Heavy Cancellations Reduce October Net Orders to Fewer Than 14,000 North American Trucks
This story appears in the Nov. 14 print edition of Transport Topics.
Net preliminary Class 8 truck orders in October fell below 14,000, but cancellations of previous orders that were removed from the books last month complicated the picture, analysts said.
Research company FTR put the net preliminary total at 13,800.
Affecting the net number were about 7,500 previous orders removed from the books in October, primarily by one truck manufacturer, according to Don Ake, FTR’s vice president of commercial vehicles.
He declined to identify the company.
Each month, cancellations are subtracted from gross orders to get net orders, he said. Without that “unusually large” adjustment, October’s net preliminary would have been about 21,300 units, “the best order month since December 2015,” Ake said.
“In my opinion, [October] is good news,” Ake said. “If [13,800] was the real, true number, we’d have a disaster on our hands.”
The net total was down from 25,925 orders in the 2015 period and about flat compared with 13,880 orders in September.
October’s orders varied among truck manufacturers. “One did great, another did good, the other ones pretty mediocre.” he said.
R.W. Baird & Co. analyst David Leiker wrote in a note to investors that he also believes cancellations likely had a role in this month’s intake because “we do not believe current industry conditions support a sequential drop like was seen in October.”
ACT Research Co. pegged the net orders at 13,900.
“October is typically a very strong month for new order intake, but it is also the strongest month of the year for cancellations … for all kinds of interesting reasons,” ACT Vice President Steve Tam said.
However, the order was “not so low that it is going to cause us to alter our forecast,” he said.
ACT has North American Class 8 production at 227,500 units this year and dropping to 203,000 in 2017.
Nonetheless, Tam said third-quarter build was 53,000 and forecasts fourth-quarter build at 47,400.
Tom Linebarger, CEO of engine manufacturer Cummins Inc., also forecasts a production slowdown the rest of this year and likely into early next year. He said he was planning for it.
“From a production standpoint, there is a step down still in there,” he said, referring to the fourth quarter and likely extending to the first quarter.
“Retail orders [are] getting close to trough; production is always a bit of a lag. That’s what we’ve seen in other cycles, especially towards year-end,” Linebarger said.
Meanwhile, what new demand for Class 8s is in the market stems from small, regional fleets, while the vocational segment continues to show strength, said David Kriete, CEO of Kriete Group, a heavy- and medium-duty truck dealership based in Milwaukee.
“I think orders are on the rise but very, very subtly,” said Kriete, whose dealership sells vehicles from Mack Trucks, Volvo Trucks North America (both brands of Volvo Group), and the Hino and Mitsubishi-Fuso brands.
Kriete said one fleet customer decided to incrementally shorten its trade cycle to be ready for tougher federal regulations on greenhouse-gas emissions coming in 2021.
“They are going to avoid having to make a new purchase for 18 months after 2020,” he said. “This is a pretty strategic pre-buy.”
Covenant Transportation Group, in an effort to manage capital expenditures in the weak freight environment, said it will extend the average age of its fleet to about 2.5 years — until the late third quarter or fourth quarter of next year — compared with 1.7 years now.
“We have deferred, slowed down, the amount of new trucks that we are going to take and extend on the trade cycle,” Covenant Chief Financial Officer Richard Cribbs said during an earnings call with analysts last month.
Covenant ranks No. 43 on the Transport Topics Top 100 list of the largest U.S. and Canadian for-hire carriers.
On the other hand, J.B. Hunt Transport Services Inc. said Nov. 9 it planned to add 500 to 700 trucks to its dedicated contract solutions unit and 100 to 120 in its truckload division in 2017. Also, 1,100 trucks will be replaced.
The company made the announcement as part of its updated 2017 financial expectations.
“It appears as if the strategy management has undertaken in 2016, whereby it continues to add assets despite a depressed market to gain share, will continue into 2017. J.B. Hunt remains one of the few, if not the only, player who can sustainably finance such a strategy thanks to the expansiveness of its operation and margin agreements with railroads [namely the BNSF],” Stifel, Nicolaus & Co. analyst Michael Baudendistel wrote in a note to investors.
J.B. Hunt ranks No. 4 on the for-hire TT100.
