Decade of trailer production growth only beginning to slow

Wabash National's Dustin Smith in trailer

While orders, production and sales of tractors rise and fall, demand for dry and refrigerated vans and flatbed carriers they pull is ending a decade of growth that mirrors the U.S. economic expansion.

Dustin Smith, senior vice president and group president of Commercial Trailer Products at Wabash National Corp. (NYSE: WNC), explained the phenomenon during a FreightWaves interview at the North American Commercial Vehicle show in Atlanta.

“2019 is obviously the record of records for the industry,” Smith said, acknowledging that trailer orders will weaken in 2020 as lower orders for power units continue. 

Trailer orders surged in 2018 and 2019 following lower production in 2016-17. That followed booms in 2014-15.

Trailer production this year is expected to hit 326,000, up from 317,000 in 2018. Production is projected to fall to about 275,000 in 2020, said Don Ake, vice president of commercial vehicles at FTR Transportation Intelligence. “Most people in the industry are pretty happy with a year of 275,000. It’s going to feel like a dropoff, but it’s still a decent year.”

Absolutes over variances

Smith said he focuses on absolutes rather than month-over-month and year-over-year variances in trailer orders reported by FTR and ACT Research.

“Variances get you in trouble,” he said. “We’re so caught up in this comparison-type environment. All the headlines are constant variances. It’s important for us to remember the absolutes.”

Five-year orders for dry van 0RDERS.DRY, refrigerated ORDERS.RFR and flat-bed ORDERS.FLAT trailers had combined growth of 12%, 47% and negative 64% based. (FreightWaves: SONAR)

Age and e-commerce

Smith points to several reasons for the growth.

“This long expansion has really been focused on getting trailer equipment back in the sweet spot for our carriers,” he said. “The early part of the cycle was all about getting trailer age under control.”

A decade ago the typical age of a dry van was about nine years. Now it is closer to seven years, he said.

More recently, the demands of e-commerce and its two-day, one-day and now same-day delivery demands require extra trailers that double as warehouses staged for drop-and-hook operations that keep tractors moving rather than waiting for loading or unloading.

That ratio of trailers to tractors has grown from a historic 2.5:1 to 3:1, Smith said.

“Before, we may have had some large fleet saying, ‘Hey, we’re at 3:1 and we’re looking to trim that back,’” Smith said.

New model

With the electronic logging device (ELD) mandate now enforced for all of the more than 3 million trucks on the road, fleets cannot afford detention time at docks and warehouses. 

“The transportation model that’s dead now is the one we grew up looking at,” Smith said. “Having idle assets is not in our carriers’ business model.”

The historic model looked like this: Cargo arrives in a port. A 53-foot trailer hauls the freight cross country to Walmart’s Bentonville, Arkansas, distribution center. Then another 53-footer takes it to a Walmart store in Atlanta. 

“Two moves. And then you and I drive our car to Walmart and we buy it,” Smith said. 

“Now people are estimating that this good moves four to five more times before we order it on our phone and it shows up at our house. When that piece moves four or five times, it’s not moving 1,700 miles. It’s moving 100 or 300 miles from one fulfillment center to another, and a 53-footer is not handling that move.”

In the numbers

Wabash’s most recent financial results illustrate the change.

Its Final Mile Products business saw 30% growth to $114 million in the third quarter compared with a year earlier. During the quarter, the company opened an upfitting, parts and service location in Tampa, Florida, to grow medium- and light-duty body van upfitting.

The 4,000-employee Commercial Trailer Products division that Smith oversees led all Wabash divisions with $380 million in third-quarter revenue. But its 3.3% growth over the year-ago quarter was about a tenth of Final Mile Products. 

Orders for dry van trailers experienced 12% compound growth from 2015-2019 despite the cyclical nature of orders. (FreightWaves/SONAR)

“Consumers are driving the entire industry to change its operating model,” Smith said. “And when we expect our goods to be delivered the next day, the entire industry scrambles to figure that out. Right now the most efficient means for carriers to do that is by having more equipment.”