James Menzies: Welcome to our next installment of the Five Minute Deep Dive: Five Minutes of What Matters Most, featuring FTR. Today, we’re going to be discussing the Class 8 market. Eric, we were all expecting 2026 to be a great year for Class 8 orders due to the anticipated EPA27 prebuy. That didn’t materialize as the current administration has thrown some substantial doubt on that regulation and whether it will ever come into effect. How has that uncertainty over emissions regulations impacted the Class 8 truck market?
Eric Starks: Yeah. So it was really interesting. About a year ago, we were having discussions with a lot of the OEMs, the truck manufacturers, and they were all very jazzed in the sense of they saw things coming where demand was going to pick up and — maybe ‘jazzed’ isn’t the right word — but they were definitely prepping for some type of a prebuy. And so they were saying 2025-2026 they were going to see some really noticeable uptick there.
And then that, basically, over the last six months has completely disappeared. That has gone away. There actually really isn’t any discussion about prebuy anymore. It’s more about, at this point in time, survival of the general underlying marketplace. So what we’re kind of viewing is: whether or not any regulatory stuff happens as we get going forward is almost irrelevant at the moment, because the underlying conditions have started to deteriorate to such a level that people are just saying, ‘We’re not going to prebuy, we’re not worried about that. It’s more about core business at this point in time.’
Menzies: So, you know, to paraphrase you and one of your favorite sayings, ‘What do you buy a truck for? To haul freight.’ What needs to happen to the freight market in order to really kick-start some demand for Class 8 trucks?
Starks: Yeah. You hit the nail on the head. It is all about freight demand. And I think what happens is that a lot of people forget that freight is the driving force of why you buy equipment.
If freight is doing well, then you can make a lot of different decisions based upon that. But if it’s not, that’s the problem. And so when we look at the broader market right now, our freight numbers basically have been flat for the last several years. And as we move into the latter part of this year, we’re still going to see fairly flat demand.
And even into 2026, we’re basically just -0.7% growth . So it’s nothing. Basically, it’s flat again.
It’s not until we get to 2027 before we see see 2,5% growth within the truck freight market. So if you think about it in the context of if you have the same amount of freight today that you had yesterday, what do you do? You don’t need to add a truck. You just replace that truck.
And so once it’s hit its useful life, you basically say, ‘I’m just in a replacement’. So you become, in essence, in a replacement mode market. And that’s really what this is looking like at the moment. We’re basically just replacing equipment.
And what’s been really tough, though, is over the last three months, we have seen orders come in that are noticeably below replacement demand. And so what we’re trying to understand is, is this something temporary or is this something structural in the marketplace?
My general thought process here is [that] it’s a little mixture of both. That it’s a bit temporary because people were saying, ‘I need to wait and see what the broader market looks like and will the freight market pick up or will it shut down? And then we’ve had discussions about tariffs—what does the tariff situation look like? What’s the cost of my truck?’
Because right now, nobody even knows what the cost of the truck will be based upon what’s been happening with tariffs. So they’re kind of in a wait-and-see moment. Yet at the same time, there has been enough deterioration in confidence that people have basically said, ‘The market is not good enough right now. I can’t continue to keep ordering equipment,’ and they’ve backed out.
So I think it’s a little bit blended there.
And if this is happening in the truck market where orders are collapsing—and I’m not being overly dramatic here, they really have collapsed—I’m going to guess that it’s happening in other industries too. And if that’s the case, then the ripple effect through the freight market really hasn’t been felt yet because that means that they don’t stop. It takes a while for them to wind down production. And we already are seeing that in the Class 8 market. But then as you start seeing it within other industries, then the freight market starts to deteriorate as we get into Q3 and Q4. So I think there’s some downside risk to what we’re seeing for our freight numbers based upon that.
What is unclear, though, is when we start thinking about the shift from other countries, say into the U.S., are we going to increase manufacturing here within the U.S.? Maybe, maybe not. I’m not overly optimistic about it, but there could be some positives there and that ripple effect could ripple through. And so maybe this is a bit less of a longer-term issue and it’s maybe a very short-term thing.
So we’re trying to assess that and that has been very, very difficult to address. And at the moment, the commercial vehicle space for the heavy trucks has been very weak, and we’re not getting a lot of positivity from individuals. In fact, as we talk to the industry and get more anecdotal stuff just to understand where some of the pressure points may be, everybody is more and more negative as we talk to them. That doesn’t mean that it is going to be negative in that respect, but we can talk ourselves into a lot of things.
And this industry loves to talk themselves into slowdowns. So we’re not saying that the market is gonna collapse. In fact, we have a turn next year. We actually go up about 12% , almost 13%, next year. But we’re seeing a huge falloff this year of about nearly 28% with regards to production for North America.
Menzies: So production levels are falling off the cliff this year and should recover about half of that next year?
Starks: Yes. So they have definitely—where the falloff has been really collapsing has been on the order front.
The production numbers will continue to weaken. So it has yet to be seen if there is a collapse within the production space yet. They may continue to keep producing through this, even though we expect production to ease back as we move out through the next quarter or two. But we then expect that things by the middle of next year will start to accelerate noticeably.
But there’s a lot of question marks to this. This is not a done deal as of yet. The other thing that gets really tricky then is the cost of the equipment and where they get produced.
Right now, we have—what I think the last call was—42% of the Class 8 market produced in Mexico. That comes for the U.S. production for the U.S. market to come here and be sold. That’s a huge amount. And if we see—if the administration, and this is where it’s unclear—does a 30% tariff on all Mexican goods, that’s a huge, huge number.
And we’re already seeing a lot of ripple effects happening. For example, they were doing stuff on steel and aluminum that has already started to ripple its way through. So there’s just a lot of stuff that could still be coming that hasn’t been already absorbed within the system. And that’s why, when I talk about carriers not knowing what their cost is gonna be for their equipment, those are the type of things that become really problematic and where things get sourced from.
And you can’t move it back into the U.S. market. Just physically can’t do it. And even if you could, then your cost structure goes up there too just because your labor costs and your input costs are so much higher here within the U.S.
So all the way around, there is cost gonna be pushed through no matter what.
Menzies: And we’re gonna talk a lot more about tariffs in the next installment of this series. And I’m sure it’s gonna be a big topic as well as Class 8 in truck and trailer demand at your conference. When can people attend your conference?
Starks: Yeah. So the conference is the 8-11th of September in Indianapolis, and we hold it at the beautiful Union Station. So I think if I recall correctly, it is the first Union Station that was out there, and somebody will probably correct me. But it is just a gorgeous location and a great way to have a transportation conference to be able to do it in an old train station like that.
Menzies: That’s a great venue and very fitting venue as well.
Starks: It is, very much so. Yes.
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