy in Class 8. This cycle, we actually bought based on profitability and cash flow. And I think that’s why this cycle is not a mountain peak. It’s kind of a flat top. We’re going to be in 260,000 to 270,000 for the next few years.”

He also forecasts a Class 8 market of 260,000 trucks in 2018, as opposed to Eric Starks’ 300,000. Kauffman’s breakdown is a base of 225,000 in replacements a year (observed at 1.75% GDP), 25,000 for GDP and 10,000 for carrier profit margin in the second half of next year.

“Most carriers had their fleets where they wanted them to be before this year, so there’s no catchup on the heavy-duty side,” Kauffman said. “We’re not looking at an aged heavy-duty truck fleet. I get 260,000 trucks, not 300,000. I don’t have a big replacement cycle in here and can’t get to that big of a number. On top of that, I’ve got ELDs coming and people are going to be hurting for drivers. These rates are going to go up and we’ll have to go out and hire drivers before we can hire trucks.

“I’m not so sure were going to get to 300,000. Now maybe 300,000 in 2019 after a year of having to figure out ELDs and a year of carriers having better margins to put new drivers into driver trade schools. Then I could see that happening.”

Kauffman thinks the last-mile delivery effect will cause some freight that used to go Class 6-7 to start going to Class 4-5. He projects 132,000, 135,000, and 140,000 for Class 6-7 in the next three years, and 79,000, 80,000 and 85,000 for Class 4-5, for totals of 211,000, 215,000, and 225,000.

“This is a consistent market, but diverse and tricky,” he said. “Medium is one of those markets that doesn’t exactly move 20% in a year and smack you in the face. It’s pretty stable right now. With corporate profits heading higher, real estate values heading higher, we’re pretty good there.”

The big unknown is the effect of two massive hurricanes that devastated two large Gulf Coast markets: Harvey in Texas and Irma in Florida.

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