The Trucking Outlook for 2023

Difficulties in heavy-duty truck manufacturing appear to be improving, potentially allowing more deliveries in 2023.

COVID-19 policies pausing factories in China are easing and semiconductor shortages have reversed, allowing major OEMs to boost production. But as fleet managers contend with an economic slowdown, analysts and other industry experts are noting potential roadblocks.

“Max headwinds from supply chain risk were really over the course of ’22," said Jerry Revich, Goldman Sachs’ head of U.S. machinery, infrastructure and sustainable tech research. “We're now at a point where we're seeing increasing signs of supply, catching up with demand and in some cases, overtaking demand.”

While orders are expected to be strong in the first half of the year due to pent-up demand from shortages, the outlook is more murky for 2023's second half. 

Improving OEM supply chains

The manufacturing environment appears off to a good start in 2023. 

Suppliers are not reporting systemic components shortages at the beginning of January, said Revich of Goldman Sachs, which has investments in companies such as Cummins and provided investment banking services to PACCAR in the last 12 months.

“In 2022, you had a shortage of semiconductors impact a range of companies from AGCO to Deere to PACCAR,” he said. “Now people don't feel great about their semiconductor supply, but they're not complaining about it.” 

Manufacturer Volvo expects to continue to face some supply chain disruptions, mainly driven by labor shortages at suppliers’ locations, according to Magnus Koeck, vice president of strategy, marketing and brand management for Volvo Trucks North America.

"The industry has been facing these challenges for quite a long time now and will continue to have these disturbances to some degree also this year, at least in the beginning of the year," he said in a statement. "We have robust working relationships with our suppliers and dealer network and are working diligently to maximize production and delivery efficiency."

Improving supply chains have pushed order levels up year-over-year as fleet managers look to replace aging trucks or expand their network. FTR CEO and Chief Intelligence Officer Jonathan Starks said in a monthly report that "essentially all the production slots for the first half of the year are full and the second half of the year is starting to fill up as well."  

But signs of a slowdown are already beginning to emerge. After surging in September, orders dropped in the following months but still remained elevated YoY. FTR data showed preliminary Class 8 North American net orders more than doubled from 21,400 units in August to 56,500 units in September, declining each month to reach 28,300 units in December. That was still 21% higher compared to December 2021.

Treading lightly amid improving conditions

While orders were strong, there's uncertainty about how OEMs could deliver for carriers' needs, which could fluctuate amid gloomy economic conditions.

That's putting a projection anywhere from slightly below output in 2022, but it could significantly improve. Class 8 retail sales in the U.S. and Canada were 283,500 units in 2022 and estimated to be 270,000–310,000 in 2023.

For Melius Research Founding Partner Rob Wertheimer, demand in 2023 will depend on whether the economy dramatically worsens. 

"I think that the chance of a back half recession [in 2023] … exists and so it makes the whole thing very confusing," he said.

In the short-term, however, demand is expected to remain strong and fleet managers are responding accordingly. Buckshot Trucking President Tony Sims says he's avoided ordering new trucks to take pressure off his supplier, which is dealing with an influx in orders.

Sims has a fleet of 24 trucks, and last year, a truck that he pre-ordered took eight months to arrive. Before the pandemic, he simply called about a purchase, and there was essentially no wait. 

With suppliers still juggling a surge of orders, Sims figured he'd wait a bit longer to order his next truck.

"Vendor relationships are important," he said. "So you try to … keep them happy."

After several years of wildfire M&A in the trucking industry, some of the activity could cool in 2023, an expert said.

Webb Estes, for instance, plans to grow Estes Express Lines, his family’s business, in the next year. But the new company president and COO doubts that growth will come via acquisitions like the company’s purchase of Los Angeles-based G.I. Trucking in the early 2000s.

“It's unlikely that we would look for tuck-ins,” he said. “We’ll just continue to grow organically.”

A challenging economy could make major deals, in particular, more difficult to execute, said Spencer Tenney, president and CEO of the Tenney Group, which represented sellers in 18 active trucking deals, as of last month.

“You’re going to see a significant reduction in the amount of deal flow for very large, transformational-type deals,” Tenney said. “There’ll be some, but not like what we’ve seen in the last 24 months.”

In 2023, the industry could see acquisitions of trucking companies whose founders might have stepped down in the past few years, if not for the pandemic and its effects on their operations.

“They stayed in because the business got worse, or it got so good,” Tenney said. “We have all this kind of deferred business transitioning that should have taken place over the last 30 months, now. ... I think that's gonna be a huge portion of it.”

After some of the most profitable years on record for many carriers, company valuations are now normalizing, and small- and mid-sized companies in some verticals, such as reefer, are becoming ripe for acquisition, Tenney said. The Tenney Group had three such deals going to contract, as of last month.

“It made it very difficult for buyers to place a value on [potential acquisitions],” he said. “It was just too inconsistent to be comfortable. ”

Given the ongoing difficulty procuring equipment, this year’s buyers will likely be sensitive to deferred capital expenditures in deciding which businesses to acquire.

“Educated buyers are going to be out in front of that, and they're going to structure their deals accordingly,” Tenney said. “Doesn't mean they're not going to buy them. It just means that they're not going to not account for it in the way that they structure and value the deal.”

Tenney said this year will still be “an extremely exciting time to grow and accomplish great things” in trucking.

But he warned that many fleet owners “just are probably not prepared to deal with what’s required to succeed in this next season,” with softening freight demand and persistent equipment and labor constraints.

“I think it's going to be really important for those [executives] to have a self assessment about what they're willing to do to build value and enhance their business — and, just as importantly, what they're not willing to do — and then make decisions about the future based off that,” he said.

As freight demand declines and budgets tighten, hiring and retention are expected to remain a challenge for trucking in 2023, according to executives of three top U.S. trucking associations.

Leaders of the Truckload Carriers Association, the American Trucking Associations and the Owner-Operator Independent Drivers Association emphasized during interviews with Transport Dive that labor must be a focus for the industry and regulators this year.

“Workforce challenges have not gone away,” TCA President Jim Ward said. “They continue to be an issue for for our industry and our members. ... We're going to continue to be confronted with this challenge, just from attrition alone.”

As retirements and attrition take their toll, introducing trucking to younger recruits as a career option and other creative strategies are essential for carriers to have enough drivers, technicians and other personnel to keep their operations rolling. Carriers, associations, a federal contractor and multiple retailers are among those exploring solutions.

Fleets also need the help of state and federal government agencies to grow their employee ranks, and the industry plans to continue opposing measures like California’s AB5 law and other state or federal regulations prohibiting independent contractor arrangements on which many fleets and owner-operators rely.

Eyes on attrition, and efforts to remedy it

Many carriers’ drivers are roughly 48 to 52 years old, and future retirements alone are expected to exacerbate staffing woes, Ward said. Retirements are a top contributor to the second-highest number of unfilled driver jobs on record, according to the ATA.

With technicians and maintenance workers also in short supply, fleets and the federal government must grow the young driver pilot and outreach to high schools and vocational schools, Ward said.

“Until we change the dynamic whereby it's a second career choice, and make it a first career choice,” Ward said, “we're going to continue to be confronted with the challenges that go along with attrition and retirement.”

Declining demand, especially in the spot market, is exacerbating problems for owner-operators and small trucking businesses, in which many drivers are self-employed, said Lewie Pugh, executive vice president of OOIDA.

“We're getting into harder times,” Pugh said. “[An owner-operator] has to pay himself. ... Trucking is a penny profit, and it’s a hard life. If they don't already have contracts, they need to try to get contracts, direct contracts with shippers, receivers for the freight. Try to get away from the spot market as much as they can.”

Workforce under ‘assault’ by labor regulations

California’s AB5 law and a federal rulemaking at the Department of Labor, which seek to eliminate independent contractor arrangements by requiring companies to directly employ workers, represent an “assault” on part of trucking’s labor pool, said ATA President and CEO Chris Spear.

The ATA plans to invite owner-operators to Washington, D.C., during the upcoming legislative session to meet with federal leaders and share their reasons for wanting to work under the independent contractor arrangement, he said.

“Independent contractors are a pivotal part of our industry's ability to move freight,” Spear said. “We need to do more on Capitol Hill of educating people that this is a bent narrative, largely at the behest of union organizing campaigns and plaintiffs’ bar attorneys that want to come after our industry.”

OOIDA is also concerned about threats in California and elsewhere to the independent contractor model used by many of its members, Pugh said.

“The lease model has been around for a long, long time,” he said. “Lots of people like it. It works for a lot of people. As long as the carrier is doing it correctly and being fair, it's a good model.”