If you’ve ever taken a close look at any prospectus for an investment, you’ve seen the phrase cautioning, “past performance is no guarantee of future results.” That’s not bad advice any time you spend a large sum of money. And it’s also wise to remember the old phrase, “Those who cannot remember the past are condemned to repeat it.”
The recent booming truck sales bring to mind a past we’d just as soon not repeat. When you look back just four years ago to 2014, a lot of heavy-trucks were sold. At the time, it was the best year since a record finish in 2006. Freight demand in 2014 had suddenly increased, and everyone was trying to move more cargo, as indicated in the amount of shipments as well as freight spending.
But when 2015 rolled around, things weren’t as rosy.
There was excess truck capacity in the marketplace, not just because there was less cargo to move, but also because fleets had more trucks. The result? Trucks not moving to their full potential, or even sitting on the fence, while freight rates dropped.
What’s interesting is that when you look at how the economy was performing during that time, it was always expanding, but at times the rate of expansion was less strong than at other times. When the gross domestic product was in a higher gear, which meant more goods were being shipped by truck, the freight markets either led the way or followed. When the GDP was lower, trucking followed the same pattern.
As 2017 moved forward, things once again improved in terms in the amount of freight, rates and the overall economy. Truck sales started booming again, and the economy turned in its first back-to-back quarters of better than 3% annualized growth in years, with the final quarter of last year not far behind.
Recent numbers show heavy truck orders in January soared, with one account showing orders hit their highest level since 2006. Some believe truck sales in 2018 may be end up the best on record after a stunning 2017.
Couple all of this with an economy that’s expected to keep growing around its current rate of 2.5%-3% annually, a good supply of freight and rates remaining healthy thanks to tight capacity, and it’s time to get out the confetti, right? Maybe not.
Ignoring the fluctuations in the stock market in February – after all, Wall Street is not the economy – there are some concerns that could slow down the economy.
- Interest rates are all but guaranteed to head higher this year and next, thanks to expected moves by the Federal Reserve. That can curtail spending on many levels, from corporations to individuals.
- Total freight shipments in the final quarter of last year, while still expanding, increased by the smallest amount of any quarter in 2017, according to the U.S. Bank Freight Payment Index. That could be just freight following a slightly slower overall economy. Or it could also be a signal that 2018 could see an economy growing more slowly than last year.
- Spot freight rates slid through early February, although they’re still not far from multi-year highs hit early in the year.
The bottom line? This tight capacity can’t last forever. At press time, some analysts were saying the risks of an economic slowdown were rising. And if you’re not smart about fleet growth, that could leave you and your fleet with too many rigs, and less business, with history repeating itself.