"Without trucks, America stops."-- American Trucking
That precisely sums up how significant the trucking industry
is to the U.S. economy.Trucking is considered an excellent
barometer of the economy's health, simply because trucks carry
the bulk of the tonnage moved in the U.S. every year. So when the
economy is booming and you want to play the upturn, trucking
stocks certainly belong in your portfolio.
But is the trucking industry only about companies that build
trucks? What drives the industry, and how does it work? How big
is the industry, and what is its growth potential? Read on for
the answers to these critical questions before taking the
What is the trucking industry?
Put simply, trucks are large motor vehicles designed to carry
cargo over long distances. Trucks are broadly classified into
three classes, depending on their gross vehicle weight, as shown
in the following table:
Industry Term (Class)
Gross Vehicle Weight
<= 14000 lbs
> 14000 & <= 26000 lbs
> 26000 lbs
So while most of us use the generic names, industry experts
refer to trucks according to their classes.
While the U.S. boasts some of the biggest truck brands in the
world -- think
's Peterbilt and Kenworth,
International Truck -- European brands, especially
Freightliner Trucks (a subsidiary of Daimler AG) and Volvo, have
made huge headway in recent years. For perspective,
Daimler and Volvo
nearly 55% of the North American heavy-duty truck market last
year according to a Bloomberg report.
Interestingly, none of these companies rule the global truck
market today; in actuality, Chinese manufacturers take the lead.
China is currently the world's largest truck market, accounting
for nearly half of the heavy-duty trucks sold worldwide.
Now that you know who the biggest truck makers in the world
are, you must also understand that trucking is much more than
just companies that manufacture and sell trucks.
Truck manufacturing is only one of the components of the trucking
industry. Source: PACCAR
Trucking is a hugely diversified industry, and freight
trucking is an even bigger part of the equation than truck
manufacturing. Think of companies like
United Parcel Service
. The amount of freight that these fleets move around is among
the biggest determinants of truck demand. I'll soon tell you how
big this part of the industry is -- you'll be amazed.
Another key aspect of the trucking industry is the supply
side. After all, trucks can't run without engines, fuel systems,
axles, and other critical parts. While companies such as
supply a wide range of engines and components,
and others focus on specific technologies such as natural
gas engine platforms.
In a nutshell, you can view the trucking industry from three
angles: manufacturing, supply, and services.
How big is the trucking industry?
While that's a difficult question to answer given the
diversity of the industry, some facts should help you gauge its
- Nearly 2.76 million units of medium- and heavy-duty trucks
were sold worldwide in 2013. Frost & Sullivan
projects global medium- and heavy-duty truck sales to jump
70% between 2012 and 2022.
- Heavy vehicles are the primary end users of diesel engines.
According to Freedonia Group research, the global diesel engine
market, now worth $171.5 billion, is pegged to grow at an
annual rate of 7.7% through 2017.
- Trucks moved 9.7 billion tons of freight in the U.S. last
year. That's a whopping 69.1% of the total freight carried by
all modes of transportation. The American Trucking Associations
forecasts trucking's share in total freight tonnage to expand
to 71.5% by 2025.
- Trucking freight in 2013 generated $682 billion in
revenue, or 81% of the total freight revenue in the U.S. last
How does the trucking industry work?
While truck and engine manufacturing are capital-intensive
industries, transportation companies are service-based and hence
Truck and engine companies spend huge amounts of money across
their value chains, from research and development to
manufacturing to distribution of products. Companies rely heavily
on dealership networks for sales, and seasonality isn't much of a
concern since demand is primarily driven by economic
The trucking industry witnessed a phase of consolidation over
the past two decades, with big players acquiring rivals to
outgrow the competition. Thanks to cyclicality and stiff
competition, truck producers have branched out, both
geographically and operationally. So nearly every truck
manufacturer today offers parts, value-added services like
maintenance, and lease financing. In fact, truck rental and
leasing is a big market today.
Interestingly, the line between truck and engine manufacturers
is also blurring, with most truck manufacturers having
vertically integrated to produce their own engines. That has
compelled engine specialists like Cummins to focus more on niche
areas such as alternative-fuel engines.
Manpower is a key asset for logistics companies. Source: XPO
Services are relatively non-asset-based businesses, as the key
to sustainability lies in efficient execution and delivery of
customer orders or packages. Logistics and transportation
companies operate a mix of leased and purchased vehicles to
Some, like XPO Logistics, act only as intermediaries and
subcontract transportation services to independent carriers.
Therefore manpower is their biggest asset. The level of economic
activity directly impacts the service side, and hence the
What are the drivers of the trucking industry?
The trucking industry is highly sensitive to business cycles.
It's a simple equation: When the economy grows, and consumer
spending and manufacturing activity gather steam, there's a
greater need to move goods and haul freight. That means brisk
business for logistics companies, and thus greater demand for
trucks. That explains why the recession year of 2008 counts among
the worst years for the U.S. trucking industry.
Trucking is also one of the most regulated industries: From
weight rules and emission standards for vehicles to safety and
work hour policies for drivers, companies must comply with strict
government rules throughout the value chain.
Emission regulations, in particular, hold great significance.
Every time a new emission standard comes into force, truck and
engine manufacturers have to upgrade their products accordingly.
That's costly, but also mandatory. Likewise, transportation
companies scramble to upgrade their fleets to meet emission
standards, which is why a new environmental regulation generally
means greater business for truck and engine manufacturers.
Cyclicality and its associated volatility may put an investor
off trucking stocks, but an industry that virtually runs the
economy doesn't stay under the weather for long. And with
emission regulations becoming more stringent, this industry looks
like a great place for investments.
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Trucking Industry: Investing Essentials
originally appeared on Fool.com.
has no position in any stocks mentioned. The Motley Fool
recommends Cummins, Paccar, United Parcel Service, and Westport
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