Used Truck Prices Plummeting–Inflation Will Fall Quickly, not Slowly

by AP9384629344432

One by one, the insane price increases we saw in 2021 and into 2022 are reversing or at least cooling down. It makes me think that through supply chains entering into overdrive and a looming recession, inflation will cool down quickly not slowly. Before I get to trucks, let me give a quick update on other trends. First, inventories are piling up in retail, with for example “a 32% jump in inventories during the first quarter” in Walmart.

Second, measures of supply chain pressure have clearly peaked (graph), the figure taken from SupplyChainBrain:

A gauge of supply chain pressure in the U.S. economy fell to the lowest level since December 2020, as activity such as trucking cools from elevated levels with few signs yet of a worrying collapse.

The Logistics Managers Index dropped to 67.1 in May, the second straight decline from a record of 76.2 reached in March. Faster gains in warehouse and inventory costs offset slower moves in transport prices.

Third, diesel future dropped at the end of last week, partly on news of Russia’s oil production recovering slightly.

The most significant bearish news in the market came out of Russia, where news reports said Deputy Prime Minister Alexander Novak told reporters that by finding alternate buyers to the Western countries and companies that have shunned Russian oil, the country’s output was close to the 10.2 million barrels per day level from February, prior to the invasion of Ukraine.

Fourth, US ports seem to be peaking earlier than usual, indicating a slowdown may come earlier than later. Article.

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Fifth, the Drewry composite World Container Index is decreasing slowly: Graph, sourced from the company website. From the same website, here is the cost of shipping from Shanghai: Graph.

Now to the main article on used truck prices. While reading this, recall that used car prices were one of the main contributors to inflation back in Spring 2021. Article (Freight Waves):

Auction prices of used trucks are falling almost as quickly as they rose over the last year. That is leaving owner-operators stuck with overpriced equipment they thought they could pay for in a hot spot freight market that is cooling off.

“The market is primarily absorbing trucks from fleets no longer retaining all of their older iron as new trucks trickle in and, to an extent, from owner-operators leaving the industry or going to work for a fleet,” said Chris Visser, senior analyst and commercial vehicles product manager for J.D. Power Valuation Services.

In its latest Guidelines report, Power said auction prices in May for model year 2020 used trucks fell 11% from April. Prices for model year 2019 trucks fell 15.9% month over month and 2018 models dropped 9.9%.

“In May, 3- to 5-year-old trucks averaged 12.0% less money than April, but 57.5% more money than May 2021,” Visser said. “Year over year, late-model trucks sold in the first five months of 2022 averaged 82.6% more money than the same period of 2021.”

Getting stuck by high used truck auction prices

When spot rates were paying $4 a mile and more, no price was too high for a fleet to add capacity. The idea was to take advantage of record-high rates and not worry about the equipment price premium. Now owner-operators who overpaid for equipment stand to get burned.

“Trucking economy data shows rising terminations of owner-operator authorities and a steady and notable decline in spot rates from February through May,” Visser said. “Taken alone, those two items could suggest the new owner-operators who entered the industry in 2020-2021 are now exiting the industry.”

Overall truck transportation employment increased through the spring. May was the highest month in recorded history for the sector. That suggests new owner-operators could be going to work for fleets.

Retail prices still elevated

Retail prices in dealerships are still near record highs. Pricing moves tend to trail auction auctions. As rates fall, so will truck demand and prices, according to Steve Tam, vice president of ACT Research.

“Unfortunately, long-awaited reports of loosening inventories come at exactly the wrong time in the cycle,” he said. “This is the beginning of the end of the cycle, which promises to be every bit as exciting on the way down as it was on the way up.”

Just as auction and retail prices vary, the freight market consists of contracted and spot-rate pricing.

“If your customers are mainly small fleets and owner-operators who operate in the spot market, you’re hearing the sky is falling,” Visser said. “If your customers are mainly larger fleets who operate in the contract market, you’re hearing conditions are still strong

Implication for Equities

If supply chain improvements alone improve inflation, the Fed can ease on their tightening and stocks will do relatively well. If demand reduction is what is driving improvements, this implies a recession and a possible worse bear market (or not, who knows). Both together? This may suggest that there will be a stock market in 2023. There may even be a market. Higher bond yields on US government bonds (caused by the Fed) mean that you can earn a higher premium for taking no risk at all. This means if you want to hold a riskier asset like a stock, you would demand an even higher premium. This causes stock prices to fall until the premium of buying it at that price is sufficiently high relative to bond yields.


  1. The article is about freight trucking, not your regular consumer pick-up trucks.
  2. It is impossible to draw obvious conclusions about the stock market from this. My low confidence response is that this is bullish for equities (if it slows down Fed hikes), maybe not the economy.
  3. This is not an original thesis.
  4. I am aware that inflation is more than just used truck prices. The intent of this post was to get a snapshot of some of the key industries in the US supply chain. I hope that is helpful.

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