April Trailer Orders Rise 3%; Backlog Hits 20-Month High

This story appears in the June 7 print edition of Transport Topics.

April trailer orders rose 3% from 2009 levels, and the backlog at trailer factories working to fill those orders rose to its highest level in 20 months as demand for equipment continued to exceed build rates, ACT Research Co. reported.

Net trailer orders in April were about 11,210 units. So far in 2010, trailer orders have risen 72% from the rock-bottom levels of last year.

“While April was a little weaker than February and March, the trailer industry is in the early stages of a rebound from a very weak 2009,” Kenny Vieth, senior analyst and partner at ACT Research Co., said in a May 28 statement. “A potential indicator of continued improvement is the very low level of order cancellations over the past three months.”

Net orders are total orders, minus cancellations. The order backlog refers to the time it will take to clear all pending orders at current production levels.

April orders were down 13%, compared with March, ACT said. The Columbus, Ind., research firm said that demand comes from carriers moving to replace equipment, not to add capacity, with steadily increasing optimism about freight demand (click here for related story).

“We’re replacing aging equipment,” Steve Tam, ACT’s vice president of commercial vehicles, told Transport Topics. “Carriers are not going to be buying trailers just on the strength of economic growth right now. The serviceability of the equipment is an entirely different story.”

Tam said that the aging U.S. trailer fleet, combined with the improving economy, has pushed some fleets to replace equipment. A battered trailer, he said, “is bad advertising for a for-hire fleet” that is looking to capture more freight as business improves.

Craig Bennett, senior vice president of Utility Trailer Manufacturing Co., City of Industry, Calif., said that his company was filling orders mainly for replacement equipment and that a lethargic used trailer market was driving creditworthy buyers to purchase new equipment.

“Most orders are replacement orders,” Bennett said. “The problem today is that there’s a lack of financing for the marginal credit buyer. It stops up the used-trailer business, and it’s hard for people to dispose of old equipment to buy new equipment.

That pushes business to the new-equipment side.”

Carriers looking to place orders for new trailers now, however, might find themselves paying more for their equipment than buyers who already have placed orders.

“Commodity prices are going up and up and up,” and so “the cost of trailers this year is more than what it was last year,” Bennett said. “Some people have ordered in the first half of the year and have beaten those increases. The ones ordering in the second half of the year” may not.

Asked whether the backlog that ACT reported foreshadowed longer delivery times for carriers ordering equipment, Bennett said that, for Utility, a “90-day lead time is not out of the question” at current production levels.

Bennett said he hoped order levels would remain “kind of at this level. We’re not looking for a huge bump.”

An executive with another trailer maker said that a production bottleneck was not unlikely, given current demand and build rates.

“It is getting very close” to a bottleneck, for customers now placing trailer orders, said Glenn Harney, chief operating officer of Hyundai Translead, San Diego.

Harney said that component suppliers, which scaled back production at their own factories during the recession, will play a part in determining how quickly trailer makers can ramp up output.

“In past recoveries, it has been easier for trailer manufacturers to ramp up than many of the component vendors,” Harney said.

“It is likely to be the same this time, too.”

ACT estimated that at the current industry build rate, the backlog of trailer orders would take more than six months to clear.

Meanwhile, both Bennett and ACT’s analysts said that dry-van and refrigerated trailer activity is robust — at least compared with the recessionary levels of last year — but the flatbed niche is still suffering.

“The housing and industrial recovery hasn’t kicked in yet,” Bennett said, and so flatbed and oversized freight haulers have not yet placed the quantity of orders that dry-van and refrigerated carriers have.

ACT’s Tam agreed. “The flatbed market is just beat up,” he said. ACT data shows that orders for “platform” trailers, the category that includes flatbed and drop decks, fell 10% year-over-year in April.

Tam noted that, with the trucking industry still crawling out of the trough of the recession, plenty of parked trailers will have to be brought back on the road before the trailer market can boom again.

“We’re waiting patiently on the trailer market,” said Tam. “The trailer market is not getting its comeuppance in this economic recovery.”

Tam was unsure that a recovery was forthcoming in the second half of the year.

“It’s the third quarter that we hit the doldrums” in the trailer market, Tam said. “May launches that season, and if [carriers] haven’t got it ordered by now, they kind of lose interest for the next three or four months.”