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Mack Trucks plans to lay off 305 employees at the end of February at its Lower Macungie Township, Pa., assembly plant as the manufacturer adjusts to lower market demand for heavy-duty trucks.
The layoffs, which will affect about 13% of the plant’s payroll of 2,400 employees, are part of the cyclical trucking industry. For example, looking at 2018, freight was strong and transportation services were in demand. That meant negotiations favored trucking companies, getting them good contract rates and boosting profitability, according to ACT Research Vice President Steve Tam.
“When truckers make money, the first thing they do is invest in equipment,” he said.
Overbuying through 2019 and insufficient freight to absorb the ensuing capacity overhang continued to weigh on the front end of the Class 8 demand cycle in December. #truck #semitruck #trucking #transportation https://t.co/LtqquraXmg pic.twitter.com/ITzw1Po4j4— ACT Research (@actresearch) January 7, 2020
And invest they did. The North American market essentially took two years’ worth of orders in 2018. For its part, Mack took in 31,272 orders in 2018, which was up 23% from 2017.
That kept Mack’s Lower Macungie Township assembly plant, which had built its employment up to 2,500 workers, busy working through an order backlog in 2019. For instance, in the first quarter of 2019, Mack saw a 54% boost in truck deliveries, though orders declined 67% as the company already had allocated its production capacity for the year.
What the ordering binge did was overfill the market by putting too many trucks on the road relative to the amount of freight expected, or work to be done, Tam explained. That swung the pricing power pendulum back in favor of the shippers, bringing freight rates down and slowing trucker profitability.
So, now with too many trucks, the market needs to correct the balance between capacity and freight. The way to get rid of trucks? Stop ordering them, ushering in a phase of trucking companies ordering based on standard replacement needs rather than buying on market speculation.
“It’s always feast or famine,” Tam said.
In Episode 23 of RoadSigns, we look ahead to trucking's future by looking back. Hear a snippet from host Seth Clevenger, above, and get the full program by going to RoadSigns.TTNews.com.
Within that imbalance, Tam said general freight, such as consumer goods and food, remains strong. The slowing part of freight, meanwhile, can be pointed in the direction of manufacturing, where Tam sees investment declining because of tariffs in the ongoing trade dispute.
In the larger picture, Tam noted that ACT is projecting the U.S. economy will continue to grow in 2020, albeit at a slower pace. ACT is projecting gross domestic product to increase 1.7% in 2020, which would be down from 2019 — expected to finish with 2.3% growth, Tam said.
With truck orders soft, Mack is not the only one that has announced plans to adjust production. Mack sister company Volvo Trucks previously announced plans to lay off about 700 employees this month at its Dublin, Va., assembly plant, which employs more than 3,000. And Daimler Trucks North America in October cut about 900 jobs at two Freightliner plants in North Carolina.
But, eventually, things will rebalance, and “then we start the whole cycle all over again,” Tam said.
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