Cascadia has been a star product for Freightliner since its introduction. After all, it is the top selling truck in America and now it is winning fans in tough, extreme export markets like Australia and South Africa, and nearer home in equally tough Mexico. In the United States, it is the cornerstone of Freightliner?s 36-plus percent share of the heavy truck market.
But drive one today and compare it with the model that debuted 13 years ago and the trucks are like night and day. For one, there was a significant refresh for the Cascadia with the Evolution in 2013 and then again, a high-tech upgrade with the New Cascadia in 2017. Now we have the New, New Cascadia ? an awkward model designation ? with totally new features and connectivity that went into production shortly after mid-year 2019.
The big news is that it is optionally Level Two automated. That means it has a steering and braking system that makes the driving chore so much easier for the driver. The Cascadia can be configured many ways, but with the full complement of safety systems it has adaptive cruise control (ACC) that maintains a safe cruise following distance, but this is overlaid by full emergency active brake assist (ABA 5.0) that can stop the truck if the driver does nothing to restrain the vehicle before an impending accident. Add to this recognition of stationary vehicles such as in a traffic lane where all vehicles are stopped. It will also spot a walking person in a crosswalk or a bicyclist wobbling along the curb and apply the brakes as necessary.
In addition to the straight ahead safety, there?s lane keeping assistance (LKA) that adds steering control to keep the Cascadia in lane by reading the trucks position between the lane markings to prevent it from drifting away from the set position.The super comfortable seats, adjustable steering column and clean dash provide plenty of driver comforts. (Photo: Steve Sturgess) Detroit Assurance 5.0
But if this seems impressive, and by gosh it is, the real revolution is depth of Detroit Assurance 5.0 that does a whole lot more than run the safety systems. It is also a complete telematics and business solution that effectively makes the Cascadia a node on a trucking company?s business network. It tracks how the truck is being driven, it tracks any fault codes and alerts fleet and dealer that an ailing truck needs repair, makes the booking at the preferred dealership, and even picks the parts for repairs.
But more than that, Detroit 5.0 tracks the performance and economy of every truck, or groups of trucks, and the whole fleet at large. It measures driver performance, truck performance and efficiency by massaging massive amounts of data and integrates an individual or a fleet of Cascadias into the trucking company?s back office system.
So, the New, New Cascadia is a technology tour de force and while you hear claims from other OEMs that they do similar things, Cascadia seems to offer, with 5.0, the most comprehensive and completely integrated package available.The digital glass dash shows 8.5 mpg at the turnaround during our test drive. (Photo: Steve Sturgess) Fuel Economy
But, as the TV ads say, there?s more. We were fortunate to have Al Haggai, channel marketing manager for Freightliner Trucks along for the drive and also have spent time previously with Clint LePreze, Freightliner?s on-highway marketing manager, at the initial debut of the latest Cascadia back in the early summer last year.
There are many refinements that improve the fuel efficiency of the latest Cascadia. Some of them you can see in a glance, such as the closures between the fenders and the wheels that prevent — as far as possible — air getting under the truck from the sides. Less obvious is the deep, deep air dam under the front bumper and even less obvious is the fact that the suspension ?kneels? at freeway speeds to put this aero device an inch closer to the road surface.
Up behind the cab, the side and roof extenders keep the air more closely attached to the cab/trailer so it doesn?t bleed into the trailer gap. And that air is already tight to the cab sides from the new A-pillar deflectors that turn the air coming off the windshield to keep it from billowing out as eddies to the side. This has the added benefit of keeping road dirt off the side glass and mirrors in wet weather. Complementing this are remodeled sideskirts that add to the overall aesthetics of the latest Cascadia model.
And Freightliner was an early adopter of the Flow Below tandem air control panels and wheel cavity covers. These provide incremental improvements but as Haggai parked the truck ready for the drive out of the Velocity Truck Center?s impressive dealership in Fontana, Calif., the all-electronic ?glass? dash was showing 9.0 mpg. This is especially impressive as it was one of those blustery Southern California days that can actually turn over tractor-trailers at the base of the Cajon pass.
Our test route was a run out east on I-10 about 80 miles to the Dinosaur truck stop at Cabazon. But on the way we quartered the streets of Redlands in a futile attempt to get into the old Santa Fe railroad station to grab a few pictures at this splendid location. But that was not happening. In the end, we got back on the freeway and continued. That meant a long crawl through the Banning Scales on the return run, but still, returning to Velocity, the fuel readout gave us 8.8 mpg at a gross combination weight of 70,000 pounds.On The Road
The total mileage at around 160 was by no stretch a day?s work, but this was the second drive of the New, New Cascadia. However, it the first time on a road that is in such bad condition as I-10. Great chunks of concrete have been blasted out of the pavement and the lane markings in many cases were almost invisible.
We were running 60 to 65 mph where possible but in busy traffic that was down to 55. And on Redlands city streets we dawdled around at 20 to 25 mph, taking our time and avoiding curbing ? or worse – all the tight right-angle corners in the heart of this university town. Once on the freeway again, the cruise control proved its merit, keeping a comfortable distance from the vehicle in front until it was time to take a lane and pass slower trucks. The driving is so easy with the DT12 transmission that a driver has the luxury of keeping the correct position in lane or even in town, where the transmission handles all the decisions about the correct gear selection.
Keeping in lane wouldn?t have been an issue because of the steering assist automation. In a short drive last year I found it faultless. It can be set to occupy the center of the lane, or biased to the left or right. My preference is to run the right-hand lane marking and, in that drive, it did just that. But with the poor condition of the lane markings on I-10, I actually disabled the feature ? easy to do with a dashboard switch ? as the combination of high winds and hunting in the lane meant we could get along more smoothly without the assistance. That?s not to say I didn?t just get buzzed by the lane departure warning more than a few times.
Performance was assured from the 400-horsepower DD15, 15-liter that has 1,650 lb.-ft. of torque. The Detroit engines are also enhanced in Assurance 5.0 with engine load balancing where the engine holds constant torque over small, subtle grades that a driver may think are flat to reduce unnecessary fuel use from varying engine load. There?s also updated map coverage with the on-board map database increased by 35% for added coverage of existing major highways and interstates. This feature increases the utility of the engine controls to better use kinetic energy and minimize brake usage. Neither features are obvious and especially so with the smooth and intelligent shifting of the DT12 transmission, but the new features make for a really comfortable drive.
And there were added sophistications detected during the drive. For one, the cruise control just does not follow a vehicle at a fixed distance, it will operate right down to zero road speed. Then, providing the vehicle ahead moves off again within two seconds, the Cascadia will pick up the pace again. This makes for extra comfortable and easy driving in slow crawling traffic in and around Los Angeles.
A super nice feature is the hill-hold, especially around Fontana where freeway bridges mean quite steep hill starts.Seating in the sleeper is angled so there?s more foot room for occupants. (Photo: Steve Sturgess)
As far as diver comfort is concerned, revised seating is even more comfortable than before, allowing for great forward visibility. The view to the rear is also good with rigidly mounted mirrors. On this Cascadia, there were no hood mirrors, an addition I used to think unnecessary but experience has shown is actually quite useful. However, the Side Guard Assist featured on this Cascadia more than made up for the lack of hood mirrors because it detects vehicles in the otherwise blind spots around the truck. If the truck drifts into an already populated lane or the driver attempts a right turn in city traffic with objects in its blind spot, audible and visual warnings alert the driver. If the turn signal is used with a vehicle alongside, the warning light turns from amber to red.
Also addressing comfort are the triple door seals that make the cab really quiet, allowing for easy conversation between Haggai and myself and PR manager Fred Ligouri back in the dinette style sleeper. A neat feature of this configuration is that the left side seat is angled away a little from the table so that two team members sitting at a meal don?t have to avoid treading on each other?s toes.Conclusion
There are so many new features on the New, New Cascadia that it would take a book to explore them all. Suffice to say this very driver-centric truck is also a maintenance manager?s delight and a business owner?s best investment. It is so far from the original Cascadia, another manufacturer might consider a different model name. But the Cascadia has been a star product for Freightliner and this new model continues that tradition.
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The trucking industry?s tensions over adequate parking can be seen as a backdrop to an incident Friday in Oklahoma that left a truck driver in the hospital after being shot by a security guard at a truck stop.
According to several local news reports, the incident took place at a TA Truck Center in Oklahoma City, near the intersection of South Council Road and Interstate 40. The shooting occurred in a section of the truck stop with reserved truck parking.
Sgt. Brad Gilmore of the Oklahoma City Police Department, quoted by local news outlets, described the incident as occurring when the security guard for the truck stop was checking the reserved spots. ?Apparently the security guard was out there checking that when a disagreement happened,? Gilmore was quoted as saying. ?A physical altercation took place. The security guard discharged his firearm.”
The driver, who was not identified in the news stories, was taken to a local hospital. Charges were not filed against the security guard, though Gilmore indicated evidence could be presented to the local district attorney, who could pursue further action.
The report on the shooting from local television station KWTV quoted a truck driver on the scene named Jimmy Combs. His comments seem to sum up the issue with parking that truck drivers face every day.
?That?s pretty severe force when you?re taking somebody down for parking in somebody?s parking spot,? Combs was quoted as saying. ?Most of the time long-haul truck drivers are tired. They run eight, 10, 12 hours and when they want to go to sleep, they go to sleep. You wake them up, I mean if I get woke up, I?m kind of in a bad mood.?
In last year?s annual survey of the biggest issues facing trucking from ATRI, the research arm of the American Trucking Associations, drivers put parking as the No. 3 issue. A year earlier, it was second. In the 2018 survey, management listed parking as the ninth biggest concern. In the most recent survey, it didn?t place in the top 10 in the view of management.
Borderlands is a weekly rundown of developments in the world of United States-Mexico cross-border trucking and trade. This week: project44 promotes freight visibility in USMCA era; Amazon leases 1 million-square-foot warehouse at DFW International Airport ; Mexico auto industry preparing for coronavirus impact; Port Houston container volume spikes in January.
project44 promotes freight visibility in USMCA era
Now that the United States-Mexico-Canada Agreement has been approved in the U.S., freight-tech industry officials said key partnerships and gaining transparency across the complete value chain are more important than ever.
Tommy Barnes, head of global network partnerships at project44, said in an interview with FreightWaves that the company ?allows carriers to have tremendous speed to market and kind of high-fidelity data and predictive business intelligence to make decisions they want to make on behalf of their particular clients.?
Chicago-based project44, a visibility solutions provider, is connected to thousands of carriers worldwide, providing coverage for all electronic logging devices (ELDs) and telematics devices across all transportation modes.Project44 introduced a new feature for its platform called “collaborative visibility” at FreightWaves LIVE Chicago in November. Image: FreightWaves
project44 also recently earned the No. 2 spot on FreightWaves? FreightTech25 list for 2019.
Barnes said when regulatory changes occur in any country or industry, there is always the possibility it could affect visibility and supply chain transparency.
?The global transport space is like a bouncing ball. There are a lot of changes that occur in the regulatory space and the economic space,? Barnes said. ?So if product is coming from a port or a rail yard or if it?s from a supplier location, you have to stitch visibility across multiple constituents. The key is to be flexible and nimble.?
To that end, project44 continues to expand its ecosystem of partners to help retailers, manufacturers and distributors gain predictive and actionable supply chain insights globally.
In the last few months, the company has announced integrations with the SAP Logistics Business Network, IBM Sterling Supply Chain Suite and more.
Barnes said project44?s goal is to provide end-to-end visibility for clients in any country ? even countries such as Mexico, which has been known to frustrate carriers and third-party logistics providers.
?We operate in over 50 countries, including Mexico, and really it?s not that different,? Barnes said. ?Obviously they have ports and port operating systems, rail and road applications. There?s also a telematics environment present in Mexico today as well.?
Barnes said project44?s major goal is to ?stitch? ports, rail yards and telematics together ? regardless of what country they are in.
?If it comes through a port, then moves via road through Mexico, through a transload to the U.S., what a customer wants is that stitch layer visibility that says, ?Here?s the truth.? It?s high fidelity, it tells me exactly how to manage my inventory, my finished product, and gives me the view of truth so I can manage my network more efficiently,? Barnes said.
Amazon leases 1 million-square-foot warehouse at DFW International Airport
Amazon, the Seattle-based digital commerce giant, is leasing the 1 million-square-foot DFW Commerce Center building near the Dallas-Fort Worth International Airport, according to filings with the state of Texas.
Amazon (Nasdaq: AMZN) has not made an official announcement, but the transaction follows several moves to significantly increase Amazon?s distribution presence in north Texas.
Amazon signed a 10-year lease at the Eastpoint Distribution Center in Dallas, according to a release from Dalfen Industrial. The 419,626-square-feet center is located in east Dallas directly across from the Union Pacific intermodal yard. Amazon began occupying the entire facility Sept. 1.
The Dallas Morning News recently reported that Amazon will occupy a 465,450-square-foot facility at Hunt Southwest?s Interstate Crossing development in Fort Worth.
Mexico auto industry preparing for coronavirus impact
The coronavirus in China has not yet affected the import of auto parts for Mexico?s automotive industry, according to several of the country?s top industry officials.
Alberto Bustamante González, director of foreign trade for Mexico?s National Auto Parts Industry Association (INA), said the coronavirus has not caused any shortages of auto parts or disrupted the supply chain yet.
González?s comments came during a joint press conference in Mexico City with the INA, officials from the Mexican Association of Automobile Dealers, the Mexican Automotive Industry Association (AMIA) and the research firm IHS Markit.
To date, ?imports of components and auto parts, mostly electronics, from China have not stopped,? González said, adding the industry is ready to replace up to 80% of those Chinese imports with parts from Canada and the United States.
Guido Vildozo of IHS Markit said if Chinese auto plants cease operations for an indefinite amount of time, the effects would be felt across North America within 15 days, affecting supply chains around the world.
The Chinese government has publicly recommended that companies cease or postpone operations to prevent the spread of the coronavirus among workers.
Mexico imported about $8 billion in Chinese auto parts during 2019, representing 14.5% of total imports made by the Mexican automotive sector, according to the officials.
More than 1,500 auto parts manufacturing companies operate in Mexico, including 19% in the state of Coahuila, 14%, in the state of Chihuahua and 9% in each Guanajuato and Nuevo León, according to the Mexican Association of the Automotive Industry.
The other 49% of auto parts manufacturers and research centers are spread out across Mexico in Querétaro, Guadalajara, Toluca, Mexico City, Puebla, San Luis Potosí and Ciudad Juárez.
Port Houston container volume spikes in January
Container activity at Port Houston was up 25% in January compared to the same period a year ago, marking a significant increase to begin the new year.
A total of 268,773 twenty-foot equivalent units (TEUs) moved across Port Houston?s docks in January, compared to 214,952 TEUs in January 2019.
The increase in container units comes after a record-setting year in 2019, when Port Houston saw an increase of 11% for the year. It was the 18th consecutive year of container growth at Port Houston.
?Expansion of the Houston Ship Channel and investments in our landside marine terminals are our top priorities,? Roger Guenther, the port?s executive director, said in a release. ?Our commitment to performing at the highest level possible at all times ensures we always deliver value to our regional exporters and importers.?
Port Houston is the biggest container port in the U.S. Gulf of Mexico, handling nearly 70% of the containers moving through the gulf.
Every FreightWaves article is designed to assist our readers in becoming the most informed professionals in the transportation and logistics industry. These articles may have flown under your radar this week. We consider them essential reading.
Despite AB5 pause, California team drivers continue ?truck-friendly? relocation search – California natives Jeff and Elyse Fink are still planning to relocate, but say a federal judge?s pause on the new sweeping labor law, AB5, that was set to take effect in January, has given them a little more time to plan their exit strategy.
Volumes flat as trucking fundamentals wane – The Outbound Tender Volume Index (OTVI.USA) has continued its horizontal trajectory below its March 2018 starting point of 10,000 since it recovered from its New Year?s trough.
Are electric powertrains the future of commercial vehicles? – The clout of electric powertrains is growing within the commercial freight mobility space, as economies of scale and market demand are helping the electric vehicle (EV) segment drop equipment costs to levels comparable to that of conventional powertrains.
Redwood Logistics partners with Transflo to expand carrier pool, market visibility – Redwood Logistics has entered into a strategic partnership with telematics and process automation provider Transflo, with the companies integrating their platforms to widen their customers? ability to find new capacity, while increasing visibility.
TFI plans to list on NYSE in 6 million-share US offering – Proceeds could give Canada?s largest transportation company more firepower to pursue acquisitions as it prepares to make a big leap into capital markets south of the border.
Profit drivers: The metrics that matter to fleet executives – Truck profitability is the goal of all carriers, but how they get there varies as much as the operations themselves.
After a solid quarter at XPO, the question is being asked: why does this company need to be broken up? – XPO Logistics (NYSE: XPO) posted fourth-quarter earnings that in a tough freight market can?t be viewed as anything but positive.
PAM Transportation CEO discusses plans after acquiring Celadon?s Laredo terminal – PAM Transportation CEO Daniel H. Cushman told FreightWaves during an interview Tuesday that his company?s trucking service to Mexico is ?busting at the seams.?
New trucks, used trucks and trailers all suffering from the same affliction – In wake of record highs, orders and sales have plummeted during inventory ?rebalancing.?
ELDs are drag on Trimble?s fourth-quarter earnings – ELDs are proving to be a headwind at Trimble.
We bring you the best analysis and the latest headlines each and every day at FreightWaves. Know what is happening right now.
A nine-day blockade at Canadian National?s (CN) tracks at Tyendinaga, Ontario, contributed to CN?s decision to shut down its eastern network late Thursday. The railway said the orders of the court to remove the protesters have yet to be enforced.
Meanwhile, two blockades in Vaughan, Ontario, and one in Vancouver, British Columbia, cropped up recently, although the Vaughan protests have come to an end, while the protest in Vancouver could be coming to an end shortly, CN said Saturday.
The protests are in support of hereditary chiefs of the Wet?suwet?en nation who say the Coastal GasLink pipeline will bring environmental and cultural harm to their territory in British Columbia.
?In Vaughan, protesters put their personal safety at risk by climbing on and between railcars,? said CN CEO JJ Ruest. ??The protesters trespassed on active railway tracks and on active trains to hang their banners and take photos of themselves. Trespassing on railway property and tampering with railway equipment is not only illegal, but also exceedingly dangerous. A train can arrive or a railcar can move at any time. A serious and even fatal incident could be the outcome. Safety is a core value at CN and every time a breach like this occurs, we send railway experts to inspect the track and equipment for the safety of our employees and the public, which further slows the movement of goods.?
CN isn?t the only railway affected by the protesting blockades. Canada?s passenger rail VIA Rail said on Thursday that, with the exception of two lines, VIA Rail ?has no other option? but to cancel all services until further notice. This is because CN, as the infrastructure owner, said it was no longer in a position to fulfill its obligations under the train service agreement between VIA Rail and CN.
?Unfortunately, service to VIA Rail and Amtrak has been discontinued across Canada. It is unsafe to allow passenger trains to start trips across our network when we have no control over where, when, or how an illegal blockade may occur. It would be irresponsible to allow the travelling public to be trapped in a blockade,? Ruest said.
CN?s decision to shut down its eastern operations could put up to 6,000 workers at CN and other rail companies out of work, said the union Teamsters Canada late Thursday.
?These blockades are having a catastrophic impact on ordinary, working-class Canadians who have nothing to do with the Coastal Gaslink pipeline. Hundreds of our members have been out of work close to week. Now up to 6,000 of our members risk not being able to support their families or make ends meet this month, and they are powerless to do anything about it,? said Teamsters Canada President François Laporte. ?Our union ? and thousands of working families ? are in crisis. This situation cannot go on forever. We urge Ottawa to intervene to help find a solution as soon as possible.?
Government officials are saying they are working towards finding a peaceful solution to restore rail operations as quickly as possible.
?All parties must engage in open and respectful dialogue to ensure this situation is resolved peacefully. We strongly urge these parties to do so,? said Minister of Transport Marc Garneau. He also said he is ? in constant communication? with CN and CP, and is meeting with his provincial and territorial counterparts, as well as with representatives of national indigenous organizations, to discuss ?a way forward.?
?We are encouraged by the progress on the blockade in New Hazelton, British Columbia. This is a positive development and we are actively working for a similar resolution on all remaining blockades,? Garneau said late Thursday.
Canadian Prime Minister Justin Trudeau said on Friday that he spoke with Premier François Legault of Quebec about the protests and its economic impacts on businesses, farmers, passengers and communities. The two governments have formed a coordination committee to exchange information in real time so that rail operations can be restored quickly yet peacefully, Trudeau?s office said.
In the Chart of the Week, we take a look at fourth-quarter transportation earnings and dissect the underlying trends and takeaways. Overall, it was a rough quarter for nearly all transportation companies as the effects of continued excess capacity, an industrial recession, the trade war with China and stubbornly high cost inflation (primarily in wages and insurance) wreaked havoc on reported results. That being said, many transportation executives are hopeful of better times ahead, especially in the second half of 2020.
We aggregated publicly traded companies from truckload, brokerage, LTL, rail and intermodal and compared their results across revenue, operating income, operating ratios (ORs) and earnings per share (EPS) to decipher any under- or outperformance in the quarter.
Truckload results were ugly, but broad-based optimism brewing for improvement in 2020
On average, publicly traded truckload revenues were down 3.9% on a year-over-year basis (worse on a size-weighted basis), operating income was down 57%, operating ratios were up 5.6% to 93.7% and earnings were down 59%.
Standout performers include Marten Transport (MRTN), with revenues rising 6.5% year-on-year, while it was able to hold earnings per share flat. We believe this is due to its outsized presence in reefer, in which trends were far stronger in the quarter. The other notable strong performance came from Werner (WERN), with revenues only falling 3.8% and earnings per share only 9.1% thanks to its industry-best OR of 87.6%.
?A third of the truckload group either lost money or made 1% or less last quarter,? Werner CEO Derek Leathers pointed out at this week?s Stifel Transportation & Logistics Conference. ?So if one-third of the publicly traded group is in that kind of shape, imagine what small to midsize carriers across America look like today.?
Nearly all truckload carriers reported pressure from insurance inflation and nuclear verdicts. Carriers could start to see relief from a widening wholesale-retail diesel price spread as Zach Strickland wrote about last week (approximately 20% of revenue is spent on fuel by carriers on average).
Brokerage performed as bad as asset-heavy truckload, with competition starting to weigh
In brokerage, we witnessed the average publicly traded broker?s revenue fall more than 13% year-over-year, driven by a 3.6% drop in load volumes and a 10.9% fall in revenue per load. This result was significantly worse than our estimate for how the brokerage market performed as a whole (we estimate industry revenues of between -6% and +1% depending on the contract revenue base), likely driven by increasing competition from digital and other upstart brokers.
Gross margins for the publicly traded brokers fell 266 basis points (bps) year-over-year, completely opposite of what we would have predicted given spot rates fell 12.9% year-over-year in the fourth quarter, more than three times faster than contract rates (-3.7% year-over-year). Operating incomes fell by 54% on average, with operating ratios hovering around 90% compared to nearly 100% for truckload (see charts above and below).
Some freight brokers performed better than others, with J.B. Hunt leading the way on revenue growth (9% year-over-year) and being the only publicly traded broker to win market share. However, that share gain came at the expense of gross margins, which fell 630 bps year-over-year to 10.6% and resulted in a $12 million operating loss (compared to a $16 million operating profit in the fourth quarter of 2018). Landstar performed best on gross margins (up 70 bps year-over-year to 15.1%) but that stellar result came alongside a 21% drop in revenue. XPO was the standout performer on EPS, which grew 56% year-over-year on an adjusted basis largely thanks to buybacks of 25% of the share count over the past year. XPO also posted the highest absolute gross margins at 17.9%, 380 bps ahead of the publicly traded broker average of 14.1% in the fourth quarter.
LTL saw the largest earnings declines
On average, publicly traded LTL carriers saw revenues contract by 7.2%, operating income by 61.0% and earnings by 87.8%. Results were skewed to the downside by Arcbest (ARCB) and YRC (YRCW). Old Dominion (ODFL) performed best overall as revenues fell just 1.7% and earnings per share by only 7.7% thanks to a best-in-class OR of 81.3%. Saia (SAIA) led the way on revenue growth with 8.9%.
Rail and intermodal performed the best but that?s not saying much
On average, revenue at the rails was down 3.8%, operating income was down 10.7% and earnings were only down 6.2% as ORs held nearly steady at 61.5% due to precision scheduled railroading (PSR). Kansas City Southern (KSU) was the best performer on revenue, while Canadian Pacific (CP) was the best on EPS.
All of the rails performed fairly well in the fourth quarter with continued progress on ORs in a tough environment. The rails are expecting modest volume growth in 2020 after being down 5% in 2019.
In intermodal, J.B. Hunt posted flat revenue and a 16% drop in operating income, while Hub Group (HUBG) saw a 9% decline in revenue and its overall operating income (intermodal segment profitability not disclosed) fell by 19%. Intermodal is a tale of two halves, with the first half of 2020 likely to be mediocre, driven by pricing pressure, while the second half has scope for improvement as the trucking market firms and could spill over into intermodal.
On average, across all of publicly traded North American surface transportation, the fourth quarter saw average revenue declines of 4.5% and earnings-per-share declines of 39%, a reflection of the inherent deleverage in these business models. This contrasted with real GDP growth of 2.1% in the fourth quarter. It was a fitting end to a tough year, but 2020 appears to have better things in store.
A new capacity crunch is coming to the industry very soon, and that is a very good thing for rates and an industry that is struggling with an overcapacity situation. That is one of the takeaways from a conversation on Thursday with Joey Hogan, president and COO of Covenant Transport (NYSE: CVTI), at the ACT Research Seminar 62 conference in Columbus, Indiana.
Hogan was joined by Kevin Burch, president of Jet Express, as the duo discussed a range of topics from the economy to safety with Tim DeNoyer, vice president and senior analyst at ACT Research.
?From a capacity standpoint, I can paint a picture that it?s going to get really bad in April, the middle of May,? Hogan said. To illustrate, he pointed to the timing of the coronavirus that shut down factories in China right after Chinese New Year had already shuttered facilities. The shutdowns have slowed goods movement from that country.The 5-year stock price trend for Covenant Transportation Group. (SONAR: Stock.CVTI)
Hogan also pointed to the importance of May 15. That date represents the start of produce season in California. The possibility exists that a capacity surge from the ports could coincide with produce season, straining the supply chain. Carriers will be feeling pressure from all sides ? strong housing starts, an economy that is humming along and regulatory pressures from the Drug & Alcohol Clearinghouse and the increase in the random truck driver drug testing rate to 50% this year.Single family housing starts over the past year show an upward trend that is forecast to continue. (SONAR: SFAM.USA)
?We think there is going to be some capacity shortages in March or April,? Hogan said.
?I think it?s going to jump from an over[capacity situation] to under very quickly,? Hogan answered later in response to an audience question. ?I don?t think there will be an in-between.?
Burch, whose fleet runs automotive parts for the Detroit automakers, focused much of his discussion time on the image of the industry. A former chairman of the American Trucking Associations, Burch relayed several stories, including the time he was cut from a career day at a high school. He now wears an I heart trucks button everywhere he goes.
?I?ve been wearing the I heart trucks button for about 10 years,? he said. ?People ask, ?Why do you do that?? It gives me an opportunity to talk about trucking.?
Burch said the industry needs to tell its story more often. To illustrate, he said that 10 years ago, he was speaking to a group of about 100 people and asked them to raise their hands if they would promote the industry to their children. ?One and a half people raised their hand,? he said. ?I say a half because one woman wasn?t sure she wanted to raise her hand. I knew then we had an image problem.?
Fifteen years later, after he was rejected at that career day, Burch was back at the same school and following his presentation, the students voted trucking the second-best career option out of more than 100 presented, he said.
Turning to topics of immediate concern to the industry, both men expressed frustration with insurance rates.
?Insurance is a disaster. It?s a bloody disaster,? Hogan said. ?And shippers out there, we need your help. Carriers can?t afford $25,000 a truck, which is what some carriers are getting quoted. They can?t afford $25,000 ? some trucks only make $25,000 a year.?Insurance expense expressed as a percentage of revenue. (SONAR: Insure.VCFOO)
Wages and the lack of drivers also are hot-button issues. Both said there is a driver shortage, despite some who claim the driver shortage is merely an economic problem.
?In 2018, most carriers didn?t do one or two pay increases, they did three or four and then in 2019 things settled down,? Burch said. ?But when things pick up again, we?re going to need drivers. We?ve got a good story to tell.?
The driver situation is compounded by the average age of truck drivers in this country: 52. The average age of all U.S. workers is 42, confirming that trucking is having a problem luring younger generations to the job. Burch and Hogan are advocates for allowing 18-year-olds to drive interstate trucks.
?We shouldn?t have state lines that act as an inhibitor for drivers,? Burch said.
The Federal Motor Carrier Safety Administration (FMCSA) had been working on a proposed rule to allow 18-year-old CDL holders to cross state lines. CDL holders can drive intrastate at 18 but not interstate.
?The industry is saying, ?If you can drive intrastate, why can?t you drive interstate?? That?s all trucking is asking,? Hogan added.
Burch noted the random drug testing rate, which is now at 50%, and the impact it may have, especially as more states legalize marijuana, which remains an illegal substance for truck drivers who work under federal regulations.
?We want professional people behind the wheel and it?s why with 17 states [legalizing marijuana], you are seeing more [positive tests for] marijuana,? he said.
The FMCSA proposal that would introduce sleeper berth flexibility was praised by Burch and Hogan.
?Once you log in, your clock starts and you can?t stop it, and you have 14 hours to drive 11, and you?re also limited by the 70- and 80-hour rules,? Hogan said. ?Who can imagine working 70 hours for 52 weeks straight? What fuels churn? It?s a damn tough job. We?re not trying to add to the 70 or 80, we don?t want to add hours.?
Burch added that the current hours-of-service rules and the tighter controls that have resulted from the electronic logging device rule have made truck parking worse.
?As we get tighter with the hours of service, and we?re going to mandate our drivers? hours, don?t you think we need to give them a place to park?? he asked.
Neither executive wanted to wade too far into the AB5 regulation dominating the news in 2020, but Burch did praise owner-operators.
?I consider the owner-operators the backbone of the industry, and there is a need for them,? he said, noting that 90% of the industry operates six trucks or less. ?I would say there will continue to be owner-operators. Maybe there will be some push to make them employee drivers or to change the tax laws or eliminate [or add] some deductions.
?We can?t have different work rules in different states,? he added.
At the end of last year, FreightWaves described 2019 as a winless season for the trucking industry. Looking ahead to 2020, there appears to be widespread optimism among carriers and analysts that this year could be better than last, particularly in the second half, following an exit of capacity as a result of higher insurance costs and stricter drug and alcohol regulations, among other factors. Whether that scenario comes to fruition remains to be seen, but few seem to expect two winless seasons for the trucking industry in a row.Depressed prices for used trucks are worsened by trucks idled by bankruptcies and fleet failures. (Photo credit: Noi Mahoney/FreightWaves)
Looking ahead to writing a similar piece at the end of 2020, which sectors of transportation this year might resemble the 2008 Detroit Lions or the 2017 Cleveland Browns? One candidate is railroad equipment manufacturing. This follows the mid-single-digit railroad volume decline last year combined with railroads using existing equipment more efficiently while cutting their budgets for capital expenditures. Another candidate is truck equipment manufacturing and sales, given that we consider trucking equipment to have fundamentals that lag those of the trucking carriers. So, one winless season begets another.
I write below about the challenges facing the truck equipment industry in 2020, but concede the year won?t be winless since it has already had one major win — Navistar shareholders. Navistar shares are up 28% year-to-date following the unsolicited bid by TRATON (the Volkswagen truck equipment subsidiary) to acquire the remaining shares.Navistar International used trucks at a dealership in suburban Detroit. (Photo: Alan Adler/FreightWaves)
Weak used truck prices are an albatross on further new equipment purchases
New equipment prices typically inflate as there are changes in requirements to meet stricter environmental standards, but in years absent of major changes to fuel efficiency or emissions standards, equipment prices generally rise moderately amid market share competition among the four original equipment manufacturers, or OEMs. The bigger swing in year-to-year pricing from the perspective of the buyer comes in the form of the price, net of the associated equipment that is being traded in; the large majority of new truck purchases come with an associated trade-in.
SONAR data for 5-year-old used trucks (the age associated with the greatest number of initial trade-ins) shows they are about $10,000 below the average since the beginning of 2013 and are currently at the lowest level since early 2011. Put another way, 5-year-old used Class 8 tractor prices are about $20,000 below the historically high prices of 2014, when there was a lack of ?good used? equipment that resulted from a lack of building during and immediately after the Great Recession.
Used truck prices are 22% below average since 2013 and 37% below their highSource: SONAR UT5.USA
Historically low used truck prices are likely to persist
There is evidence to suggest that used truck prices are stabilizing at a low level: SONAR used-truck data is off its low; and comments from PACCAR?s management that the volume of equipment entering the used truck market is roughly equivalent to the volume of equipment being sold, and thus exiting, the used truck market.
While that is somewhat encouraging, there are still two factors at play that are likely to keep used truck prices depressed. First, Class 8 production in both 2014 and 2015 were at historically high levels of 297,000 and 323,000 units, respectively, well ahead of the North American replacement rate, which we have seen estimated at between 220,000 and 275,000 units.
Trucks are generally traded in by the first owner after four to six years with the fifth year being the most common for a trade-in. Therefore, a large portion of the near-record 2015 production will be coming into the used truck marketplace this year. Secondly, I believe that the large leasing companies are holding onto equipment longer than they normally would in order to avoid selling at low prices. (Navistar described this on its last earnings call.) Therefore, even if we see appreciation in used truck prices, those higher prices would likely encourage the major leasing fleets to sell more used equipment, adding to supply and putting downward pressure on prices.Daimler Trucks reported modestly higher sales and earnings for 2019 but said U.S. Class 8 truck orders fell 51% compared with a year earlier. (Photo credit: Daimler)
The Class 8 market is oversupplied because of historically high production levels in four of the past six years
During the six-year period from 2014-2019, Class 8 tractor production averaged 295,000 units with production higher than replacement rates first during 2014 and 2015 and again in 2018 and 2019. The heightened levels of demand were not only driven by high spot rates at times during that period, but also by carriers chasing the improved fuel economy and reliability of the later-model-year tractors. Therefore, even if one uses an aggressive estimate for Class 8 replacement rate, that still equates to excess production of 120,000 units during the past six years, and results in a much higher excess for those who believe that the 275,000-unit replacement rate is aggressive. In addition to the equipment excesses, the volume of deliveries the past few years has reduced the average age of equipment in the field, which gives the larger fleets more leeway to delay further equipment purchases. Those factors, combined with an inflated Class 8 manufacturing backlog of 297,000 units at the beginning of 2019, caused 2019 Class 8 orders to be the lowest of the decade.
2019 orders were below recent years; backlog fell from 297,000 to 123,000 last yearSource: SONAR: ORDERS.CL8 Seasonality
Fundamentals in the truck equipment industry typically lag carriers? fundamentals
FreightWaves has described Class 8 truck manufacturing as a lagging, cyclical and seasonal indicator of demand. The SONAR chart above illustrates that phenomenon, showing that Class 8 orders typically improve two to six months after a spike in truckload spot rates, with that lag varying seasonally. The reason is straightforward — improvement in truck spot rates typically lead to a surge of equipment orders. Why? Carriers attempt to take greater advantage of the strong rates and expanding margins with a larger fleet of trucks to carry more volume.
That historical pattern, combined with the expectation that the trucking industry fundamentals are not likely to improve in earnest until later this year, suggests that Class 8 orders may not improve until the traditional order season (October through the first quarter). While fourth-quarter orders, or the anticipation thereof, may help the equipment companies? share prices, those orders may come too late in the year to cause much of a pickup in 2020 volumes. This is because fourth-quarter truck orders are mainly for equipment with delivery dates in the next year.
That leaves 2020 with production volume sharply below 2019 levels, even if the truck market improves later in the year, as many expect. Accordingly, the public companies that have provided guidance on outlook for North American heavy-duty truck production are averaging a 30% year-over-year decline.
Spot rates lead truck orders; rates are not strong enough to encourage high order levelsSource: SONAR ORDERS.CL8, DATVF.VNU
OEMs/suppliers expect their heavy-duty markets to decline 30%, on average
The anticipated improvement in the trucking market is supply-driven; manufacturers would be helped more if it were demand-driven
While many seem to expect supply-driven improvement in trucking fundamentals, few expect an improvement to be demand-driven. Similar to what FreightWaves has reported regarding the Celadon bankruptcy, much of the equipment and many of the drivers from defunct carriers will find their way to other carriers. The largest and best capitalized fleets tend to be new truck buyers, so a strong truck market should certainly encourage purchases by that segment. However, carrier failures could be one more factor that puts downward pressure on used truck prices, discouraging new truck purchases by carriers that are buyers in both markets.
Ingrid Brown, a 40-year trucking veteran from Zionville, North Carolina, is a tireless advocate for the trucking industry.
Since being diagnosed with melanoma in 2017, Brown, an independent owner-operator with more than 4 million miles under her belt, has been sharing her skin cancer journey and advocating for others to get regular checkups and screenings.
On June 1, 2017, Brown said she was headed to Houston, Texas, in her beloved 2017 389 Peterbilt named ?Miss Faith,? when she received the call from her doctor confirming her cancer diagnosis. He wanted her to come to his office in Chicago the next day.
?I told him that I was on the road and still had eight or nine drops, wouldn?t be back for about eight days and that I would call him back when I returned home,? Brown told FreightWaves.
?My doctor was like, ?Do you realize you have cancer and need to have surgery as soon as possible,?? she said.
A little over a week later, Brown flew to Chicago for melanoma surgery on her side but was back on the road three weeks later. Nine months later she underwent major throat surgery to remove more cancer but again took little time off to recover.
She said that?s how she?s wired.
Brown said she?s been involved in the trucking industry since she was 18, first working for her dad?s construction company.
?Yes, there have been times that have been hard, but I?m not angry,? she said. ?I view this as a journey to educate and help others. If I can save just one person, then this all has been worth it.?
Over the past three years, Brown has undergone eight surgeries to remove cancerous spots. Her latest surgery was on Feb. 12, to remove melanoma from her lip and leg, which she shared on her Facebook page.
?It?s important that people know this could happen to them and to get checked,? she said.On Feb. 12, Ingrid Brown had surgery to remove melanoma from her lip and leg. This is the eighth surgery she has undergone to remove cancerous spots since her diagnosis in 2017. Photo: Ingrid Brown
Why truckers should wear sunscreen?
The Skin Cancer Foundation estimates that more than 5 million cases are diagnosed in the U.S. each year.
Brown said truck drivers? risks of getting skin cancer ?skyrocket? because of their prolonged exposure to UV rays as the sun shines on the left side of the cab.
A study published in The New England Journal of Medicine documented a truck driver whose left side of his face was severely damaged by the sun.
Since her diagnosis, she said other truck drivers have come forward with their own melanoma diagnoses or sent messages that they went to get checked because of her story.
?That?s what this is all about, educating others in this industry,? Brown said.
?Watch and wait?
Every three months Brown said she sees her dermatologist for a full checkup and gets a CT scan every six months, but admits she worries daily that another spot or sore will pop up.
?The watch-and-wait game is hard, probably the hardest thing in the world,? Brown said. ?Sometimes I go to bed and can?t sleep because I worry that another spot will pop up, but I have to remind myself that I am tough and I?ve got this.?
Brown said she recently went to her eye doctor to have her vision checked when her optometrist noticed she had a ?brown spot? on the retina in her left eye. She is being monitored “as a concern” for ocular melanoma and she has to see a specialist every two months.
Unfortunately, Brown said melanoma runs in her family. Her grandfather, who was a truck driver, died of it, as well as her aunt. Her brother also has been diagnosed with melanoma and is undergoing treatment.
Surviving cancer diagnosis as a small-business trucker
As the sole owner of Rollin? B LLC, which hauls refrigerated freight, Brown said she doesn?t make money unless her truck is moving. Having a rainy day fund set aside in case of an emergency has helped her business survive over the past three years.
However, many small-business owners are forced to shut down after a cancer diagnosis.
?It hasn?t been easy, but I?m not going to quit,? Brown said. ?I?ve tried to set myself up with good business practices before this cancer diagnosis ever hit and I?ve made it this far.?
?Truckers in this industry have been generous and bought T-shirts to help pay some of my expenses after my first surgery, which was amazing,? she said.
Brown will speak about her cancer diagnosis and operating her own trucking company at this year?s Mid-America Trucking Show in late March in Louisville, Kentucky.
As a final reminder, Brown said May is Melanoma Awareness Month and some dermatologists will conduct free screenings around the country.
?If I can save one person, this will all be worth it to me,? she said.
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