Class 8 Truck Orders Jump 21% as OEMs Predict Solid Growth

This story appears in the April 12 print edition of Transport Topics.

Orders for new Class 8 trucks in March jumped 21.1% over year-ago levels and surged 35.9% over February’s total as business levels continued to lap 2009’s anemic pace, said FTR Associates.

The market research firm also renewed its forecast for a 3% increase in annual demand this year, followed by a 50% leap in 2011.

However, several truck-making executives said recently that 2010 sales should grow by much more than 3%.

FTR said in its April 6 preliminary report that heavy truck orders rose to 10,505 in March. Also, in an April 8 Web seminar the group held, an industry economist predicted better results for trucking companies during the second half of 2010, leading to sharply better truck sales next year.

“Each month in 2010, we have seen an improvement in orders for Class 8 vehicles, which is certainly encouraging. However, we have not changed our overall outlook for 2010,” said FTR President Eric Starks.

In retail U.S. truck sales, fleets and owner-operators bought 14,814 Class 8 vehicles during January and February, an 8.8% increase over last year’s two-month mark of 13,610. The volume gains in those months were the first to happen following the 12 straight monthly declines that made up 2009.

Statements from major truck makers last month called for a faster annual sales rate than FTR predicted.

“This January, for example, our order intake was 58% higher than in January 2009, and in February the positive trend continued,” said Andreas Renschler, head of Daimler AG’s global truck unit.

“In the U.S. we’re expecting a moderate market recovery of about 10% to 15%,” Renschler said last month.

Bill Jackson, general manager of Peterbilt Motors, said the forecast from his parent company, Paccar Inc., calls for 120,000 to 140,000 North American Class 8 sales. In contrast, FTR’s Starks said that expanding the first three months for the year would yield not quite 100,000 North American orders.

Mack Trucks, a Volvo AB subsidiary, was the most optimistic, with Senior Vice President Kevin Flaherty saying “there’s a shot at 20% growth” in sales this year, but it would require stimulus spending working its way into the economy to have a strong effect, as well as a jump in exports.

All three OEM executives spoke at the Mid-America Trucking Show in Louisville, Ky.

During the FTR webinar, economist Noel Perry, who is affiliated with FTR, said trucking should recover more quickly than the economy as a whole. He added that fleets, however, could quickly become constrained by two significant labor shortages, leading to a dearth of trucks for shippers, producing higher freight rates and better fleet profit margins.

Perry predicted truck freight will grow by 3.8% this year, over 2009 levels, and that 2011 will be 6% better than this year.

Fleets have access to plenty of tractors and trailers — even if many of them are old — but the on-again, off-again driver shortage will probably reassert itself during the second half of this year, he said.

Coupled with a lack of technicians to repair vehicles that have been parked, Perry said fleets could soon be struggling to provide all of the road-worthy rigs operated by competent drivers that shippers will soon desire.

“Fleets ‘right-sized’ like crazy,” said Perry, who has done economic analysis for Schneider National Inc., CSX Transportation and Cummins Inc.

Having slashed hard at costs and capacity during the worst recession since World War II, fleet managers will not quickly restore all that was cut, Perry said.

“There was extreme stress on the industry, so the response to an increase in demand will be slower. Capacity will expand, but it will be late,” he said.

The changing environment could take many shippers by surprise, said Transport America CEO Scott Arves, who participated in the webinar.

“There is a disconnect now, between customers who don’t see this change coming and carriers who are eager to increase rates as soon as they can. There is a collision course between carriers and shippers, and I don’t know if many shippers have done a lot to prepare,” said Arves, who added he has already seen a change in the labor market for drivers.

“Drivers are no longer plentiful; you have to work to get them again, even with unemployment at 10%,” said Arves, whose company is a truckload carrier based in Eagan, Minn.

In looking at freight-hauling capacity, Perry was careful to split his remarks between the nation’s total population of trucks and those in active use now, with the difference being idled vehicles “parked against the fence.”

Perry estimated current utilization of total tractors at 77%, but 91% when active-use tractors are considered. He said there was a national surplus of 200,000 vehicles in terms of total trucks, but that active trucks are now in rough equilibrium with demand.

The change from a shippers’ market to balance already has affected rates, Perry said, citing work by investment firm Robert W. Baird & Co. that spot market truckload rates now are fairly comparable to prices seen in 2006 or 2008.

“We’re back to a normal seasonality,” Perry said.