June 10, 2025 • 37 mins
Regulatory, tariff and economic uncertainty continues to paralyze the North American heavy-truck market as a collapse in orders has reduced build rate expectations this year. Visibility should begin to improve in the coming months as we get better clarity on a 2026 recovery. In this episode of the Talking Transports podcast, Tim Denoyer, vice president and senior analyst at ACT Research, joins Lee Klaskow, Bloomberg Intelligence senior transportation and logistics analyst, and Chris Ciolino, senior US machinery analyst, to share his insights about navigating the North American truck market during this pivotal time. Denoyer also discusses the freight outlook, order trends, pricing expectations, energy transition, autonomy, the used market and more.
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Episode Transcript
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Speaker 1 (00:07):
Hi everyone, This is Lee Clasgow when We're Talking Transports.
Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host,
Lee Klaskow, Senior Freight, Transportation and Logistics Analysts at Bloomberg Intelligence,
Bloomberg's end house research arm of almost five hundred analysts
and strategists around the globe. Before diving in a little
public service announcement, your support is instrumental to keep bringing
(00:28):
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Speaker 2 (00:31):
And we use your support.
Speaker 1 (00:32):
So please, if you enjoyed this podcast, share it, like
it and leave a comment. Also, if you have any
ideas for a future episode or just want to talk transports,
please hit me up on the Bloomberg terminal, on LinkedIn
or on Twitter at logistics Late. Now on to our episode. Today,
we're gonna do something a little different. This episode will
be co hosted Bye bye Bloomberg Intelligence colleague and fellow
(00:55):
Ithaca College alum, Chris Chillino. Chris is Bloomberg Intelligence senior
miss Machinery analysts, and our guest today is Tim Denouer,
Vice president and senior Analysts at ACT Research, a provider
of research and analysis of the commercial vehicle and transportation sectors.
I've known Tim for the better part of twenty years
from our time when we overlapped at Crudential Equity Group.
(01:18):
Tim lead's transportation research and authors ACT Freight Forecasts, US.
Speaker 3 (01:23):
Rate and Volume Outlook. His work provides critical insights into
pricing and volume trends across truckload LTL and intermobile markets.
Tim joined ACT in twenty seventeen after fifteen years in
equity research, including rules at Wolf Research and Ballyasny Asset Management.
He also analyzes commercial vehicle demand and alternative power trains.
(01:45):
He owns a BBA in Economics and finance from James
Madison University. So Go Dukes, Welcome to the podcast.
Speaker 4 (01:53):
Tim, How you doing very good?
Speaker 3 (01:54):
Thanks for having me Lee, It's great to see you.
Speaker 1 (01:57):
So just you know, I gave a little introduction about
what ACT Research is all about. If you can provide
a lot more details, that'd be fantastic.
Speaker 2 (02:04):
Before we get into the meat and bones. Yeah.
Speaker 4 (02:07):
Sure. We are an industry consultancy focused on the commercial
vehicle markets and specializing in data analysis and forecasting, specifically
with the classes five through eight vehicle markets, sales and production,
and that type of thing. We focus a lot on
freight rates and volumes and use truck prices to name
a few things we're into.
Speaker 1 (02:28):
Right, So before we go into, you know, the truck
oem market, can you just give us a backdrop of
where you're seeing the freight markets right now, because you know,
I don't know about you. It's difficult times to kind
of predict where demand is going.
Speaker 4 (02:43):
Yeah, absolutely, it's it's we're in the third year of
a freight recession in the four higher trucking markets that
does not seem like it's going to end too quickly.
We think that it's going to last, you know, a
bit longer due to tariffs, But I'd say we have
a little bit of a different view on why it's
lasted as long as it has. We think the supply
(03:07):
side is a big piece of the puzzle, and the
private fleets, which represent a little bit more than half
of the tractors on the highway, have grown pretty significantly
in the past five years since the pandemic, and we
think that's one of the reasons that this freight recession
is just dragging off.
Speaker 1 (03:25):
Right, And for those listening, private fleets so Walmart owns
and operates their own trucks. They also use carriers like
JB Hun and Werner. So that's the for higher market.
So just for those that are uncertain, So, are you
expecting rates to move significantly higher from here, whether it's
spot market or contractual market.
Speaker 4 (03:47):
Not for a while. I think it's it's gonna be
a little bit tough sledding in the spot market. We're
still we saw a decent increase in the road check
week in mid May, but pretty soft still coming out
of that in terms of there's there's just weakening demand
in the short term. We do think there's gonna be
(04:08):
an improvement in the third quarter from a demand perspective,
but I think that's that's gonna be relatively short lived.
And the higher tariffs are have reduced our economic outlook
fairly considerably over the past several months.
Speaker 1 (04:24):
And do you guys have do you guys have a
call on like where you see rates like do you
see them increasing mid single digits this year?
Speaker 2 (04:31):
Down mid single digits? Do you guys have it? Do
you guys put anything out there like that? Oh?
Speaker 4 (04:35):
Absolutely? The current number for this year is one percent?
Is our okay? Forecasts for contract rates for twenty twenty five.
Speaker 2 (04:42):
Yeah, okay, gotcha, all right?
Speaker 1 (04:44):
That that is probably I would say on on the
bear side from things that I've heard, but you know,
it's it's hard to argue against it as well.
Speaker 2 (04:52):
So with all that, so, you know, I know a
lot of act research. Some of the bread and butter
is on the OEM side.
Speaker 1 (05:00):
Can you talk about, you know, what your your outlook
for the North American Class eight market is in terms
of production for this year and maybe next year.
Speaker 4 (05:08):
Sure. Absolutely, it has come down fairly considerably in the
past several months. And I'll talk a little bit more
directionally than you know, absolute numbers, but we have taken
about fifty thousand units out of the forecast in the
past three or four months because of the higher costs
associated with tariffs.
Speaker 1 (05:28):
Hey, Tim, could you just say, like, so fifty thousand
out of like what's the what's the typical market in
North America?
Speaker 4 (05:35):
Roughly you say three hundred thousand, okay, And so that
that downward directions has really been driven by, let's call it,
a paralysis of decision making in the past couple of months,
because it's become really difficult to order a vehicle when
we don't really know what the tariffs are going to
(05:56):
be at the end of the day, there's still a
number of questions and terms of how the teriffs will
shake out, and the fleets clearly don't like that uncertainty,
and so order activity has you know, I will say
ground to a halt, but it's it's down significantly.
Speaker 5 (06:15):
Gotcha and Tim speaking of this order paralysis, I mean,
I think we're down about thirty percent year to date
on class state orders here in North America. I guess,
how are those orders tracking relative to your expectations, just
given the uncertainty out there with tariffs and the regulatory backdrop.
And I guess when do you think we could begin
(06:35):
to see a recovery in orders?
Speaker 4 (06:38):
Yeah? Good question. So I would say that over the
past year or so, orders have sort of defied our
expectations to the high side. And to some extent it
goes back to that private fleet theme that already touched on,
and that really led to more equipment manufacturing than the
freight cycle would have justified, even going back to twenty
(06:59):
twenty three, twenty four, And so I would say owners,
while they've come down a lot this year, it's sort
of realigned with our expectations with what the freight cycle
really needs, and so that's actually a constructive thing for
moving the cycle forward. Obviously, it's not great from a
manufacturing perspective, because you know, all of the major manufacturers
(07:20):
have have announced layoffs in the past few months. But
this is a normal part of the cycle, and so
again it's not too unexpected. What has been surprising in
the order book in the past six months or so
is the day cabs have come down relative to sleepers
(07:41):
within the tractor orders. And while it's not a perfect
one for one, because a fair number of four hire
fleets do use daycabs, it is mostly a private fleet
equipment type, and so if we use daycabs as a
proxy for private fleets, it looks to us like they
are are really dialing back in their order activity, even
(08:04):
more so than in the sleeper market, which is the remainder.
So that's that's interesting, and it does suggest the cycle
is starting to turn.
Speaker 2 (08:14):
Oh, that's interesting.
Speaker 5 (08:15):
Are there other pockets of the truck market that are
holding up maybe better than you anticipated this year? And
then maybe conversely on the flip side, where's the weakness
most pronounced?
Speaker 4 (08:26):
Yeah, it's a good question and I think you could
almost answer the same question. I mean, certainly that the
weakness has been pronounced in the truckload market for for
a while now, but the vocational part of the class
eight market, which doesn't get quite as much attention, which is,
you know, class eight straight trucks, which breaks down to
a lot of different vehicle types. It's dump trucks and
(08:48):
cement trucks and refuse trucks and those those types of
things that in general that that part of the market
had had held up really well over the past year
or so, as the tractor markets orded to cycle down.
What's changing there? I think there's been some some new
regulatory uncertainty, and where demand had been really strong for
(09:09):
vocational vehicles, that does seem to be changing a bit
as well in the past few months.
Speaker 5 (09:14):
Okay, great, And what about the outlook for medium duty trucks?
Do you expect demand there to hold up better than
the heavy truck side really, not only this year but
into next year as well.
Speaker 4 (09:26):
Medium duty is an interesting case where there is still
some degree of supply chain constraint at the bodybuilder level,
and we still have really elevated inventories for the on
the cap and jazzy side. They're waiting their their bodies
and so that's been a limiting factor. And we do
(09:46):
think the overall demanded medium duties is headed lower as
well because similar factors to the heavy heavy duty market,
largely these higher costs of vehicles and the uncertainty around
the tariffs. So I do think that's going to you know,
drive a considerable reduction in medium duty production. And they
(10:10):
haven't asked about it yet, but if you want to
talk about trailers as well, we cover that market, and
that markets has had a few decent mounts of orders
this year, but it was obviously going to be under
a lot of pressure as well because they're made mostly
of steel and aluminum.
Speaker 1 (10:26):
So you know, you bentioned tariffs a little bit earlier.
So the trucks that are running on the roads in
North America are they made here? Are they just put
together here and they're using parts from overseas? Like, how
harder are the truck OEMs potentially going to get hit
(10:48):
from the tariffs?
Speaker 4 (10:50):
Yeah? Good question. They need to be roughly two thirds.
I mean the numbers vary from sixty to seventy five
percent to be usmc A compliant and so there is
a fair amount of parts that come into to the
US that support the supply chain that uh, you know,
there's there's a lot of parts that are that are
(11:11):
sourced in in Europe and other places that uh, you know,
we talk a lot about our you know, connection to Mexico,
which is which I'll get to in a sect and
it's it's important, but it's also important to point out
that we've got a very close relationship with Europe and
there's a fair amount of you know, castings and those
kinds of things, you know, second and third tiers of
the supply chains that that we don't see, you know,
(11:32):
too directly that that you know, come from the lowest
cost places. And and and the we hear anecdotes from
ship from suppliers that uh, you know point out that
they have worked really hard to you know, supply their
parts at from the lowest cost places. Uh. And and
so moving things back to the US is is going
(11:52):
to be very expensive, is the general theme that that
we hear. Uh. And so that's that's not gonna be easy.
But to answer your question, to come back to Mexico,
thirty four percent of the Class eight vehicles that were
sold in the US last year were assembled in Mexico,
and there is a bit of a mismatch at the
(12:13):
moment from a tariff perspective because those vehicles and this
is part of the Section two thirty two investigation that's
going on, but those vehicles will will end up with
a much lower tariff. Man I think, aside from steel
and liminum, there's not going to be very much that
those things are going to face because they're being assembled
(12:33):
in Mexico, whereas the remainder, which is being assembled in
the US is going to see those those reciprocal tariffs
and a number of other tariffs that have been enacted.
And so that the Class eight trucks that are being
assembled in the US are being currently put at a
competitive disadvantage to those they're built in Mexico.
Speaker 2 (12:56):
Is there one OEM that's less exposed who tariffs versus
it's peers.
Speaker 4 (13:02):
I think there's a significant exposure across the board, and
I think I think the that disadvantage that I just
talked to is likely to be corrected all right.
Speaker 1 (13:13):
And is the impact felt similarly on trailers? Like where
trailers manufactured, they are they imported like containers.
Speaker 4 (13:20):
Or no actually, the trailer supply chain is still very
very much domestic. There are some some foreign manufacturers who
bring in some non US steal in some cases and
that's going to put them at a disadvantage. But there
are also some very very domestic trailer supply chains that
(13:41):
most of it is. You know, it's it's a bit
more fragmented than the truck market. There's there's more sort
of local players out there, including in Canada and Mexico.
Speaker 5 (13:51):
So Tim, maybe circling back on your Section two thirty
two comments, and really for those of you unaware that
the US Department of Commerce announced back in ABE a
new Section two thirty two investigation into the impact of
heavy and medium duty trucks as well as truck parts
and components to really assess their impact on national security.
(14:13):
The comment period ended, I believe May sixteenth, and we're
kind of now in this waiting period just to figure
out what the outcome is going to be here. I guess,
what are your expectations coming out of this and really
how could this impact the heavy truck markets moving forward?
Speaker 4 (14:29):
Yeah, I think, I mean your guess is as good
as mine in terms of when we see a decision
you know, things have been happening faster than I think
most people expected in this administration. So it could take
I think two hundred and seventy days plus ninety days,
but I think we're expecting something perhaps sooner, and I think,
(14:49):
like I just described what the outcome is likely to add,
add even more to the cost of of these m
duty trucks.
Speaker 5 (14:58):
Right, Yeah, it's not just the section two thirty two. Right,
you talked earlier about steel and aluminum. We got the
baseline ten percent tariffs, We could get into some of
the regulatory changes going on or potential regulatory changes. All
of this seems to equate to higher truck prices moving forward.
(15:19):
Do you have a sense as to, you know, what
the price increase for a Class eight truck may look
like if we look out maybe over the next twelve months,
Like how much is of the cost how much is
that cost of the vehicle going to go up or
at least potentially due to you know, all these moving pieces.
Speaker 4 (15:37):
Yeah, that's a good question. I think what we're hearing
from the dealer channel so far is it's a low
single digit percentage, it's two or three percent. I think
at the moment is our best sort of guess just
from what we hear, and you can certainly get there
from just understanding how much steel aluminum is in these vehicles,
(15:57):
but beyond that, it hasn't been too much just yet.
I think one of the things that's making it hard
for fleets to make decisions right now is the fact
that the tariffs could come back and could increase significantly,
and the question is who's going to pay for that,
and that's a difficult question for for both the fleets
(16:19):
and the manufacturers right now. It's worth stepping back for
a second to point out, and you rightly point out this,
this is on parts as well. So the aftermarket where
fleets you need to go to to maintain their vehicles,
that's going to face some pretty significant price increases as
well for parts in that channel. And so that's it's
(16:43):
all gonna make it, you know, tougher for fleets to
to continue to operate, and so it's going to continue
to tighten to reduce capacity and eventually we will get
to a tighter supply demand balance. So this all is,
you know, eventually going to be constructive for the fleets,
but it's gonna be rough in the short term. In
terms of how much could it add to the price
(17:04):
of the vehicle. I mean, we've done some analysis that
suggest I mean, if we're talking about a twenty five
percent tariff thirty four percent of the vehicle's manufactured, just
for example, you can get to a double digit number
pretty quickly.
Speaker 1 (17:19):
You know, you're mentioning earlier the you know, growth in
private fleets and kind of that had an impact of
weighing on rate. I guess we didn't really explore like
what was driving that. Do you do you have any
sense of what was driving the growth in private fleets? Yeah,
great question, and I did Glass over that. There's a
(17:39):
lot in this answer.
Speaker 4 (17:41):
I think there's there's both a backward looking and a
forward looking aspect to it. From a backward looking perspective,
I think the sort of loss of supply chain control
that happened during the pandemic and the tightness of capacity
after the pandemic, during the chip shortage, that the real
really chapped a lot of supply chain managers and and
(18:05):
I think, you know that really motivated people to for
the first time in my career of watching freight, to
to start insourcing free, which has historically been been more outsourced.
It has been at the really thirty year trend before
the past five years, and so I think the backward
(18:25):
looking trend was definitely supply chain control and cost costs
certainly spiked during the pandemic and then post pandemic. I
think there's been a pretty considerable surge in cargo theft
that has been a pretty big issue for most shippers.
I've talked to some shippers who shipped low value stuff
(18:47):
who don't really care if they get a load stolen
here or there, but most shippers care quite a lot.
So I think it's a bunch of things. But looking forward,
I think one of the main reasons in the past
two years really has been that respect that new truck
prices were going to go up significantly in twenty twenty
seven because of the low Knox regulations from the EPA,
(19:09):
which are now in question.
Speaker 1 (19:10):
Right And for those that are interested in learning more
about cargo theft, we did an episode a couple of
weeks ago with Highway's chief commercial officers, So I'd suggest
folks going back to listening to that, Yeah, Tim.
Speaker 5 (19:23):
Maybe pulling on that thread with the new new regulations
a little bit more here. So the heavy truck industry
obviously with looking at new regulations from the EPA coming
in twenty twenty seven to lower the NOOX emissions from
the vehicle. In addition to the more stringent emissions rules,
OEMs are also going to be faced with that extended
(19:44):
warranty period, So warranty coverage was going to go up
to about four hundred and fifty thousand miles from about
one hundred thousand today. The expectation was that we were
going to see this big pre buy here in the
back half of twenty five and then all throughout twenty six. However,
as you alluded to in March, the EPA announced that
it's going to reconsider those twenty twenty seven emission standards.
(20:08):
If you could get out your crystal ball, like, what
do you think is the most likely outcome here? I mean,
do we get a full repeal, do we get a
partial repeal, does it stay intact? And really how does
that kind of influence your thinking around the magnitude and
duration of a potential pre buy.
Speaker 4 (20:24):
Yeah, I mean not to you know, crystal ball is
a good, good analogy, but to put it, if you
want to put it in bedding terms, my money would
be on the ATA. I think the ATA is, if
we're looking at the lobbying organizations, is you know, kind
of the leader. And there's a number of good lobbyists
in the trucking industry, but I feel like they are
are pretty influential, and they've put out some interesting information
(20:44):
that suggests that they support this sort of middle way,
if you will. That doesn't scrap the rule entirely, because
you know, let's be honest, there's been hundreds of millions of
dollars invested by the truck manufacturers now a lot the
average trucker may not care about those costs and may
not want to pay the higher TRUGT price no matter what.
But I think the A T A actually does and
(21:07):
this is an interesting debate that we've been having UH
for for some time. Is I think the A T
eight does understand that those better engines are going to
raise the barriers to entry in the industry and ultimately
be good for industry returns. I think that they understand that,
and there you know, there's there's obviously some arguments that
they've done some things over time that that disagree with that.
(21:29):
But but I think we'll end up with a rule
that that scraps the warranty and useful life provisions, but
but keeps those lower notch rules in place. Uh. And
I think that's that seems like the most likely outcome.
Speaker 1 (21:46):
Uh.
Speaker 4 (21:46):
Now, there's still I would say, say, a pretty dark
good chance as well, that just given the deregulatory zeal
of the new administration, that you know, there's a chance
that the rules go away entirely. I think that's very
low probability of this. I mean, there's still some, but
I also think it's very low probability that the rule
(22:07):
survives as it's written.
Speaker 5 (22:09):
And do you have any sense on timing when we
potentially could hear something?
Speaker 4 (22:12):
Yeah, great question, that is I don't. And it's one
of those things that is driving such uncertainty with with
you know, the industry, because you know, in theory, we
may not know until we get towards twenty twenty seven
or even you know, late twenty six or early twenty seven.
So how do you plan in that environment? I would
(22:34):
actually argue that again, like I said earlier, the private
fleets have been sort of pre buying for the last
two years, and so while on our forecast for this year,
there's actually a little bit of an underbuy given where
you know, sales and orders are right now, and so
they're sort of giving back some of that pre buy.
We still think there's going to be a little bit
(22:55):
of pre buying going on next year, because you're still
going to be facing you know, some small I mean
not a not a tiny fraction, but probably thirty or
forty percent of the price increase that they were expecting previously.
Speaker 1 (23:10):
So what is that, So that thirty forty percent of
the price increase that they expect previously, what is that
in percentages or dollars for the total increase?
Speaker 4 (23:18):
The prior estimates were twenty to twenty five thousand dollars, Okay, yeah,
and so it's going to be you know something probably
around ten I think if if we go this sort
of middle route, and that is enough probably to drive
some pre buy. But the freight industry has been through
a rough couple of years. Profits are under a lot
(23:39):
of pressure. The publicly traded truckload fleet just put up
their lowest margin in fifteen years in the first quarter
and U and so there's not a lot of cash
to pre buy.
Speaker 1 (23:49):
Right and some of the you know, the margins on
the truckload side has been impacted by the use truck market.
Speaker 2 (23:55):
What's your outlook on the use truck market. We're going
to see prices increase from here, Yeah, that's.
Speaker 4 (23:59):
An interest in question. The used truck market has seen
some very interesting signs of life this year, prerequently at
auction and also on the wholesale side. Not as much
on retail yet, but the auction and wholesale markets tend
to lead retail UH And in our view, the tariffs
(24:20):
and the tariff pricing increases, which you know, like I said,
are probably only two or three percent for new trucks.
If you take a used truck, which is you know,
something like half of the value of the new truck,
the pricing increase actually could be larger in percentage terms
because because a lot of that tariff, if the most
competitive product just went up, you know, by four or
(24:42):
five thousand dollars, I would say a fair proportion of that,
I don't know what the number is, but a fair
proportion of that probably does flow directly through into the
into the used truck market. And that I think is
is it's sort of motivating some activity. It's also a
normal part of the cycle for for used truck prices
(25:02):
to start to come up. We've we've had a couple
of very very rough years where we're at all time lows,
and in real terms, it has a percentage of new
truck prices and so so U S trut prices are
at pretty pretty depressed levels and and you know, are
we're not expecting them to come up too much, but
but there's definitely been some uh, some interesting activity in
(25:23):
the last couple of months.
Speaker 1 (25:24):
Yeah, and you mentioned that, you know, we've been in
a freight recession for quite some time. Is that really
what's driving the depressed prices. Yeah, I think so, uh
for sure.
Speaker 4 (25:34):
And it's it's also to some extent, it's it's affected
by by new equipment production. And like I said, new
equipment production is starting to ramp down a little bit,
so that should have an inverse impact on unused truck prices,
and that that depressed use truct prices has partly been
because new truck production has really been quite strong in
(25:55):
the past couple of years.
Speaker 5 (25:56):
Maybe going back to some of the regulatory changes outside
of the EPA twenty twenty seven Knox rules, are there
other regulations that you're watching or that you think are
really most at risk under this administration or could have
some kind of a you know, material impact on demand
for equipment.
Speaker 4 (26:17):
That's a good question. I think the low knox ones
are of course the biggest. The GHG three, frankly, we
had that's sort of the next biggest, But we had,
frankly not really expected much to be enforced there even
before the election. If you go back to last summer
and the Supreme Court's Chevron rulings, which sort of reduced
(26:39):
the regulatory power of some of the agencies, it looked
like GG three was going to be really aggressively contested
under that law, even if the election had had gone
the other way. So frankly, we had never really built
that one into our our forecasting, and we're still not
going to because GC three, well, you know, low doxes
(27:03):
is a significant change. GC three is is very different
in the way, you know, it does sort of upend
the past forty years or so of a missions regulation
by by being much more aggressive on the carbon reduction
uh and tying that to basically like with vehicle targets
(27:24):
and and that that that was a pretty big change,
and so well, it didn't really change our thinking in
the past, you know a few months when the administration
came out and said that they were going to to
reevaluate that one as well. Yeah, that the likelihood of
that is still pretty low of that being enforced.
Speaker 1 (27:42):
You know, you know, when you're when you're talking about
you know, lowering emissions, a lot of that's based on
new technologies that these OEMs develop. We would remiss if
we you know, we're talking about technology and then started
talking about evs or autonomous trucking.
Speaker 2 (27:59):
Does ACT research have.
Speaker 1 (28:00):
Uh, you know, any thoughts on you know, where EV's
are heading or where autonomous trucking h might be going.
Speaker 4 (28:07):
Yeah. Absolutely, We've done a number of reports on both topics.
We actually have quarterly EV forecasting going. At this point,
it's you know, it's it's slow going in the heavy
duty markets. You know, there's there's some some decent momentum
in school buses, but you know, demand is you know,
there's still some pockets some private fleets in the heavy
(28:29):
duty market are working pretty hard on it. But but
broadly speaking, especially given the difficult financial conditions in the
trucking industry these days, broadly speaking, you know, electrification, it's
pretty slow going.
Speaker 1 (28:44):
Have you guys rained in your your outlook for evs
because of the new administration, doesn't you know, seem so
uh focused on emissions or environmental stuff.
Speaker 4 (28:55):
Yeah, it certainly has had a negative impact. And and
it's also impacted in the shorter term. The effect has
been a lot of the states that were intending to
go along with California in terms of their more aggressive
regulations that do resemble you know, JG three was based
on the Car Advanced Clean Truck rules and there was
(29:19):
a number of states that that we're going to follow
along with California on that, and they have really been
delaying and you know, pushing off their their plans, and
that's had a.
Speaker 1 (29:31):
Negative impact on the outlook, you know, in the short term, right,
And I guess just pivoting to autonomous trucking. Are the
robots coming? Are they coming tomorrow? Next week? You know,
I don't know, two two and twenty two.
Speaker 2 (29:45):
Yeah, there we go.
Speaker 4 (29:46):
It's interesting to learn that there's some out there, and
you know, I heard from a couple of the autonomous
fleets just last week and they are they're making good
progress there has you know, there are some operations, some
are going the off highway route, which I think is
an interesting way to prove the case out.
Speaker 2 (30:04):
Can you just explain to listeners what all highway means?
Speaker 4 (30:07):
Sure? Uh, you know, Kodiak is the example, and they
are using I believe in oil and gas fleet that's
that's not running on the highways, and and so in
a more private operation. I think that the liabilities are
obviously a lot different than running on the highways, and
so so I think that's avantageous for that type of operation.
I mean, mining trucks have been doing this for for
(30:29):
some time. I think those types of of of applications
for autonomous work really well. But on the highway it's
much different. You know. The most recent news out of
Aurora overs them bringing the drivers back in not as
a driver but as an observer, and in part just
because the manufacturer didn't like one specific detail of I
(30:52):
don't I don't know how the details of it. There's
a whole lot of risk and then yeah, I think
it's going to take a long time to for society
at large to get comfortable with with heavy duty trucks
with no drivers.
Speaker 1 (31:02):
Yeah. I'd say probably least ten years out to see
them widespread on the highways.
Speaker 5 (31:08):
Do you see the autonomous trucks, you know, changing what
the replacement cycle looks like relative to the to the
ice trucks today, does it shorten that replacement period extended?
What are your thoughts about how the replacement cycle could
change as we see some of these new emerging technologies.
Speaker 4 (31:28):
Yeah, it's a good question. I think the interesting thing
when you talk about in context of alternative power trains
is that electric vehicles are going to require, you know,
a lot of time to recharge, and autonomous vehicles you're
gonna want to run twenty four hours a day if
you can, and you know they should be able to essentially,
so in general, the idea is that they could run,
(31:51):
you know, two or three times as many miles as
your typical truck, which you know would burn them out
a lot fast. And so you could see at the
same time, if if they are running two or three,
you know, two or three times as much, you would
need fewer trucks to haul the same amount of freight,
(32:12):
and so you'd go through a couple of different iterations.
I think of the fleet sort of expanding and contracting,
But at the end of the day, fundamentally you'd end
up in the very long run at the same level production.
Speaker 5 (32:24):
And how do you see this whole technology or energy
transition playing out? Does does battery electric, wind? Does fuel cell?
Is it hydrogen combustion? Is there one dominant fuel source
moving forward or do we see kind of a combination
of everything.
Speaker 4 (32:40):
That's a good question. I think our NG needs to
be part of the discussion natural gases is it's not
zero emission for sure, but our NG is negative emission,
So so that that's definitely something that is out there
and working and gaining more and more you know, traction
in the industry year and there you know, it went
(33:01):
through a rough start, you know, going back fifteen years
ago or so, but there they finally do have the
right equipment from an engine technology perspective. Uh And and
so I think that's that is, you know, a contender
in terms of emission introduction. But you know next up
is certainly EBS. We would put you know, hydrogen based
(33:22):
stuff much much lower on the list just because of
the costs.
Speaker 1 (33:25):
And I guess you know, a lot of that's, like
I said, is based on where the frame markets are going.
You seem pretty uh, you know, you're kind of a
temp at outlook Uh, when when do you guys think
that things are going to turn Yeah?
Speaker 4 (33:38):
Good question.
Speaker 6 (33:39):
So I actually think the most of the the negative
effects of the recent tariffs aren't really likely to hit
until the fourth quarter of this year and the first
quarter next year.
Speaker 4 (33:52):
It's it's sort of where I put sort of the
the worst of them because you're going to get a
pretty good surge here in Q three. Uh, because of
this on again, off again ninety day type of planning cycle.
Speaker 2 (34:06):
Right, gotcha.
Speaker 1 (34:08):
So just you know, changing changing gears a little bit.
How did you get involved in transports?
Speaker 2 (34:13):
What?
Speaker 4 (34:13):
What?
Speaker 1 (34:13):
What brought you to the the fine world of transportation?
Speaker 4 (34:18):
You know, this goes back to our days, going back
over you know, two decades ago to to to the
Prudential Equity Group. Well, I believe it was it was
you on the transportation team. Back then I was covering
the auto industry and the US economy. But after leaving
you know, Prudential, I went to bear Stearns where I
joined an analyst named ed Wolf who was the top
(34:41):
ranked transportation analyst on on the South Side at the time.
And and uh, it was a great men mentor for
me for the next seven years and two years after
the after joining Ed bear Stearns and JP Morgan merged
UH and I was one of the founding members of
Wolf Research UH soon thereafter. And Wolf Research is still
(35:03):
a really wonderfully performing boutique equity research firm right there
in the New York area, close to you.
Speaker 2 (35:11):
Gotcha, yeap.
Speaker 1 (35:12):
Wolf Research does really good good work on transports. And
you know, I like to ask a lot of my guests,
is there a book that you've read, whether it's on
transportation or research or you know, management, that's kind of
close to your heart, that that that you like.
Speaker 4 (35:28):
It's a good It's an interesting question. I look at
my bookshelf and I have to point out I have
to say thinking fast and Slow. I don't know if
that's that's been chosen before, but Dan Canneman, it's not
particularly you know, helpful for for freight, but I think
it's extremely helpful and understanding sort of how we view
the world, which is, you know, subject to to several biases.
(35:52):
You know, we're constantly trying to latch op the short
term data to understand longer term trends and stuff like
that in our business. So I think understanding those biases
really helps Iron those out of our forecasting. I use
that a lot.
Speaker 1 (36:03):
Great well, Tim, I really want to thank you for
your time and your insights.
Speaker 2 (36:07):
It was good catching up with you.
Speaker 1 (36:09):
We got to do this again, maybe maybe a little
less time than twenty some ideas.
Speaker 4 (36:14):
I think that would be great, and those are going
to be changing quite a bit in the days and
weeks and months to come, so I think we'll have
a lot more to talk about.
Speaker 1 (36:23):
We'd love to hear Ax's outlook for twenty twenty six
and twenty twenty seven, you know, early next year sounds great,
And Chris, I want to thank you for joining me today.
Speaker 5 (36:33):
Thanks Lee, it was a pleasure, and thank you Tim.
Speaker 1 (36:36):
Also, I want to thank you for tuning in. If
you liked the episode, please subscribe and leave a review.
We've lined up a number of great guests for the podcast,
so check back to hear conversations with C suite executives, shippers, regulators,
and decision makers within the freight markets. Also, if you'd
like to learn more about the freight transportation markets, check
(36:57):
our work on the Bloomberg Terminal at Bigo or on
social media. This is Lee Klasgal signing off and thanks
for talking transports with me,
Hi everyone, This is Lee Clasgow when We're Talking Transports.
Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host,
Lee Klaskow, Senior Freight, Transportation and Logistics Analysts at Bloomberg Intelligence,
Bloomberg's end house research arm of almost five hundred analysts
and strategists around the globe. Before diving in a little
public service announcement, your support is instrumental to keep bringing
(00:28):
great guests and conversations to you, our listeners.
Speaker 2 (00:31):
And we use your support.
Speaker 1 (00:32):
So please, if you enjoyed this podcast, share it, like
it and leave a comment. Also, if you have any
ideas for a future episode or just want to talk transports,
please hit me up on the Bloomberg terminal, on LinkedIn
or on Twitter at logistics Late. Now on to our episode. Today,
we're gonna do something a little different. This episode will
be co hosted Bye bye Bloomberg Intelligence colleague and fellow
(00:55):
Ithaca College alum, Chris Chillino. Chris is Bloomberg Intelligence senior
miss Machinery analysts, and our guest today is Tim Denouer,
Vice president and senior Analysts at ACT Research, a provider
of research and analysis of the commercial vehicle and transportation sectors.
I've known Tim for the better part of twenty years
from our time when we overlapped at Crudential Equity Group.
(01:18):
Tim lead's transportation research and authors ACT Freight Forecasts, US.
Speaker 3 (01:23):
Rate and Volume Outlook. His work provides critical insights into
pricing and volume trends across truckload LTL and intermobile markets.
Tim joined ACT in twenty seventeen after fifteen years in
equity research, including rules at Wolf Research and Ballyasny Asset Management.
He also analyzes commercial vehicle demand and alternative power trains.
(01:45):
He owns a BBA in Economics and finance from James
Madison University. So Go Dukes, Welcome to the podcast.
Speaker 4 (01:53):
Tim, How you doing very good?
Speaker 3 (01:54):
Thanks for having me Lee, It's great to see you.
Speaker 1 (01:57):
So just you know, I gave a little introduction about
what ACT Research is all about. If you can provide
a lot more details, that'd be fantastic.
Speaker 2 (02:04):
Before we get into the meat and bones. Yeah.
Speaker 4 (02:07):
Sure. We are an industry consultancy focused on the commercial
vehicle markets and specializing in data analysis and forecasting, specifically
with the classes five through eight vehicle markets, sales and production,
and that type of thing. We focus a lot on
freight rates and volumes and use truck prices to name
a few things we're into.
Speaker 1 (02:28):
Right, So before we go into, you know, the truck
oem market, can you just give us a backdrop of
where you're seeing the freight markets right now, because you know,
I don't know about you. It's difficult times to kind
of predict where demand is going.
Speaker 4 (02:43):
Yeah, absolutely, it's it's we're in the third year of
a freight recession in the four higher trucking markets that
does not seem like it's going to end too quickly.
We think that it's going to last, you know, a
bit longer due to tariffs, But I'd say we have
a little bit of a different view on why it's
lasted as long as it has. We think the supply
(03:07):
side is a big piece of the puzzle, and the
private fleets, which represent a little bit more than half
of the tractors on the highway, have grown pretty significantly
in the past five years since the pandemic, and we
think that's one of the reasons that this freight recession
is just dragging off.
Speaker 1 (03:25):
Right, And for those listening, private fleets so Walmart owns
and operates their own trucks. They also use carriers like
JB Hun and Werner. So that's the for higher market.
So just for those that are uncertain, So, are you
expecting rates to move significantly higher from here, whether it's
spot market or contractual market.
Speaker 4 (03:47):
Not for a while. I think it's it's gonna be
a little bit tough sledding in the spot market. We're
still we saw a decent increase in the road check
week in mid May, but pretty soft still coming out
of that in terms of there's there's just weakening demand
in the short term. We do think there's gonna be
(04:08):
an improvement in the third quarter from a demand perspective,
but I think that's that's gonna be relatively short lived.
And the higher tariffs are have reduced our economic outlook
fairly considerably over the past several months.
Speaker 1 (04:24):
And do you guys have do you guys have a
call on like where you see rates like do you
see them increasing mid single digits this year?
Speaker 2 (04:31):
Down mid single digits? Do you guys have it? Do
you guys put anything out there like that? Oh?
Speaker 4 (04:35):
Absolutely? The current number for this year is one percent?
Is our okay? Forecasts for contract rates for twenty twenty five.
Speaker 2 (04:42):
Yeah, okay, gotcha, all right?
Speaker 1 (04:44):
That that is probably I would say on on the
bear side from things that I've heard, but you know,
it's it's hard to argue against it as well.
Speaker 2 (04:52):
So with all that, so, you know, I know a
lot of act research. Some of the bread and butter
is on the OEM side.
Speaker 1 (05:00):
Can you talk about, you know, what your your outlook
for the North American Class eight market is in terms
of production for this year and maybe next year.
Speaker 4 (05:08):
Sure. Absolutely, it has come down fairly considerably in the
past several months. And I'll talk a little bit more
directionally than you know, absolute numbers, but we have taken
about fifty thousand units out of the forecast in the
past three or four months because of the higher costs
associated with tariffs.
Speaker 1 (05:28):
Hey, Tim, could you just say, like, so fifty thousand
out of like what's the what's the typical market in
North America?
Speaker 4 (05:35):
Roughly you say three hundred thousand, okay, And so that
that downward directions has really been driven by, let's call it,
a paralysis of decision making in the past couple of months,
because it's become really difficult to order a vehicle when
we don't really know what the tariffs are going to
(05:56):
be at the end of the day, there's still a
number of questions and terms of how the teriffs will
shake out, and the fleets clearly don't like that uncertainty,
and so order activity has you know, I will say
ground to a halt, but it's it's down significantly.
Speaker 5 (06:15):
Gotcha and Tim speaking of this order paralysis, I mean,
I think we're down about thirty percent year to date
on class state orders here in North America. I guess,
how are those orders tracking relative to your expectations, just
given the uncertainty out there with tariffs and the regulatory backdrop.
And I guess when do you think we could begin
(06:35):
to see a recovery in orders?
Speaker 4 (06:38):
Yeah? Good question. So I would say that over the
past year or so, orders have sort of defied our
expectations to the high side. And to some extent it
goes back to that private fleet theme that already touched on,
and that really led to more equipment manufacturing than the
freight cycle would have justified, even going back to twenty
(06:59):
twenty three, twenty four, And so I would say owners,
while they've come down a lot this year, it's sort
of realigned with our expectations with what the freight cycle
really needs, and so that's actually a constructive thing for
moving the cycle forward. Obviously, it's not great from a
manufacturing perspective, because you know, all of the major manufacturers
(07:20):
have have announced layoffs in the past few months. But
this is a normal part of the cycle, and so
again it's not too unexpected. What has been surprising in
the order book in the past six months or so
is the day cabs have come down relative to sleepers
(07:41):
within the tractor orders. And while it's not a perfect
one for one, because a fair number of four hire
fleets do use daycabs, it is mostly a private fleet
equipment type, and so if we use daycabs as a
proxy for private fleets, it looks to us like they
are are really dialing back in their order activity, even
(08:04):
more so than in the sleeper market, which is the remainder.
So that's that's interesting, and it does suggest the cycle
is starting to turn.
Speaker 2 (08:14):
Oh, that's interesting.
Speaker 5 (08:15):
Are there other pockets of the truck market that are
holding up maybe better than you anticipated this year? And
then maybe conversely on the flip side, where's the weakness
most pronounced?
Speaker 4 (08:26):
Yeah, it's a good question and I think you could
almost answer the same question. I mean, certainly that the
weakness has been pronounced in the truckload market for for
a while now, but the vocational part of the class
eight market, which doesn't get quite as much attention, which is,
you know, class eight straight trucks, which breaks down to
a lot of different vehicle types. It's dump trucks and
(08:48):
cement trucks and refuse trucks and those those types of
things that in general that that part of the market
had had held up really well over the past year
or so, as the tractor markets orded to cycle down.
What's changing there? I think there's been some some new
regulatory uncertainty, and where demand had been really strong for
(09:09):
vocational vehicles, that does seem to be changing a bit
as well in the past few months.
Speaker 5 (09:14):
Okay, great, And what about the outlook for medium duty trucks?
Do you expect demand there to hold up better than
the heavy truck side really, not only this year but
into next year as well.
Speaker 4 (09:26):
Medium duty is an interesting case where there is still
some degree of supply chain constraint at the bodybuilder level,
and we still have really elevated inventories for the on
the cap and jazzy side. They're waiting their their bodies
and so that's been a limiting factor. And we do
(09:46):
think the overall demanded medium duties is headed lower as
well because similar factors to the heavy heavy duty market,
largely these higher costs of vehicles and the uncertainty around
the tariffs. So I do think that's going to you know,
drive a considerable reduction in medium duty production. And they
(10:10):
haven't asked about it yet, but if you want to
talk about trailers as well, we cover that market, and
that markets has had a few decent mounts of orders
this year, but it was obviously going to be under
a lot of pressure as well because they're made mostly
of steel and aluminum.
Speaker 1 (10:26):
So you know, you bentioned tariffs a little bit earlier.
So the trucks that are running on the roads in
North America are they made here? Are they just put
together here and they're using parts from overseas? Like, how
harder are the truck OEMs potentially going to get hit
(10:48):
from the tariffs?
Speaker 4 (10:50):
Yeah? Good question. They need to be roughly two thirds.
I mean the numbers vary from sixty to seventy five
percent to be usmc A compliant and so there is
a fair amount of parts that come into to the
US that support the supply chain that uh, you know,
there's there's a lot of parts that are that are
(11:11):
sourced in in Europe and other places that uh, you know,
we talk a lot about our you know, connection to Mexico,
which is which I'll get to in a sect and
it's it's important, but it's also important to point out
that we've got a very close relationship with Europe and
there's a fair amount of you know, castings and those
kinds of things, you know, second and third tiers of
the supply chains that that we don't see, you know,
(11:32):
too directly that that you know, come from the lowest
cost places. And and and the we hear anecdotes from
ship from suppliers that uh, you know point out that
they have worked really hard to you know, supply their
parts at from the lowest cost places. Uh. And and
so moving things back to the US is is going
(11:52):
to be very expensive, is the general theme that that
we hear. Uh. And so that's that's not gonna be easy.
But to answer your question, to come back to Mexico,
thirty four percent of the Class eight vehicles that were
sold in the US last year were assembled in Mexico,
and there is a bit of a mismatch at the
(12:13):
moment from a tariff perspective because those vehicles and this
is part of the Section two thirty two investigation that's
going on, but those vehicles will will end up with
a much lower tariff. Man I think, aside from steel
and liminum, there's not going to be very much that
those things are going to face because they're being assembled
(12:33):
in Mexico, whereas the remainder, which is being assembled in
the US is going to see those those reciprocal tariffs
and a number of other tariffs that have been enacted.
And so that the Class eight trucks that are being
assembled in the US are being currently put at a
competitive disadvantage to those they're built in Mexico.
Speaker 2 (12:56):
Is there one OEM that's less exposed who tariffs versus
it's peers.
Speaker 4 (13:02):
I think there's a significant exposure across the board, and
I think I think the that disadvantage that I just
talked to is likely to be corrected all right.
Speaker 1 (13:13):
And is the impact felt similarly on trailers? Like where
trailers manufactured, they are they imported like containers.
Speaker 4 (13:20):
Or no actually, the trailer supply chain is still very
very much domestic. There are some some foreign manufacturers who
bring in some non US steal in some cases and
that's going to put them at a disadvantage. But there
are also some very very domestic trailer supply chains that
(13:41):
most of it is. You know, it's it's a bit
more fragmented than the truck market. There's there's more sort
of local players out there, including in Canada and Mexico.
Speaker 5 (13:51):
So Tim, maybe circling back on your Section two thirty
two comments, and really for those of you unaware that
the US Department of Commerce announced back in ABE a
new Section two thirty two investigation into the impact of
heavy and medium duty trucks as well as truck parts
and components to really assess their impact on national security.
(14:13):
The comment period ended, I believe May sixteenth, and we're
kind of now in this waiting period just to figure
out what the outcome is going to be here. I guess,
what are your expectations coming out of this and really
how could this impact the heavy truck markets moving forward?
Speaker 4 (14:29):
Yeah, I think, I mean your guess is as good
as mine in terms of when we see a decision
you know, things have been happening faster than I think
most people expected in this administration. So it could take
I think two hundred and seventy days plus ninety days,
but I think we're expecting something perhaps sooner, and I think,
(14:49):
like I just described what the outcome is likely to add,
add even more to the cost of of these m
duty trucks.
Speaker 5 (14:58):
Right, Yeah, it's not just the section two thirty two. Right,
you talked earlier about steel and aluminum. We got the
baseline ten percent tariffs, We could get into some of
the regulatory changes going on or potential regulatory changes. All
of this seems to equate to higher truck prices moving forward.
(15:19):
Do you have a sense as to, you know, what
the price increase for a Class eight truck may look
like if we look out maybe over the next twelve months,
Like how much is of the cost how much is
that cost of the vehicle going to go up or
at least potentially due to you know, all these moving pieces.
Speaker 4 (15:37):
Yeah, that's a good question. I think what we're hearing
from the dealer channel so far is it's a low
single digit percentage, it's two or three percent. I think
at the moment is our best sort of guess just
from what we hear, and you can certainly get there
from just understanding how much steel aluminum is in these vehicles,
(15:57):
but beyond that, it hasn't been too much just yet.
I think one of the things that's making it hard
for fleets to make decisions right now is the fact
that the tariffs could come back and could increase significantly,
and the question is who's going to pay for that,
and that's a difficult question for for both the fleets
(16:19):
and the manufacturers right now. It's worth stepping back for
a second to point out, and you rightly point out this,
this is on parts as well. So the aftermarket where
fleets you need to go to to maintain their vehicles,
that's going to face some pretty significant price increases as
well for parts in that channel. And so that's it's
(16:43):
all gonna make it, you know, tougher for fleets to
to continue to operate, and so it's going to continue
to tighten to reduce capacity and eventually we will get
to a tighter supply demand balance. So this all is,
you know, eventually going to be constructive for the fleets,
but it's gonna be rough in the short term. In
terms of how much could it add to the price
(17:04):
of the vehicle. I mean, we've done some analysis that
suggest I mean, if we're talking about a twenty five
percent tariff thirty four percent of the vehicle's manufactured, just
for example, you can get to a double digit number
pretty quickly.
Speaker 1 (17:19):
You know, you're mentioning earlier the you know, growth in
private fleets and kind of that had an impact of
weighing on rate. I guess we didn't really explore like
what was driving that. Do you do you have any
sense of what was driving the growth in private fleets? Yeah,
great question, and I did Glass over that. There's a
(17:39):
lot in this answer.
Speaker 4 (17:41):
I think there's there's both a backward looking and a
forward looking aspect to it. From a backward looking perspective,
I think the sort of loss of supply chain control
that happened during the pandemic and the tightness of capacity
after the pandemic, during the chip shortage, that the real
really chapped a lot of supply chain managers and and
(18:05):
I think, you know that really motivated people to for
the first time in my career of watching freight, to
to start insourcing free, which has historically been been more outsourced.
It has been at the really thirty year trend before
the past five years, and so I think the backward
(18:25):
looking trend was definitely supply chain control and cost costs
certainly spiked during the pandemic and then post pandemic. I
think there's been a pretty considerable surge in cargo theft
that has been a pretty big issue for most shippers.
I've talked to some shippers who shipped low value stuff
(18:47):
who don't really care if they get a load stolen
here or there, but most shippers care quite a lot.
So I think it's a bunch of things. But looking forward,
I think one of the main reasons in the past
two years really has been that respect that new truck
prices were going to go up significantly in twenty twenty
seven because of the low Knox regulations from the EPA,
(19:09):
which are now in question.
Speaker 1 (19:10):
Right And for those that are interested in learning more
about cargo theft, we did an episode a couple of
weeks ago with Highway's chief commercial officers, So I'd suggest
folks going back to listening to that, Yeah, Tim.
Speaker 5 (19:23):
Maybe pulling on that thread with the new new regulations
a little bit more here. So the heavy truck industry
obviously with looking at new regulations from the EPA coming
in twenty twenty seven to lower the NOOX emissions from
the vehicle. In addition to the more stringent emissions rules,
OEMs are also going to be faced with that extended
(19:44):
warranty period, So warranty coverage was going to go up
to about four hundred and fifty thousand miles from about
one hundred thousand today. The expectation was that we were
going to see this big pre buy here in the
back half of twenty five and then all throughout twenty six. However,
as you alluded to in March, the EPA announced that
it's going to reconsider those twenty twenty seven emission standards.
(20:08):
If you could get out your crystal ball, like, what
do you think is the most likely outcome here? I mean,
do we get a full repeal, do we get a
partial repeal, does it stay intact? And really how does
that kind of influence your thinking around the magnitude and
duration of a potential pre buy.
Speaker 4 (20:24):
Yeah, I mean not to you know, crystal ball is
a good, good analogy, but to put it, if you
want to put it in bedding terms, my money would
be on the ATA. I think the ATA is, if
we're looking at the lobbying organizations, is you know, kind
of the leader. And there's a number of good lobbyists
in the trucking industry, but I feel like they are
are pretty influential, and they've put out some interesting information
(20:44):
that suggests that they support this sort of middle way,
if you will. That doesn't scrap the rule entirely, because
you know, let's be honest, there's been hundreds of millions of
dollars invested by the truck manufacturers now a lot the
average trucker may not care about those costs and may
not want to pay the higher TRUGT price no matter what.
But I think the A T A actually does and
(21:07):
this is an interesting debate that we've been having UH
for for some time. Is I think the A T
eight does understand that those better engines are going to
raise the barriers to entry in the industry and ultimately
be good for industry returns. I think that they understand that,
and there you know, there's there's obviously some arguments that
they've done some things over time that that disagree with that.
(21:29):
But but I think we'll end up with a rule
that that scraps the warranty and useful life provisions, but
but keeps those lower notch rules in place. Uh. And
I think that's that seems like the most likely outcome.
Speaker 1 (21:46):
Uh.
Speaker 4 (21:46):
Now, there's still I would say, say, a pretty dark
good chance as well, that just given the deregulatory zeal
of the new administration, that you know, there's a chance
that the rules go away entirely. I think that's very
low probability of this. I mean, there's still some, but
I also think it's very low probability that the rule
(22:07):
survives as it's written.
Speaker 5 (22:09):
And do you have any sense on timing when we
potentially could hear something?
Speaker 4 (22:12):
Yeah, great question, that is I don't. And it's one
of those things that is driving such uncertainty with with
you know, the industry, because you know, in theory, we
may not know until we get towards twenty twenty seven
or even you know, late twenty six or early twenty seven.
So how do you plan in that environment? I would
(22:34):
actually argue that again, like I said earlier, the private
fleets have been sort of pre buying for the last
two years, and so while on our forecast for this year,
there's actually a little bit of an underbuy given where
you know, sales and orders are right now, and so
they're sort of giving back some of that pre buy.
We still think there's going to be a little bit
(22:55):
of pre buying going on next year, because you're still
going to be facing you know, some small I mean
not a not a tiny fraction, but probably thirty or
forty percent of the price increase that they were expecting previously.
Speaker 1 (23:10):
So what is that, So that thirty forty percent of
the price increase that they expect previously, what is that
in percentages or dollars for the total increase?
Speaker 4 (23:18):
The prior estimates were twenty to twenty five thousand dollars, Okay, yeah,
and so it's going to be you know something probably
around ten I think if if we go this sort
of middle route, and that is enough probably to drive
some pre buy. But the freight industry has been through
a rough couple of years. Profits are under a lot
(23:39):
of pressure. The publicly traded truckload fleet just put up
their lowest margin in fifteen years in the first quarter
and U and so there's not a lot of cash
to pre buy.
Speaker 1 (23:49):
Right and some of the you know, the margins on
the truckload side has been impacted by the use truck market.
Speaker 2 (23:55):
What's your outlook on the use truck market. We're going
to see prices increase from here, Yeah, that's.
Speaker 4 (23:59):
An interest in question. The used truck market has seen
some very interesting signs of life this year, prerequently at
auction and also on the wholesale side. Not as much
on retail yet, but the auction and wholesale markets tend
to lead retail UH And in our view, the tariffs
(24:20):
and the tariff pricing increases, which you know, like I said,
are probably only two or three percent for new trucks.
If you take a used truck, which is you know,
something like half of the value of the new truck,
the pricing increase actually could be larger in percentage terms
because because a lot of that tariff, if the most
competitive product just went up, you know, by four or
(24:42):
five thousand dollars, I would say a fair proportion of that,
I don't know what the number is, but a fair
proportion of that probably does flow directly through into the
into the used truck market. And that I think is
is it's sort of motivating some activity. It's also a
normal part of the cycle for for used truck prices
(25:02):
to start to come up. We've we've had a couple
of very very rough years where we're at all time lows,
and in real terms, it has a percentage of new
truck prices and so so U S trut prices are
at pretty pretty depressed levels and and you know, are
we're not expecting them to come up too much, but
but there's definitely been some uh, some interesting activity in
(25:23):
the last couple of months.
Speaker 1 (25:24):
Yeah, and you mentioned that, you know, we've been in
a freight recession for quite some time. Is that really
what's driving the depressed prices. Yeah, I think so, uh
for sure.
Speaker 4 (25:34):
And it's it's also to some extent, it's it's affected
by by new equipment production. And like I said, new
equipment production is starting to ramp down a little bit,
so that should have an inverse impact on unused truck prices,
and that that depressed use truct prices has partly been
because new truck production has really been quite strong in
(25:55):
the past couple of years.
Speaker 5 (25:56):
Maybe going back to some of the regulatory changes outside
of the EPA twenty twenty seven Knox rules, are there
other regulations that you're watching or that you think are
really most at risk under this administration or could have
some kind of a you know, material impact on demand
for equipment.
Speaker 4 (26:17):
That's a good question. I think the low knox ones
are of course the biggest. The GHG three, frankly, we
had that's sort of the next biggest, But we had,
frankly not really expected much to be enforced there even
before the election. If you go back to last summer
and the Supreme Court's Chevron rulings, which sort of reduced
(26:39):
the regulatory power of some of the agencies, it looked
like GG three was going to be really aggressively contested
under that law, even if the election had had gone
the other way. So frankly, we had never really built
that one into our our forecasting, and we're still not
going to because GC three, well, you know, low doxes
(27:03):
is a significant change. GC three is is very different
in the way, you know, it does sort of upend
the past forty years or so of a missions regulation
by by being much more aggressive on the carbon reduction
uh and tying that to basically like with vehicle targets
(27:24):
and and that that that was a pretty big change,
and so well, it didn't really change our thinking in
the past, you know a few months when the administration
came out and said that they were going to to
reevaluate that one as well. Yeah, that the likelihood of
that is still pretty low of that being enforced.
Speaker 1 (27:42):
You know, you know, when you're when you're talking about
you know, lowering emissions, a lot of that's based on
new technologies that these OEMs develop. We would remiss if
we you know, we're talking about technology and then started
talking about evs or autonomous trucking.
Speaker 2 (27:59):
Does ACT research have.
Speaker 1 (28:00):
Uh, you know, any thoughts on you know, where EV's
are heading or where autonomous trucking h might be going.
Speaker 4 (28:07):
Yeah. Absolutely, We've done a number of reports on both topics.
We actually have quarterly EV forecasting going. At this point,
it's you know, it's it's slow going in the heavy
duty markets. You know, there's there's some some decent momentum
in school buses, but you know, demand is you know,
there's still some pockets some private fleets in the heavy
(28:29):
duty market are working pretty hard on it. But but
broadly speaking, especially given the difficult financial conditions in the
trucking industry these days, broadly speaking, you know, electrification, it's
pretty slow going.
Speaker 1 (28:44):
Have you guys rained in your your outlook for evs
because of the new administration, doesn't you know, seem so
uh focused on emissions or environmental stuff.
Speaker 4 (28:55):
Yeah, it certainly has had a negative impact. And and
it's also impacted in the shorter term. The effect has
been a lot of the states that were intending to
go along with California in terms of their more aggressive
regulations that do resemble you know, JG three was based
on the Car Advanced Clean Truck rules and there was
(29:19):
a number of states that that we're going to follow
along with California on that, and they have really been
delaying and you know, pushing off their their plans, and
that's had a.
Speaker 1 (29:31):
Negative impact on the outlook, you know, in the short term, right,
And I guess just pivoting to autonomous trucking. Are the
robots coming? Are they coming tomorrow? Next week? You know,
I don't know, two two and twenty two.
Speaker 2 (29:45):
Yeah, there we go.
Speaker 4 (29:46):
It's interesting to learn that there's some out there, and
you know, I heard from a couple of the autonomous
fleets just last week and they are they're making good
progress there has you know, there are some operations, some
are going the off highway route, which I think is
an interesting way to prove the case out.
Speaker 2 (30:04):
Can you just explain to listeners what all highway means?
Speaker 4 (30:07):
Sure? Uh, you know, Kodiak is the example, and they
are using I believe in oil and gas fleet that's
that's not running on the highways, and and so in
a more private operation. I think that the liabilities are
obviously a lot different than running on the highways, and
so so I think that's avantageous for that type of operation.
I mean, mining trucks have been doing this for for
(30:29):
some time. I think those types of of of applications
for autonomous work really well. But on the highway it's
much different. You know. The most recent news out of
Aurora overs them bringing the drivers back in not as
a driver but as an observer, and in part just
because the manufacturer didn't like one specific detail of I
(30:52):
don't I don't know how the details of it. There's
a whole lot of risk and then yeah, I think
it's going to take a long time to for society
at large to get comfortable with with heavy duty trucks
with no drivers.
Speaker 1 (31:02):
Yeah. I'd say probably least ten years out to see
them widespread on the highways.
Speaker 5 (31:08):
Do you see the autonomous trucks, you know, changing what
the replacement cycle looks like relative to the to the
ice trucks today, does it shorten that replacement period extended?
What are your thoughts about how the replacement cycle could
change as we see some of these new emerging technologies.
Speaker 4 (31:28):
Yeah, it's a good question. I think the interesting thing
when you talk about in context of alternative power trains
is that electric vehicles are going to require, you know,
a lot of time to recharge, and autonomous vehicles you're
gonna want to run twenty four hours a day if
you can, and you know they should be able to essentially,
so in general, the idea is that they could run,
(31:51):
you know, two or three times as many miles as
your typical truck, which you know would burn them out
a lot fast. And so you could see at the
same time, if if they are running two or three,
you know, two or three times as much, you would
need fewer trucks to haul the same amount of freight,
(32:12):
and so you'd go through a couple of different iterations.
I think of the fleet sort of expanding and contracting,
But at the end of the day, fundamentally you'd end
up in the very long run at the same level production.
Speaker 5 (32:24):
And how do you see this whole technology or energy
transition playing out? Does does battery electric, wind? Does fuel cell?
Is it hydrogen combustion? Is there one dominant fuel source
moving forward or do we see kind of a combination
of everything.
Speaker 4 (32:40):
That's a good question. I think our NG needs to
be part of the discussion natural gases is it's not
zero emission for sure, but our NG is negative emission,
So so that that's definitely something that is out there
and working and gaining more and more you know, traction
in the industry year and there you know, it went
(33:01):
through a rough start, you know, going back fifteen years
ago or so, but there they finally do have the
right equipment from an engine technology perspective. Uh And and
so I think that's that is, you know, a contender
in terms of emission introduction. But you know next up
is certainly EBS. We would put you know, hydrogen based
(33:22):
stuff much much lower on the list just because of
the costs.
Speaker 1 (33:25):
And I guess you know, a lot of that's, like
I said, is based on where the frame markets are going.
You seem pretty uh, you know, you're kind of a
temp at outlook Uh, when when do you guys think
that things are going to turn Yeah?
Speaker 4 (33:38):
Good question.
Speaker 6 (33:39):
So I actually think the most of the the negative
effects of the recent tariffs aren't really likely to hit
until the fourth quarter of this year and the first
quarter next year.
Speaker 4 (33:52):
It's it's sort of where I put sort of the
the worst of them because you're going to get a
pretty good surge here in Q three. Uh, because of
this on again, off again ninety day type of planning cycle.
Speaker 2 (34:06):
Right, gotcha.
Speaker 1 (34:08):
So just you know, changing changing gears a little bit.
How did you get involved in transports?
Speaker 2 (34:13):
What?
Speaker 4 (34:13):
What?
Speaker 1 (34:13):
What brought you to the the fine world of transportation?
Speaker 4 (34:18):
You know, this goes back to our days, going back
over you know, two decades ago to to to the
Prudential Equity Group. Well, I believe it was it was
you on the transportation team. Back then I was covering
the auto industry and the US economy. But after leaving
you know, Prudential, I went to bear Stearns where I
joined an analyst named ed Wolf who was the top
(34:41):
ranked transportation analyst on on the South Side at the time.
And and uh, it was a great men mentor for
me for the next seven years and two years after
the after joining Ed bear Stearns and JP Morgan merged
UH and I was one of the founding members of
Wolf Research UH soon thereafter. And Wolf Research is still
(35:03):
a really wonderfully performing boutique equity research firm right there
in the New York area, close to you.
Speaker 2 (35:11):
Gotcha, yeap.
Speaker 1 (35:12):
Wolf Research does really good good work on transports. And
you know, I like to ask a lot of my guests,
is there a book that you've read, whether it's on
transportation or research or you know, management, that's kind of
close to your heart, that that that you like.
Speaker 4 (35:28):
It's a good It's an interesting question. I look at
my bookshelf and I have to point out I have
to say thinking fast and Slow. I don't know if
that's that's been chosen before, but Dan Canneman, it's not
particularly you know, helpful for for freight, but I think
it's extremely helpful and understanding sort of how we view
the world, which is, you know, subject to to several biases.
(35:52):
You know, we're constantly trying to latch op the short
term data to understand longer term trends and stuff like
that in our business. So I think understanding those biases
really helps Iron those out of our forecasting. I use
that a lot.
Speaker 1 (36:03):
Great well, Tim, I really want to thank you for
your time and your insights.
Speaker 2 (36:07):
It was good catching up with you.
Speaker 1 (36:09):
We got to do this again, maybe maybe a little
less time than twenty some ideas.
Speaker 4 (36:14):
I think that would be great, and those are going
to be changing quite a bit in the days and
weeks and months to come, so I think we'll have
a lot more to talk about.
Speaker 1 (36:23):
We'd love to hear Ax's outlook for twenty twenty six
and twenty twenty seven, you know, early next year sounds great,
And Chris, I want to thank you for joining me today.
Speaker 5 (36:33):
Thanks Lee, it was a pleasure, and thank you Tim.
Speaker 1 (36:36):
Also, I want to thank you for tuning in. If
you liked the episode, please subscribe and leave a review.
We've lined up a number of great guests for the podcast,
so check back to hear conversations with C suite executives, shippers, regulators,
and decision makers within the freight markets. Also, if you'd
like to learn more about the freight transportation markets, check
(36:57):
our work on the Bloomberg Terminal at Bigo or on
social media. This is Lee Klasgal signing off and thanks
for talking transports with me,
Host
Lee Klaskow
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