President Donald Trump’s America First agenda has hit some recent criticism with his approach to tariffs and trade policies, with critics saying the tariffs on steel and aluminum imports could ultimately raise the costs of goods made in the U.S. A brewing trade way with China with each country exchanging potential tariffs to the tune of billions of dollars has further rattled markets and free trade advocates. On the flip side, supporters say that it is about time the U.S. cracks down on countries importing cheap goods that jeopardize American jobs.
For those in trucking, the tariffs and tough trade talk have real-world operational impacts, such as higher costs, shifting freight flows, and potentially lower freight volumes. While those costs are difficult to ascertain until the tariffs are fully implemented, it’s safe to say that there would be an impact.
It’s the impact of the steel and aluminum tariffs, though, that will have a near-term effect on the industry.
“The proposed tariffs have totally disrupted the domestic material and component markets which were already running at maximum capacity,” Charles D. Willmott, chief sales officer for trailer maker The Strick Group, tells FreightWaves. “We are seeing dramatic increases in material and component prices across the board, particularly with flat steel, steel sheet, and components composed largely of steel as previous foreign materials customers rush to take domestic supply. We are also hearing of allocation programs being set.”
According to Focus Economics, the price of hot-rolled coil traded at $820 per metric ton on March 8, the date Trump announced the tariffs. That was 10.5% higher than on February 8 and 30.4% higher than a year ago. On April 10, it closed at $868. On Jan. 2, 2018, it was selling for $660. Futures contracts for the coil are selling at $835 for June 2018, according to CME Group.
Last month, at the Mid-America Trucking Show, Mack Trucks’ Jonathan Randall, senior vice president-sales and marketing, said that tariffs would have an impact on new truck pricing, but the exact impact is uncertain.
“We’re obviously paying close attention to the tariffs … but we haven’t gotten a lot of direction yet,” Randall said. “It will certainly have an impact on cost, a negative impact on cost.”
Don Ake, vice president of commercial vehicles for FTR, tells FreightWaves that the tariffs could add up to 5% to the cost of a new trailer and probably less than that for a truck, but that is speculative.
“The OEMs are currently running future cost estimates based on the proposed tariffs, but they won’t have a firm idea until all the negotiations conclude,” he says. “It’s difficult to determine what the price of steel and aluminum will be in six months.
“We don’t know much about the trade policies yet,” Ake adds. “The discussion so far is about consumer goods, so commercial vehicles should not be impacted much. This could change if tariffs expand or NAFTA changes.”
Right now, new truck and trailer orders have been running at historic highs. Just last week, FTR reported that Class 8 orders for March hit 46,300 units, 15% above a strong February and 103% higher than a year ago. It is the third highest single month on record, the firm said.
Ake attributed the orders to a strong economy and tight capacity. “The current capacity crisis may be the worst ever,” he said in a release. “Capacity is extremely tight and expected to remain this way for months. Fleets need more trucks to handle huge freight demand and continue to order trucks at record setting rates. OEM 2018 build slots are quickly filling up.
“Freight growth continues to climb at a rapid rate,” Ake added. “The vibrant economy is pushing dry van and refrigerated van loads to elevated levels and renewed oil drilling is generating a tremendous amount of flatbed freight.”
For the first three months of 2018, Class 8 orders totaled 133,900 units, nearly double the same period in 2017.
The same story is happening on the trailer side, where FTR said that February orders reached 32,000 units, the fifth consecutive month trailer orders exceeded 30,000.
These historically strong reports, though, could be dampened by higher equipment prices, especially if there is any hint that tariffs or a trade war could slow the economy.
“Our fear is that this disruption with its significant resulting price increases to the customer will result in a flood of order cancellations and implosion of the historically strong demand cycle that was underway,” Willmott says. “For the last 20 years, U.S. trade policies have made it increasingly difficult to compete with a U.S. built trailer using North American materials and componentry [as Strick Trailers are]. Steel, aluminum and other imports are more often coming into the country in the form of components and/or finished products as opposed to raw materials, per se. It is still dumping, but in a more sophisticated fashion. The heavy hand of these proposed tariffs, though, do not address the real problem, but rather make if even worse for the same number of remaining U.S. manufacturers.”
The other impact could be on the used truck market, where prices and sales have stabilized recently. Pricing for a model year 2014 was $35,250 on average, which was 4.7% lower than its February 2018 price, according to the latest J.D. Power Valuation Services index. But model year 2013 and 2012 saw an increase of 0.2% and 1.8%, respectively, compared to their February 2018 prices.
If prices for new trucks and trailers rise due to the tariffs, that will impact the price of that equipment when it starts hitting the used market in 3-5 years, right at a time when used buyers might be expecting lower prices thanks to an oversupply of equipment following several years of record new sales. That expected price drop may not happen now.
The results are already being felt as more companies look to source their steel and aluminum through U.S. companies already pushing against manufacturing limits. As the competition heats up, prices are rising, and that will soon translate into higher equipment prices for years to come.
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