INDUSTRY INSIGHT MACHINERY & EQUIPMENT UPDATED MARCH 2020

TRUCKING

CURRENT TRENDS PROJECTED VALUES Class 8 U.S. retail truck sales for January 2020 dropped below 16,000 for (12-MONTH OUTLOOK) the first time since January 2018, marking a decrease of approximately 22% over January 2019. Despite moderate order activity reported by some original equipment manufacturers, total Class 8 orders of 181,000 units fell below DECREASING STABLE INCREASING expectations for the 12 months ended February 2020. Preliminary trailer orders for December 2019 were at their lowest since August 2019 at 16,500 units. December trailer orders were down 17% from November and down 41% year-over-year.

GORDON BROTHERS BY THE NUMBERS TRUCK TONNAGE INDEX (SEASONALLY ADJUSTED)

125.0

120.0

$86B+ 115.0

of transportation assets 110.0

appraised and disposed 105.0

100.0

95.0 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Dec-14 Dec-15 Dec-16 Dec-18 Dec-19 Dec-17 700+ Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 valuation projects completed in truck and trailer sectors 150,000+ transportation equipment data points in proprietary sales database since 2010

NOTE: THIS PUBLICATION IS PROVIDED FOR INFORMATIONAL MARKETING PURPOSES ONLY. THE MATERIAL CONTAINED HEREIN SHOULD NOT BE REGARDED AS ADVICE, NOR RELIED UPON TO MAKE FINANCIAL, OPERATIONAL OR OTHER DECISIONS; NOR SHOULD IT BE USED AS A SUBSTITUTE FOR AN ASSET APPRAISAL. ACTUAL RECOVERY VALUES MAY VARY FROM TRANSACTION TO TRANSACTION AND THE RECOVERY VALUES REFERENCED HEREIN ARE FOR REPRESENTATIVE TRANSACTIONS WITHOUT REGARD TO SPECIFIC KEY FACTORS. THIS MATERIAL MAY BE REDISTRIBUTED ONLY IN ITS ENTIRETY, INCLUDING NOTICE OF COPYRIGHT. ALL RIGHTS RESERVED. ©2020 GORDON BROTHERS, LLC. GORDONBROTHERS.COM REFERENCE SOURCES: FEDERAL RESERVE ECONOMIC DATA, HEAVY DUTY TRUCKING, BUSINESS +1.617.426.3233 INSIDER, MOTOR & EQUIPMENT MANUFACTURERS ASSOCIATION, AMERICAN TRUCKING ASSOCIATION, FREIGHTWAVES, FTR, TRANSPORT TOPICS INDUSTRY FACING BANKRUPTCIES AND LAYOFFS: On December As a result of the shift in the market, data tracking the first 10 9, 2019, the Celadon Group Inc., operator of one of the largest months of 2019 exhibited that four- to six-year-old trucks were truckload carriers in the United States, filed for Chapter 11 selling for 10.7 percent less than during the same period in bankruptcy. The company plans to cease full operation with the 2018. Moreover, some industry analysts believe the decrease is exception of its North Carolina-based Taylor Express division, which understated and could be over 26 percent, as sale prices in early will continue to operate as the company explores a going concern 2018 were inflated because of tax breaks. sale of its operations, according to recent reporting from Heavy Duty Trucking magazine. CLASS 8 TRUCK SALES ROBUST BUT MISLEADING: Based on 2019 sales and 2020 projections, the heavy duty truck market will In combination with industry challenges, Celadon had also faced be set up for a “modest rebound in 2021 followed by growth into significant costs associated with a multi-year investigation into 2023,” according to ACT Research President and Senior Analyst the actions of former company management, which ultimately Kenny Vieth. Vieth’s assessment, issued in late November 2019, led to the federal indictment of two former executives in an explained that for Class 8 sales over the next four years, what will alleged $60 million fraud scheme. At the time of the shutdown, take place is a “regression to the mean.” Statistically speaking, Celadon was operating a fleet of approximately 3,300 tractors and this term describes the tendency of extreme outcomes to return to 10,000 trailers. It is anticipated that, in the event of a sale of the normal after an unusual event, which in this case were remarkably Company’s fleet, it is more likely that much of this equipment strong truck sales in 2019. He added that with the U.S.-driven would end up at carriers in Celadon’s large book of business, so the “trade war as a major caveat to forecast expectations, our actual sold quantity may be much less. Conversely, if a significant underlying view is that the economy will experience slower growth portion of these assets went to auction or otherwise directly to the but not recession in 2020.” The forecast then calls for heavy-duty secondary market in the current weakening state of the industry, truck sales to start to rebound in 2021. the quantity of trucks and trailers that would be offered for sale would most likely have a negative impact on not just auction sale However, Vieth cautioned that “the far years of this forecast are values, but market values as well. influenced by the prospect of new emission controls in 2024, triggering a 2023 pre-buy, followed by a 2024 payback. “This Celadon is not the only company that has folded recently. In the regression-to-the-mean for 2020, after near-record production in first half of 2019, approximately 640 trucking companies went out 2019,” he advised, “has been our forecast since early 2018, so our of business, more than three times the number for the same period subscribers have had nearly two years of yellow-light signals on the in 2018, according to industry data from transportation analyst upcoming correction.” Class 8 sales for the month of November Broughton Capital cited by Business Insider. The backlash on 2019 “failed to sustain October’s encouraging start to the order drivers and other industry workers has been severe as thousands season,” said Tim Denoyer, ACT Research Vice President and Senior have lost their jobs since the trucking recession began in early Analyst in a December 3, 2019, press release. Preliminary North 2019. America Class 8 net order data show the industry booked 17,500 units in November, which was down 20 percent from October. Other troubling developments include confirmed layoffs by Daimler Trucks North America (including 900 jobs at two Additionally, Class 5-7 orders fell 8 percent from October, to 15,300 Freightliner plants in North Carolina), a reduction and planned units. ACT Research also reported that combined North American reduction of personnel by North America and Class 5-8 intake for November fell 15 percent over October and 38 its sibling at three plants by a total of over 700 percent year over year on a nominal basis. employees, and reports that Corp. is cutting production 15 percent at plants in Ohio and Mexico. All TRUCK TONNAGE INDEX HIGHER YEAR-OVER-YEAR: Trucking of these actions are being taken with the manufacturers citing serves as a barometer of the U.S. economy, representing 70.2 the slowing of what was a very strong truck market as they try percent of tonnage carried by all modes of domestic freight to right-size production at their facilities. ACT Research, an transportation, including manufactured and retail goods. American economic forecasting company, has forecast North American Class Trucking Associations’ advanced seasonally adjusted (SA) For-Hire 8 production to plunge by more than 100,000 units to 224,000 Truck Tonnage Index increased 3.3 percent in all of 2019, about half compared with 2019, which is below the typical North American the annual gain in 2018 (6.7 percent), for the 10th straight annual replacement level. increase. The SA Index increased 4 percent in December 2019 after falling 3.4 percent in November.

Compared with December 2018, the SA index increased 3 percent, which was preceded by a 2 percent year-over-year drop The Expert: Bill Corwin in November. “Last year was not a terrible year for for-hire truck tonnage, and despite the increase at the end of the year, 2019 was very uneven for the industry,” said American Trucking Association Chief Economist Bob Costello. “The overall annual gain masks the very choppy freight environment throughout the year, which made the market feel worse for many fleets. In December, strong housing starts helped advance the index forward.”

Bill Corwin is a 29-year veteran in the appraisal industry, specializing in valuations of a broad range of machinery and other personal property owned by the world’s largest corporations. Read his full bio here GORDONBROTHERS.COM +1.617.426.3233