2020 Vision — Will stability continue?

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Despite 2019 headlines dominated by impeachment hearings, climate change, trade wars, nationalist and separatist upheavals and even fake news, service truck industry insiders say they’re fairly upbeat about the sector’s prospects this coming year.

At CSTK, a mid-west U.S. truck upfitter and equipment supplier, chief operating officer Allen Lane

described the past year as a “carry-over” from 2018, with more custom bodies built and higher total revenues. He says pent-up demand has created production lead times of 20 to 40 weeks, and continued momentum would seem poised to keep CSTK busy well into 2020.

Lane is particularly impressed with traditional indicators.

“We’re still seeing strong business on the construction side, especially in the St. Louis region with new stadium, interstate, building and home construction all staying strong,” Lane said. “So we’re optimistic 2020 should be as strong as 2019 in the first half of the year.”

While hopeful about the latter half of 2020, Lane remains cautious. “There’s a lot of mixed signals,” he said. “One day you hear the press talking about potential slowing down of the economy and then you hear economists saying that’s not the case. All the people we’re talking to right now say the first half of 2020 is strong.”

Skilled trades still lacking

One challenge is an ongoing shortage of skilled tradespeople, which stems in part from relatively low unemployment — ostensibly a sign of economic wellbeing. “Young people entering the workforce aren’t as inclined to want to get dirty,” Lane said, pointing to CSTK’s increased presence at schools and job fairs to promote technical occupations and attract talent.

At Versalift Midwest in Detroit, general manager James Brown says the need for skilled

technicians could be a defining challenge not only for the coming year but the decade ahead.

“We struggle with that from both the installation side — installing service trucks — and also having technicians who actually drive service trucks,” Brown said.

He described one large-volume customer that is actually lacking operators for trucks Versalift is currently building. “We’ve had to slow some of the builds not because they don’t need them — they have the business — but because they don’t have the technicians,” he said.

Otherwise, Brown reported strong production lead times for Versalift Midwest, which he joined after Waco, Texas-based Versalift acquired his company, Cannon Truck Equipment, in late 2018. “We’re out past June (2020) and in some cases we’ll have a couple of jobs into July,” Brown said, pointing to average market demand from contractors but very strong from municipalities. Even Detroit, which had experienced years of economic turmoil, has been a strong customer and is now well on the rebound. “They’ve really turned things around,” Brown said. “Their payment terms have definitely improved, and we have a couple of long-term contracts with them.”

Some are selling the farm

In Montana, JR Tchida, service manager at the local Frontline Ag Solutions dealership in Havre and said business has been good. “I haven’t seen any real slow-downs,” Tchida said. “We might be a little bit less on some of the combines we normally get in here, but it hasn’t been too bad. People are still spending money.”

Still, his shop maintains four service trucks to serve area farms, and he’s noticing an increase in family farms experiencing hard times.

“The banks aren’t lending them money like they used to,” Tchida explained. “The small farmers

While a shift to larger, more moneyed farm owners might suggest deeper pockets for repairing and maintaining existing stock, Tchida said the larger farmers often replace equipment when warranties expire, thus reducing demand for maintenance and service.

Fossil fuels are also struggling, but J&J Truck Equipment in Somerset, Pa., fared well in 2019 and inside sales manager Vincent O’Donnell anticipates a prosperous 2020. “Our backlog is filled out nicely for the upcoming months into 2020,” O’Donnell pointed out.

Oil and coal are major markets in the region, but O’Donnell says the upfitter also has strong customer bases in natural gas, as well as plumbing, heating and excavating companies, and utility and municipal fleets.

“We’re very good at adapting and overcoming to whatever’s changing in the industry, and staying ahead of the curve,” O’Donnell said. “Municipalities are a big part of our business. We’re doing a lot of service trucks for them, as well as crane body upfits, flat beds, dump bodies, and snow removal equipment.”

Tribal knowledge leaving

At Safe Fleet, a Belton, Mo. manufacturer of safety components, commercial truck sector vice-president Wm. Craig Bonham says 2019 marked another year of growth.

Challenges included rising costs for raw materials. Safe Fleet responded with product de-

proliferation and stock-keeping unit rationalization, Bonham said. “Some materials were also sourced with an even tighter discipline so we could keep tariff impact at a minimum on some products we offer,” Bonham said.

Looking ahead, Bonham anticipates growth in some vocational verticals and a slowing in others, and he doesn’t see a tight labor market resolving anytime soon. “There is just a tremendous amount of tribal knowledge that is leaving the industry,” he said, advocating cooperation with local labor force markets and educational systems.

Bonham, the current chair of NTEA — The Association for the Work Truck Industry, says he expects safety and speed-to-market will continue to be major customer drivers, integrated technologies will stay the course, and demand for charging stations will increase spending on the grid. All these stand to impact the industry, he added. “Everything continues to point towards electrification, autonomous technological developments, and continued industry consolidation,” Bonham said.

Smooth sailing for sales

Association reps also see wind in the sails for the coming year. Brian McGuire, president and CEO of Associated Equipment Distributors, which represents off-road equipment manufacturers and distributors, said members reported strong sales for 2019 and are predicting much the same for at least the first two quarters of 2020.

With the next U.S. presidential election close at-hand, McGuire said tax reforms enacted under President Donald Trump helped spur customers to replace and refurbish aging fleets, while tariffs on steel and other commodities, coupled with trade wars — particularly with China — have been tough on members. “It’s a mixed bag, but overall our members are doing well,” McGuire said.

For 2020, McGuire is hoping Congress will reauthorize the federal highway program to ensure

the Highway Trust Fund has the revenue to continue providing states with federal road and bridge dollars.

“Due to the failure of past Congresses to adjust the federal gas tax, which is the primary revenue stream for these necessary investments, the Highway Trust Fund constantly flirts with insolvency, creating uncertainty for state DOTs and destabilizing the construction industry,” McGuire said. “Congress must act before the current authorization expires next fall and identify new Highway Trust Fund revenue sources to provide the construction sector with long-term certainty.”

McGuire also echoed concerns over the dearth of skilled tradespeople. “Twenty per cent of the AED member workforce will retire over the next five years so it’s an issue that really has the industry concerned,” he said, describing AED support for technician education. “We have over 50 programs accredited right now and the goal is to have 100 accredited by 2024, to try to stem the tide and get more folks into the industry.”

Trade disputes create burdens

Steve Latin-Kasper, NTEA director of market data and research, said North American and global economies continued to grow in 2019 but growth rates slowed and are expected to continue decelerating in 2020. “By the end of next year, we may have to navigate through a period of stagnation or even a recession.”

Latin-Kasper says U.S. trade disputes with China and other countries have placed some burdens

on the overall global supply chain. The removal of tariffs on imports of steel and aluminum from Canada and Mexico alleviated much of the problem from a work truck industry perspective, and Congressional ratification of USMCA would also be helpful, he added.

“The larger issue going forward is likely to be slower global economic growth,” Latin-Kasper said. “Congress could enable more opportunity for growth by passing an infrastructure bill. That would provide a boost for the entire economy, not just the work truck industry. Elimination of the existing federal excise tax on commercial vehicles would likely provide additional sales opportunities for those vehicles currently affected by the tax.”

Latin-Kasper said the tight labor market, meanwhile, might limit growth. “This has already been problematic but will likely become more so as the number of new job entrants is predicted to be smaller than the number of retirees at some point in the mid-2020s. As a result, more companies may be giving consideration to making employee training and retention programs part of their culture.”

View from the north

While a U.S. election looms, Canadian voters narrowly re-elected Prime Minister Justin Trudeau and his Liberal party to minority status this past fall. Not only must the Liberals work with at least one other major party to pass legislation, but the party failed to win a single seat in Alberta and Saskatchewan, leading to expressions of western Canadian separatist sentiment.

Don Moore, director of government and industry relations with the Canadian Transportation Equipment Association, said chief concerns in western Canada include a struggling oil sector and governmental approvals for new pipelines.

“The market in the trailer and vocational truck side is slow there, and while we’ve seen downturns in the markets before this is a little different,” Moore said. “I’m not sure how it’s going to play out, but hopefully everybody can respond fairly well. Those I’ve talked to in the oil and gas sector have, from past experience, learned to diversify and do other things.”

Looking at the country as a whole, Moore is largely optimistic, particularly about infrastructure spending. “There are various projects across the country that need to get done,” he said. “I’m not hearing anything about any really major spending but I’m thinking we’ll still see a pretty, fairly steady influx.”

— Saul Chernos

Saul Chernos is a freelance writer based in Toronto.