2021 is proving to be an interesting year. As the United States tries to emerge from a global pandemic, economic indicators are all over the place. The supply chain is going through multiple upheavals. Will trucking companies be impacted? Let’s look at the movements in the trucking sector to get a glimpse of future activity.
Will Auto Production Issues Impact Trucking?
Have you heard? Passenger auto makers are having a rough go of it, with Ford having to temporarily stop production of its new Bronco line due to the global chip shortage. And with the automotive sector being a huge part of the U.S. economy, in both production and sales, many worry that there will be knock-on effects for trucking OEMs. In this case, the industry’s outsize important becomes obvious when it is put under stress.
The problem lies in the ongoing semiconductor shortage, which is roiling markets around the world. And this just as trillions of dollars was pumped into the U.S. economy. As a result of these factors, there has been a huge inventory crunch for passenger cars, light- and medium-duty trucks and vans. Still, OEMs are taking big steps to alleviate the pain.
And it isn’t just vehicle production that is impacted. The direct and indirect impacts of the chip shortage is not just an issue for production lines, but also for core inflation. Many have noted the increase in prices at both the wholesale and retail level. Economic indicators released during a single week in July show how broadly the auto industry’s woes are affecting the economy, and how they may impact trucking companies.
A Look at Manufacturing and Consumer Spending
The best way to get a good view of what is going on is to look at specific indicators. The first of these would be manufacturing and consumer spending. If you look at manufacturing data for June, 2021, you will see that it was nearly flat when compared to May. It only eased off about one-tenth of a percent from the prior month. We also saw a big drop in motor vehicle and parts production, even though factory output rose 0.4% over the same period.
If you exclude the automotive sector, manufacturing output is actually down 0.8% year-over-year. The fact is, the automotive sector dragged down consumer spending as well. Why? Because retail and food service sales actually rose over the same period by 0.6%. If you add in motor vehicle ad parts output, June came in nearly 14% below February 2020 numbers.
The automotive sector has also played a part in dragging down consumer spending as well. As the economy comes out of its slump, many sectors have made solid gains, including retail and food service. It’s the automotive and parts sectors that continue to pose a problem for the overall economy. There is a direct link between the semiconductor shortage and reduced retail sales, though it might not be immediately obvious. The other area of concern lies in inflation indicators.
Inflation is an Ongoing Concern
Another primary impact of depleted inventories and high demand remains inflation. The Consumer Price Index (CPI) for all consumer goods increased by 0.9% in June. This represents the largest month-over-month increase since June of 2008 when the Great Recession was just kicking into gear. In fact, the CPI has been quite high for the past three months of 2021, especially where used cars and trucks are concerned. In that sector, core inflation jumped by a whopping 10.5%.
Inflation is also hitting the producer level, as seen in the automotive sector. The Producer Price Index (PPI) rose a fill percentage point in June, which was driven by an increase in final demand services. The overall 20% rise in final demand services could also be traced back to the automotive and parts supply sectors. You can see how movements in these sectors are negatively impacting the broader economy.
Fortunately, it isn’t all doom and gloom. Production levels are likely to remain high for many months to come as businesses work to replenish their inventories. And they will be making these moves no matter what happens with overall sales. What does this mean for trucking? All this additional production will increase freight demand and overall demand for truck drivers, even if the trucking companies in question are not directly tied to the automotive sector.
How Will New Emissions Standards Impact Trucking?
Next up on our list of economic factors that could impact trucking are the new emissions standards proposed by the Biden administration. The details? Well, President Biden has ordered all federal agencies to develop tighter fuel efficiency, greenhouse gas emissions standards, and nitrous oxide standards. Their goal is to develop these standards for medium- and heavy-duty commercial motor vehicles.
Sure, much of the attention has been on Biden’s August 5 executive order which focused on emissions for passenger vehicles. But the same order also lays out a schedule for standards and regulations governing light-, medium-, and heavy-duty vehicles starting as early as 2027.
The White House has characterized this executive order as one that will position America to embrace a future where electric vehicles are the standard. A lot of this is driven to out-compete China. The standards will govern battery electric, hybrid, electric, and hydrogen fuel cell commercial motor vehicles.
The executive order also calls for the Environmental Protection Agency (EPA) to consider a new rulemaking regime to create new NOx standards. The agency has been directed to create this new rule under the aegis of the Clean Air Act. The goal is to ensure NOx emissions are more heavily regulated by 2027 and extend through model year 2030. It also orders the EPA to consider updating existing greenhouse gas emissions standards. This update would be for heavy-duty engines and vehicles beginning with model year 2027. And it would extend through at least model year 2029.
Will This Change Trucks?
The White House order also directs the EPA to coordinate with states that are taking matters into their own hands where vehicle emissions are concerned. Expect the EPA to work closely with states like California, where emissions regulations set national standards. But what emissions standards are trucking companies currently working under?
The current fuel-efficiency and emissions standards, which go through the 2027 model year, were a joint effort between the EPA and the DOT’s National Highway Traffic Safety Administration. Together, the agency made rules designed to ease the trucking industry (and others) into more stringent emissions standards with minimal business disruption.
Already, the 2027 standards will significantly change engine technology and how OEMs build commercial motor vehicles. Industry insiders expect that increased truck prices due to the 2027 emissions standards will make zero-emissions trucks more competitive. This will create a better return-on-investment for trucking companies. One could assume that stricter emissions regulations will make that even more the case.
The White House Bets on Electric
Major automakers and the Biden administration are mapping out a route toward a future where Americans drive a lot more electric vehicles. By 2026 the new emissions standards will be the most stringent such standards ever set. Even more, the EPA says, they will be followed by even stricter rules. Transportation is the country’s largest source of greenhouse gases. Pivoting to electric vehicles is a central plank in Biden’s plan to fight climate change.
The automotive industry is firmly behind this push, but will trucking OEMs be quick to embrace it? Ford, General Motors and Stellantis — which makes Jeep, Ram and Chrysler vehicles — all issued statements expressing support for a 40% to 50% target of vehicle electrification, roughly in line with Biden’s executive order. It is assumed that trucking industry companies will also embrace it.
Currently electric vehicles account for about 2% of new car sales in the United States, so a 40% to 50% target by 2030 is ambitious. But the global auto industry has recently embraced electrification. Many automakers, though not all, had already announced similar or more ambitious targets independently — for instance, Volvo plans to be entirely electric by 2030. Expect trucking companies to fall in line behind these new standards.