March 2018 eNews, MacKay & Company

Light Duty on the Rise

Lynn Buck

As the last mile has gotten shorter, we’ve seen a shift to lighter-duty vehicles. Today’s consumers receive their purchases delivered at their doorstep delivered by smaller vehicles. Items are often shipped individually as they are in stock, resulting in more, smaller shipments instead of larger bulk deliveries. An increase in the number of individual, urban deliveries also leans toward lighter-duty for both parking and maneuverability.

Our purchased goods are lighter. The television I had delivered back in 2002 weighed nearly 200 pounds while the same size screen I purchased in 2010 weighed only 50 pounds. That same television takes up one-quarter of the space as the old one. Both trends point to a shift to light-duty.

The last warehouse in the supply chain is now closer to the consumer than ever before -- I have two Amazon warehouses within 10 miles of my house to accommodate same-day shipping. Consumers are also demanding more of their food from local sources, with some having food delivered to their homes. Delivery of time-sensitive products leads to shorter routes and often smaller loads.

There are many reasons to downsize to a lighter-duty truck. Companies are looking to cut the cost of overhead using more fuel-efficient vehicles – ‘right sizing’ to its primary application. The ability to analyze usage or delivery data and optimize routes have all contributed to efficiencies allowing companies to spec only those vehicles that are necessary. Some companies desire less engine maintenance complexity and expense and may shift to gasoline powered vehicles over diesel. Often this means going to a lighter-duty truck.

These are a few reasons that point to a diminishing need for larger trucks and have driven the demand for lighter vehicles higher. With online purchases steadily growing, this trend is likely to continue for the foreseeable future.

A quick analysis of Ward’s Retail Sales data backs up these trends with some data. Examining the last fifteen years of Ward’s light duty retail sales illustrates this shift quite well. In 2002, retail sales of
Class 3 trucks accounted for 20% of the total Class 3-8 truck sales. In 2017, Class 3 represents 43%. Total Class 3-5 was 35% of Class 3-8 trucks sold in 2002, now it is closing in on 60%.

Not surprisingly, the same trend is seen in parts demand. Using our MacKay & Company DataMac® Light-Duty Database, I graphed out the aftermarket parts demand of Class 3–5 trucks for the last ten years. Aftermarket parts demand in 2017 for Class 3 trucks is 281% the demand of 2007. Class 5 trucks’ 2017 aftermarket parts demand is 313% of 2007 demand. Class 4, conversely, decreased 13% over the same time period. No surprise, more trucks = more parts opportunity.

Of course, this article is heavily slanted toward package delivery and there will always be a need for trucks that are used for tasks that require auxiliary power via PTO, haul or tow heavy loads necessitating a larger, more powerful truck. But the days of ‘always buy more than you need’ appear to be dwindling as there is no denying the data that some companies have made and will continue to shift to lighter vehicles in their fleets.

Mackay&Co TPS, February 2018, Article by Lynn Buck

No Economic Excuses

John Blodgett

As we enter a new year (2018 for those of you keeping track) most firms have or, maybe a little belated, are now determining what their goals are for the year.  This is the same for the heavy-duty aftermarket as it is for any industry.

We are currently (as of January) in the 103-consecutive month of economic expansion for the U.S. economy since the end of the recession in June of 2009.  Obviously, all those months were not easy going, many portions of the economic recovery and expansion were very weak and for some sectors, such as fracking and oil drilling, there have been some high highs and some low lows.

The economy during this expansion has dealt with exchange rate issues, burdensome government regulations, a slowing economy in China, economic slowdowns in Europe, outright recession in Brazil and other factors. Not that everything is peachy keen (good) across the world, there is still Dennis Rodman’s friend in North Korea, but globally on whole, things are good.

As of December 8, unemployment is at 4.1%, a 17 year low in the U.S. People that had fallen off all records for unemployment are coming back to work and many of those working are seeing their incomes increased, which bodes well for consumer spending. Trucking payrolls grew by 1,800 in November, imports are up – which means good activity at the nation’s ports – and consumer and business confidence are at record high levels.

MacKay & Company tracks fleet utilization and it has been very strong for the first three quarters 2017. Parts sales for aftermarket component manufacturers and their distributors have been consistently up in 2017 over 2016. TEA® (Truckable Economic Activity), a MacKay & Company report on the trucking economy, has not been this positive since before the recession.

Bob Dieli, the MacKay & Company economist, has a short term economic tool called Enhanced Aggregate Spread and it is currently showing a good economy out past mid-year. (See Bob for details.)

So, if you are somebody who is responsible for obtaining sales goals, this would not be a good time to throw in the excuse of the economy for slow sales or anticipated underperforming to target goals. Not being able to meet customer demands, competition, accidently running over a customer’s dog, may all still work, but blaming a bad economy likely won’t work in 2018. If you still think the economy is bad here – contact someone in Brazil for some level setting.

Our current forecast for the aftermarket (soon to be updated in January) is up slightly compared to a strong 2017, but my guess is when we get fourth quarter fleet utilization, our outlook for 2018 will be more robust.

These are the good old times (unless you are certain politicians or newscasters) that we will be referring to during the next recession (not if, but when and hopefully many years from now). So, enjoy and get excited to attack the opportunities. I think most people would agree it is more fun trying to keep up with customer demands vs. trying to keep your doors open, although both can be exhausting. 

Mackay&Co TPS, December 2017, Article by John Blodgett