Could “used-truck salesman” be one of the best jobs in trucking? Follow the money. “It’s a great time to be a used-truck dealer,” said Steve Tam of ACT Research. However, “it’s not necessarily a great time to be a used-truck buyer.”
The average retail price of a used Class 8 tractor climbed to $51,217 in April, a 16 percent leap from the same month in 2010 and an 8 percent increase from March, said Tam, vice president for the commercial vehicle sector at the research firm.
In comparison, retail prices for new heavy tractors run higher than $120,000, which may make $51,217 seem a bargain — depending on how old and how used the truck is. For one, the older a truck, the costlier it will be to maintain.
Rising used-truck prices put yet another limit on truck capacity should freight demand pick up this summer. Capacity tightened slightly in the first quarter, and while sources say the supply of trucks is adequate, they’re not abundant.
Capacity at a group of seven large truckload carriers tracked by The Journal of Commerce dropped 0.6 percent year-over-year in the first quarter and edged down 0.3 percent from the fourth quarter, the smallest annual and sequential quarterly decline in tractor count in a year. The tractor count at those seven companies, which had more than $10 billion in combined revenue last year, has dropped only 1.7 percent since the end of 2009, but is now 15.9 percent lower than at the end of 2006.
Tight capacity promises to keep upward pressure on trucking rates, though a slowing economy could blunt the sharp edge of pricing for shippers, even as truckers argue they need higher rates and profits to cover rising costs.
Until truckers get a higher return on investment, and a clearer view of the economy, they’re likely to throttle back equipment purchasing plans. Net orders for Class 8 tractors have been slipping since December, when they hit a six-year peak, and in April fell to their lowest level since 2010. Orders rose 5 percent last month, but were down 24 percent year-over-year. That’s “well below where many in the industry were expecting to be at this point,” FTR Association President Eric Starks said.
“The mood among truckers is upbeat,” Tam said, “but the carriers don’t have the appetite to grow their fleets.” Instead, they’re maintaining current fleet sizes and “doing a sifting exercise, looking for shippers with the most profitable freight.”
Since the start of the recession, truckers have held on to aging equipment longer, driving the average age of the U.S. heavy-duty truck up to about seven years.
“We’ve got five straight years of replacement not happening,” Derek Leathers, president of Werner Enterprises, said at the ALK Transportation Technology Summit in Princeton, N.J., last month. Trucks that once would have been traded after three years are now much older, and “closer to worthless,” he said.
“The capacity gap that exists will not close in the short- to medium-term because of the aging fleet and the amount of replacement that’s needed,” Leathers said. Replacement becomes harder as the gap between what a carrier recoups from the sale of a used truck and the cost of a new truck widens and carriers have to finance a larger share of the new truck’s cost. “Try to sell a 7-year-old truck and replace it with a $120,000 new truck. See how often you can do that,” Leathers said.
“We didn’t build many trucks (in 2009) to start with,” Tam said, which is a major factor why “lightly used,” well-maintained used trucks are hard to find in 2012. “We’re reaping the consequence of that lower new truck production,” he said. Tam expects used truck prices to keep rising, but at a slower pace than in April.
“There is late-model, low-mileage equipment out there in the market,” Tam said. “But those trucks get snapped up fast, and for a lot more than $50,000.”