Up and down the rolling hills, a tractor-trailer traverses a heartland state. The ride is smooth. The driver pushes his rig to maintain speed on inclines, then eases back on the down side to let gravity do some of the work. It’s a scenario we literally see every day. Figuratively, it can represent what happens to the entire carrier industry, specifically used trailer availability, during and between recessions.
The semi-truck represents the entire carrier industry, the driver a combination of all its fleet managers, and the hills symbolize supply, demand, and, by extension, the price for new and used trailers. During the climb the rig is pulling a growing load; manufacturers are producing lots of trailers, supply is high, and the fleet manager’s costs are going down. On the decline, the load lightens. Fewer trailers are being built, supply is down and costs go up. He decides to coast, hang on to the trailers in his fleet a little longer and wait for supply to climb again.
Then, a huge pothole. Recession.
This is deeper than the standard ups and downs of the market conditions that fleet managers are used to dealing with year to year. Suddenly, there’s an unnaturally steep drop in supply because manufacturers feel the pinch of a down economy; input and labor costs are up, and at the same time demand is headed south. They know their customers are going to curb purchases, so they cut production even further. Competition is hot for good used trailers. Every carrier needs to replace equipment, so finding the right model year with the right specifications becomes extremely difficult. And, for those who are fortunate enough to find what they need, the price can be unusually high.
Carriers know new production will gear up again when the country begins to pull out of the recession. But fleet managers also know that, because of a building backlog of orders, there will be a long lead time before they can get their hands on new trailers.
At this crossroads it would be tempting to pull off to the side and wait for conditions to improve. But this isn’t an approved rest area; we all have to keep on truckin’.
Looking Down the Road
Over-the-road trucking is currently at the bottom of this up-down, supply-demand cycle, especially in dry vans. Fleet managers are not only dealing with the effects of The Great Recession of 2008 to 2010, but also the downturn of 2001 to 2003. What is happening, and what will happen over the coming three to five years, becomes easier to understand when you look at new trailer production in and between those two time frames.
First, it’s important to remember new trailer models are a full year ahead of the calendar year. That means trailers that started coming off of the line on Jan. 1, 2013, are actually 2014 model year trailers. The core of what most carriers want to buy in the used market is the 4- to 10-year-old trailer.
Because of the weak economy from 2008 to 2010 and into 2011, many carriers lost money in those years. They either have been hanging on to their equipment longer or looked to the used market. But now, more loads are becoming available and new production has made a comeback. Sounds like good news, and it is. However, even though recovery is in full force, fleet managers who need to replace equipment are finding themselves trying to make a tight turn in a rush-hour intersection.
Fleet managers are now looking for trailers built between 2004 and 2010, the more recent the better. But there weren’t many trailers built from 2001 to 2004 or from 2008 to 2010, so those models are hard to come by. That leaves 2005, 2006, and 2007 models. It’s a narrow lane, and everyone is trying to get through it at once. They have two options. They can buy a trailer that is 8, 9, or 10 years old, or they can buy new.
Just as carriers have been ramping up again, so have manufacturers. The problem is, new trailers don’t just start rolling off the line overnight; it can take several months to produce one. Combine that with a huge backlog of orders, and fleet managers are looking at a four-, six-, or even eight-month lead-time.
Back to the used market. But there, in that narrow lane, demand is high and the prices are even higher; from January 2010 to January 2013, for example, used trailer prices skyrocketed 40% or more.
New or used, trailer availability follows the same pattern. Availability for new goes down, so prices go up. There can be an up to eight-month wait on new equipment, and because of that, demand for used equipment has increased. Many fleet managers want to buy used because they either can’t get or can’t afford new. But with the increased demand, prices of used trailers go up, too.
Used trailer availability is tight right now and will remain that way for a while. Demand for new trailers is projected to remain strong, so barring an unseen disaster or circumstance, used trailer prices are going to stay elevated for the next three to five years. The market will start to even out around 2017. At that time, the carrier that wants to buy a six-year-old trailer will be looking at 2011 models, the year production started to climb again. And, since availability will increase, prices on that used equipment will level out, as well.
Lowering the Peaks, Raising the Valleys
While there’s little we can do to alter the effects of external forces, some carriers have found a way to source good used trailers with the right specs and more palatable prices, even as they cross the desert between recessions.
It’s all about working with a good supplier. With the right supplier, one that deals in volume, carriers can still get the best price on trailers with the right specs, and at convenient pickup locations.
A typical trailer dealer in the United States sells 300-700 new and used trailers a year. Approximately five suppliers in the country sell more than 2,000 trailers a year, and only one consistently reaches the highest volume in the industry, around 8,000 trailers annually.
The larger suppliers generally cover broader geographic areas than smaller competitors, which means they can find and retrofit almost any model year and type of trailer, even when the sweet spot covers a low-production time frame. Larger dealers also can provide one type of trailer, one brand, a specific model year, and a specific set of specifications. This can be beneficial in terms of projecting a positive image and providing customers confidence.
For example, consider a carrier with a customer that is a large box-store chain, and that customer needs 200 trailers. In terms of brand image for the carrier, it’s much better if all 200 of the trailers look the same, carry the same brand name and meet the same specs. A large supplier can provide those 200, and they will all look the same, carry the same brand name, meet the same specs and have the same capabilities. The alternative would be a hodgepodge of trailers of different ages, makes and capabilities.
And, in terms of maintenance, getting the exact trailers will save the carrier hassle and money, as well. The company will only have to stock one kind of brake pad, one type of trailer door, one trailer lock, and so on. It keeps maintenance consistent and efficient and, ultimately, lowers the cost of ownership.
Taking that a bit further, lower cost of ownership, both initial and long-term, is one of the greatest benefits of working with a large supplier. For example, when the supplier purchases 3,000 used trailers, the supplier is able to negotiate the absolute lowest price based on the volume. So it doesn’t matter if the supplier’s customers are two-person owner-operators or a carrier looking for 1,000 trailers; both benefit from the large supplier’s buying power.
The Long View
So it goes, up and down the road. After every recession, the entire industry fights the peaks and valleys of the economy that dramatically affect trailer availability.
