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The trucking industry is growing at an explosive pace, and manufacturers can barely keep up.
- The trucking industry is red hot, with freight rates up 19.6% year-over-year.
- To keep up with demand, freight companies are buying trucks at an unusually rapid pace.
- According to Michael DiCecco of Huntington Bank, there's a six-month backlog for new commercial truck orders. Typically, it takes only 10 weeks for a company to receive a new truck.
- But some analysts advise that trucking companies cool off - as the industry will slow down by mid- to late 2019.
It typically takes just 10 weeks to receive a new commercial truck. But manufacturers have been so flooded with orders in 2018 that freight companies are now waiting six months to receive new trucks.
That's according to Michael DiCecco, who is executive managing director of Huntington Bank's asset finance sector. Part of Huntington's $6.5 billion asset finance business includes lending to trucking companies to buy new trucks and equipment.
"(The backlog) certainly indicates demand is there and the manufacturers are struggling to keep up with order," DiCecco told Business Insider.
It's yet another sign that the freight industry is doing incredibly well. Spot rates were up 19.6% in August year-over-year in the highest August van rate ever, according to freight exchange service DAT Solutions.
August was also an all-time record month for new truck orders, according to ACT Research. August is typically one of the slowest months for truck orders.
Orders were up .89% from July, which also was a record breaking month, and up a remarkable 150.3% year-over-year. Steve Tam, vice president of ACT Research, called that sort of growth "a departure of traditional activities."
ACT Research, Andy Kiersz/Business Insider New truck orders are up 150.3% year-over-over.
The past few years were middling for the trucking industry. In early 2018, rates began ratcheting up - thanks to a new law that limited how much truck drivers themselves could work as well as increased demand across the economy for trucking.
During those slower years, companies didn't buy new trucks. Now, because the economy as a whole has picked up, trucking companies are buying new trucks at such a fast rate that there's an equipment shortage, said Don Ake, vice president at freight-equipment research group FTR.
"You basically have a shortage of new trucks," Ake told Business Insider. "That shortage was caused by a strong increase in demand, due to the economy growing faster than people expected, and manufacturing being a lot more robust than people expected.
"So, freight growth this year has been excellent," Ake added.
Still, companies shouldn't invest too lavishly
While the industry is flourishing now, analysts said they expect this explosive growth to taper down by mid- to late 2019. When that happens, companies will have an abundance of trucks and nothing to put in them.
"As trucking companies are adding trucks, at some point we will reach a tipping point of too many trucks and excess capacity to haul freight," Tam said. "Once that happens, we'll start to see freight rates trending downward."
During these periods of growth, the best companies hedge their bets by not buying too much new equipment, Ake said. But less keen companies invest too much and often go bankrupt.
"You can't tell people right now not to buy trucks and not to build trucks," Ake said. "They have an opportunity to make money."
These sort of cycles are typical in the trucking industry - unexpected growth, rapid purchasing of new equipment, the eventual downturn, and finally a contraction that affects manufacturers, drivers, and freight companies.
"We will build too many trucks, and then any pullback that you have in the economy causes this large down cycle," Ake said. "It's bad for everyone in the industry, but you can't control it."