Truck Orders Hit Five-Year High

This story appears in the April 11 print edition of Transport Topics.

Truck orders soared in March to the highest total in nearly five years, as carriers snapped up new equipment to renew their fleets in advance of the fall freight season, two market research reports said last week.

ACT Research Co. said 29,200 Class 8 trucks were ordered last month, the fifth consecutive monthly increase and the most since May 2006. FTR Associates pegged the March order total at 28,871.

The order surge that began in October has topped 134,000 over the past five months. That pace was nearly triple the 48,200 heavy vehicles ordered from October 2009 to March 2010, based on statistics from ACT, Columbus, Ind.

“There is nothing like a shot of broad-based demand to spur a warm feeling of optimism that spreads over the industry,” Kenny Vieth, ACT president and senior analyst, told Transport Topics on April 5. He said the latest order numbers validated the positive mood at the Mid-America Trucking Show, which ended April 2.

The signs of optimism at MATS included a stronger 2011 production forecast by Daimler Trucks, as well as sharply increased sales projections from Volvo Trucks North America and Navistar Inc. Suppliers at MATS such as Bendix Commercial Vehicles envisioned a “go-go period” (4-4, p. 1).

The surge in March, typically the busiest order month of the year, is tied to fleets’ desire to receive new equipment before fall shipments of consumer goods to retailers drive up demand, Vieth said.

“The first quarter has been very positive for incoming orders, with fleets placing orders primarily for replacement units due to aged equipment,” said Eric Starks, president of FTR Associates, Nashville, Ind. “Orders for added capacity vehicles are few at the moment, with some fleets still looking for good drivers to fill current seats.”

“Very few fleets are adding capacity at this point,” said Bob Costello, American Trucking Associations’ chief economist, noting that ATA’s survey of large truckload carriers — those with revenue above $30 million — found that fleet size rose 0.7% in January. It was the first year-over-year increase in two years, but total fleet size still is 13% below its 2007 peak.

An Oregon truck dealer also emphasized the positive.

“We are feeling pretty good,” said Dave Thompson, CEO of TEC Equipment Inc., Portland, told TT on April 6, saying his increased business “is a sign of confidence coming back in the market.”

Sales are particularly strong for regional fleets that are acquiring one to 15 units, often through a combination of sales and leases, said Thompson. His dealership sells Class 8 Mack and Volvo trucks at 14 West Coast locations.

Owner-operator business also is increasing, he said, along with parts and service business as fleets run more miles and put more trucks back in service. Leasing also has grown, tripling in the past 12 months, Thompson added.

“Truck manufacturers are feeling warm and fuzzy, and the lenders are back in business now,” he noted, saying that the only market weak spot was vocational equipment.

ACT still estimates 2011 North American production at 245,000 units, Vieth said, though he said he may raise that target slightly, based on the March orders.

While the pace in the past five months of 134,000 units would generate a 12-month order total of 321,600 tractors, Vieth said he doesn’t expect that to happen because orders typically slow later in the year, with as much as a 20% drop from March to July and August.

Because of the expected summer order levels, ACT’s order forecast remains between 280,000 and 290,000 units.

“With the uptrend firmly established, the question for 2011 is now the industry’s ability to meet demand, instead of whether demand would rise to expectations,” Vieth said.

The latest surge also is focusing even more attention on production because the March surge added as many as 10,000 units to the industry’s order backlog, which reached nearly 100,000 tractors in February, Vieth said.

“The challenge for 2011 is how fast the industry can ramp up production,” Vieth said. “In the first year [of a growth cycle], demand always outstrips supply. Right now, the industry is shifting gears and working through the parts issues.”

He cited current production constraints, such as supplies of tires, some castings and wiring harnesses.

“Build slots are now likely full through most of the third quarter,” Tim Denoyer, analyst for Wolfe Trahan & Co., said in an April 6 investor note that highlighted discussions at MATS about the industry’s ability to ramp up production.

“Tightening truck capacity leading to higher truckload rates has unleashed a big wave of [capital spending].”

“Look at the difference over two years between the Great Recession and the mood in the industry today,” Vieth observed. “A couple of years ago, there were tumbleweeds in the aisle [at MATS].”