Q1 2025 Transportation Market Update

May 2025

In this article we briefly look back on the post Covid market and quickly move on to observe early returns for 2025 related to the class 8 used truck and trailer space. Followed by commentary on freight rates, tariff rollout, new & used truck values, persistent likelihood of negative equity in many operator’s fleets, tariff uncertainty and regulatory changes with a spotlight on 2027 EPA standards begging the question… will pre-buy even be a thing?

Longest Downcycle in Recent Memory

One year ago pundits around the country painted a cautiously optimistic outlook for the new year. Refreshed expectations for a downward trending market in rapid correction over the previous 18 months. Looking back now 2024 proved to be another rough year for commercial transportation assets ending in an additional 12 months of value slide for trucks and trailers. It feels as though the transportation & logistics community has been talking about this forever – enjoyment of the hot freight market from Q2 2020 – Q2 2022 immediately followed by a well anticipated sharp correction. To use an old saying, the market takes the escalator up and the elevator down. This is a good description of the truck market through 2020 – 2023. The unexpected part was the long tail of continuous downward trending extending through 2024. Hilco attended the 72^nd ACT Research Seminar in Columbus, IN in February. There are always a number of great perspectives from Dealers, OEM’s, economists and operators. During the dealer panel Warren Auwae, Senior Vice President of Global Remarketing – Velocity Vehicle Group noted this downturn is far longer than anyone has experienced in many years. This has not been the deepest, but the longest downcycle. While the initial severity of the correction felt normal, the length of time it lasted was surprising and unprecedented. This was corroborated several times over by other veteran industry representatives during the two-day event.

The consensus outlook for 2025 felt more grounded in tangible signs the market is finally bottoming out. Year over year average auction values for class 8 truck tractors sold in January ‘25 were up 2% from January ‘24 representing the first yoy month of positive movement in 29 months – nearly 2 ½ years. During that period starting in September of 2022 until January of 2025 the average yoy monthly negative split was an astonishing -22%. Only three of those consecutive negative months were in the single digits with the largest yoy negative performance coming in at a whopping -50% in February of 2023.

Why the Correction Looks to Be Ending

Volume of market participants has corrected. Reduced trucking capacity due to smaller (and some larger) carriers leaving the space, stabilizing inventory levels, and forecast of slight rebound in spot rates down the stretch of 2025 are signs the correction appears to be ending.

The ground freight industry has rightsized. Nearly 88,000 trucking companies closed their doors in 2023 joined by 8,000 brokerages. While many of those trucking entities were single owner operators or managed small fleets, the figures are substantial. Comparatively the 2024 numbers for operators and brokerages are as follows. There was a 10% drop off in the number of motor carriers in 2024 ((FMCSA)) representing a roughly 20,000 motor carrier reduction compared to 88,000 the year prior. And according to Freightwaves, 2024 closed with 3,104 fewer registered freight brokerages compared to 8,000 who closed in 2023. Both substantially lower exits than the previous year. While the headlines were dominated by big, longtime players who were forced to depart from the market, most of those who exited were smaller and relatively new entries into the space going after easy dollars in an abundantly easy profit environment. The window for that has now closed. Those who remain are a healthier mix of long term and serious commitments to the trucking and logistics space.

Inventory levels are also decreasing according to Sandhills Global market reports. Sandhill’s platforms include TractorHouse, Machinery Trader and Truck Paper. With US inventory of used heavy-duty trucks declining 10.23% m/m and 19.62% yoy in January. Thinner inventory levels means pricing movement in the right direction. Hilco always feels obligated to emphasize it is naïve to expect appreciation of asset value when talking improvement in the market. More stable inventory levels and a pricing environment that includes marginal reduction in depreciation rates and yoy average pricing improvement are positive signs the market looks to be rounding the corner.

On par with modest used trucking pricing gains and inventory rightsizing, spot rates are expected to improve gradually, with Freight Transportation Research (FTR) predicting a 5% – 6% year over year improvement by the end of 2025. Expectations are muted for the first half of the year but again, any movement in the right direction signals a shift in the market.

April 29th, 2025 Tariffs and Potential Effects

As of April 29, 2025, tariffs imposed by the current administration are significantly impacting the U.S. trucking industry, with effects rippling across freight volumes, operational costs, and supply chain dynamics. 25% duties on imports from Canada and Mexico are raising the costs of auto parts and components. 25% tariffs on steel and aluminum are a big part of the pricing increase recipe as well. Early estimations suggest double digit percentage cost increases in individual new truck pricing that will have dramatic effects of small operators and materially impact budget management across the entire truck operator ecosystem. This rise in cost for trucks and their parts are having a compounding impact in the insurance world as well. Insurance costs are already a major barrier to long-term viability in the trucking world and typically is the differentiator between a successful business running in or out of profitability.

In terms of freight volume, there was an initial surge of imports when the implementation of tariffs was announced. Some ports reported an almost 50% yoy increase inbound goods in the month of March. However that has been predictably followed by a 41% month-over-month drop in April bookings and a 35% year-over-year decline according to DataDocks.

Trucking moves about one-third of the U.S. transportation sector’s goods, including 85% of surface trade with Mexico and 67% with Canada. If tariffs persist for any material amount of time some production might shift back to the US with potential to increase domestic freight opportunities. However this would require significant time and investment beyond 2025. US manufacturing capacity is currently limited and if the administration is serious about real bolstering of domestic capabilities the trucking sector may be in for a rough ride over the next several months. Soft consumer demand in response to higher pricing for goods will have a real dampening effect on freight rates and profitability for haulers leading slower market recovery and serious downward pressure on smaller freight providers. Consensus is – tariff disruption and its ripple effects starting day 1 will likely outweigh any potential gains over the long term. If the aim of the current administration is to create free trade void of tariffs, reciprocal or otherwise, then there is merit to their efforts. However that is a best case scenario and the current uncertainty is having a universally negative effect on all markets in real time. Uncertainty is ever-present in trucking but this is peak fluidity.

Inverse Relationship with New and used Trucking

Tandem axle, long haul, sleeper truck tractors are more expensive now than ever before. In Hilco’s Q2 2024 article we mentioned the average asking price for a new 2024 Freightliner Cascadia 126 tandem axle sleeper truck tractor was advertised for around $189,000 before any discounts related to volume purchases and other OEM concessions. Compare that to a one-year-old unit of the same make & model truck with standard utilization, and the average auction value is $115,000. That’s about a 39% depreciation year over year for a one-year-old vehicle. The wild thing is when new trucks were selling for something in the range of 140K – 150K, a one-year older carbon copy would have a market value of around 110K – 115K (78.5% – 82% of new value). During ACT Research’s February 2025 dealer panel the general consensus on the sweet spot for a good used truck was 4 years old, 400,000 miles, at a $40,000 valuation. That’s a whopping $37,250 year over year straight line depreciation schedule. As an appraisal firm and fully invested market observer, the reasons for pricing increases are numerous. Just about everything that goes into making a truck has gone up over the past four years. And the truth is, used values are not following suit, and depreciation is experiencing a big falloff in the years immediately following production. This should also be reflected in market-based appraisals, especially for asset-based lenders. If you are lending against a fleet of brand-new trucks and they are going to work right away, fully expect and budget for material value change year over year.

EPA Uncertainty

We are entering into a very interesting period for the truck market. There are a handful of macro factors that will be affecting new and used values.

EPA changes may create more uncertainty than tariffs: With the current administration taking the reins, Hilco forecasted the most burdensome commercial EV mandates by the previous administration would be cancelled out. Specifically mandates to fast-track adoption of EV’s as a direct replacement for combustion engine units. However we expected the 2027 and Later Light-Duty and Medium-Duty Vehicles Regulation and Greenhouse Gas Emissions Standards for Heavy-Duty Vehicles would remain on schedule. That is no longer a probability for the industry as Environmental Protection Agency Administrator Lee Zeldon announced on March 12^th that he would be reconsidering the pivotal deadline.

 “As we reconsider nearly one trillion dollars of regulatory costs, we will abide by the rule of law to protect consumer choice and the environment,” said EPA Administrator Zeldin via epa.gov

This determination will be seen as a positive move for the industry at large. Most operators prefer an open market unburdened by an overtly restrictive regulatory environment. But Americans and the markets they live in operate on a month to month or quarter to quarter basis where there is a real whipsaw effect. Manufacturers and fleet operators will be feeling burned by trying to actually plan for the long term. The industry has been gearing up to integrate advanced emission control systems to meet the new requirements. OEMs have dedicated massive sums of money, research and development preparing for the January, 2027 deadline. Fleet operators were expected to accelerate purchases of pre-2027 models to sidestep or delay the effects of new more stringent standards. In the absence of that nationwide deadline adoptions will be viewed as less critical to most small to midsize operators in particular. There was at least a blueprint for how new EPA mandates play out from 20 years ago when the Heavy-Duty Vehicle Greenhouse Gas Emission Reduction Regulation went into effect at the end of 2007. However this regulatory situation is not the same. Trucking industry participants at all levels will need to quickly reassess what is best for their business following the EPA’s new position.

Positive aspects:

• Commercial EV adoption – The trucking industry will have less pressure to transition to electric vehicles as quickly as previously anticipated. It is hardly debatable if the country is ready for adoption of commercial EV fleet vs. traditional diesel. This is common sense pullback of unrealistic regulatory requirements.
• No Nationwide EPA deadline for January, 2027 – Potential cost savings. Trucking companies will see reduced costs associated with transitioning to cleaner technologies, as the need to invest in expensive new technologies has lessened. Some estimated price increases as high as $20,000 – $30,000/unit passed on to the buyer/operator equating to a roughly 12% – 17% raise in up upfront costs.

Negative aspects:

• Increased uncertainty – The trucking industry faces uncertainty as the EPA reevaluates the regulations, potentially leading to changes in the long-term plan for emissions reductions.
  • OEM’s are still going to produce new and updated CARB compliant units starting in 2027 whether truckers like it or not.
  • Uncertain order volumes on the horizon – OEM’s were against the clock when it came to production models starting January, 2027. In terms of technology and build plans this date was right around the corner. Those trucks with new EPA technology are still going into production and will be delivered to buyers. How will order levels be affected over the next two years?
  • Fleet operators have the same problem. Strategically planning for how they were going to manage their capex and purchasing plans over the next 2 – 4 years is daunting enough. How will fleet managers use their capex in this shifting environment?
  • Prebuy is subdued at the very least – Potentially leading to new order volumes being muted and used pricing following suit. Something to keep a close eye on.

A Pre-Buy was completely dependent upon there being a tangible reason for an industry-wide trend. With the 2027 regulations evaporating, more resilient demand in the market for good used fleet before and after the EPA deadline is lessened. Units produced and put into circulation prior to the EPA deadline would have been exempt from the new standards and equipment required on all new truck and trailer models. Order volumes and purchasing behaviors for new and used is now a bit up in the air. While the market does look to be at the beginning of a rebound, the elimination of the 2027 deadline removes an inorganic element everyone could point to directly as a tangible driving force behind increasing demand for used assets.

Van Trailer Market

The dry van trailer market is still transitioning from overheated order cycles to a more balanced state. January 2025 net trailer orders hit 21,300 units – a 51% year-over-year increase per preliminary industry data. These figures remain below peak levels, signaling replacement-driven demand rather than speculative growth. With an estimated 1.83 million dry vans in the U.S. fleet, many units are approaching the end of their 10 – 15 year lifecycle, creating a steady yet unexciting need for new equipment. However, for the conservative investor, steady and unexciting can sound pretty darn good. Like trucking, initial numbers suggest the recovery has slowly begun.

Opportunities:

• ABL lenders who focus on mid-tier fleets with strong balance sheets need to begin replacing 2010-2015 vintage trailers. Collateral risk is generally mitigated by the liquidity of van and reefer trailers, though careful underwriting is essential given rate pressures. We are hearing loan-to-value ratios of 70-80% remain viable, with terms tied to utilization metrics.
• Leasing models are proving to be extremely viable with operators who favor flexibility over ownership. Residual value models are supported by steady replacement cycles that make the space as predictable as reasonably possible.

Challenges:

• Oversupply is still a thing. Excess inventory from the last two years means 2025 is still a muted environment with limited lift in asset values.
• Tariffs and fuel pricing can be variables to keep an eye on.

The van trailer market in 2025 is not going to be a high-growth story. For investors and asset-based lenders, a return to stability will have to do. Predictable replacement demand, moderate yields, and opportunities in leasing or distressed assets should be welcomed as familiar market trends. Success lies in targeting resilient operators, leveraging asset longevity, and staying agile amid economic shifts. In a market rewarding discipline over exuberance dry vans remain a foundational investment.

In summary through Q1, 2025 the truck and trailer market appears to be finding it’s footing with modest improvements in year over year performance. The real short term wildcard is how the current administration’s tariff policies will play out. The EPA’s shift in longstanding deadlines will slow used asset pricing improvement in the near to mid-term while new unit pricing seems to be only going up. However a more gradual recovery may be the best recipe for the industry at large over the next several years. We will keep an eye on the market through the Spring and Summer and report back on developments in this dynamic environment.

This article was originally published in SFNet’s ‘The Secured Lender’