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JOC Guide to Trucking, August 2019

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18 The Journal of Commerce | August 2019 www.joc.com 2019 JOC Guide to Trucking Hogan said. "And so, our used equip- ment sales are still good." Reshuffling the deck That points to one of the prob- lems truckload carriers face: When they sell used tractors, are they removing capacity from the market or simply moving it? Unless those tractors are being scrapped or used in a different business, there won't be much real capacity reduction. Order cancellations also don't do anything to reduce the excess capacity rolling down the highway or parked behind a terminal today. "I don't think we're going to see a lot of increase, but at this point, it doesn't look like we've seen much in the way of decrease either," Joe Bea- com, vice president and chief safety and operations officer at Landstar Sys- tem, said during a July 25 earnings call. "I think there has to be some sort of a catalyst to change capacity in a little bit more meaningful way," he said. "I think there is an adjustment period going on, but I don't know that capacity is necessarily leaving "We do believe capacity is leaving the market," Derek Leathers, presi- dent and CEO of Werner Enterprises, said during a July 25 earnings call. "If you look at [Class 8 tractor and truck] order rates falling as fast as they are, [and] if you look at cancellations of current builds taking place." "We know that capacity is coming out," Joey Hogan, president of Cov- enant Transportation Group, said in a call the previous day. Although his firm will stick with its purchasing plans, truck makers have told Cove- nant that Class 8 order cancellation rates are rising, he said. "We are holding our course on our truck plans for this year, just because we're trying to get as many automatics [transmissions] in the fleet as we can," A CORRECTION IN truckload capacity has begun, as some of the largest US truckload operators cull excess supply from their fleets, pulling the quarterly JOC Truckload Capacity Index (TCI) down by 80 basis points, the first decline in the index since the fourth quarter of 2016. The capacity index dropped from a reading of 87.5 in the first quarter of 2019 to 86.7 in the second quarter, as the large, publicly owned carriers in the index group reduced their com - bined fleet size by 1 percent. That's a small start, but the figure may rise in the third quarter. It will take much larger cuts to bring truck supply closer to freight demand, however, after US truck- ing companies ordered more than 483,000 Class 8 heavy trucks in 2018. Those orders boosted US truck registrations by 29.1 percent in the first five months of 2019, according to IHS Markit, parent company of The Journal of Commerce. The deepest cuts are likely to come at the other end of the truck- load market, among owner-operators and small trucking companies hit hard by a double-digit drop in spot market rates this year after truck capacity caught up with and exceeded freight demand in late 2018. Large US truckload carriers are making surgical capacity cuts By William B. Cassidy Supply-side scalpel 70% 74% 78% 82% 86% 90% 94% 4Q 2008 3Q 2010 2Q 2012 1Q 2014 4Q 2015 3Q 2017 2Q 2019 JOC Tr uckload capacity Index Large truckload carriers trimming capacity in Q2 2019 Source: Company reports, JOC analysis © 2019 IHS Markit Index Reading 1000=Q4 2006 JOC Truckload Capacity Index

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