May Truck Orders Rise 14%

This story appears in the June 9 print edition of Transport Topics.

Class 8 truck orders climbed 14.2% in May from a year earlier, ACT Research reported, providing analysts further evidence a gradual expansion of the nation’s truck fleet is under way.

North American truck makers received about 25,900 net orders last month, up from 22,688 in May 2013, according to ACT’s preliminary data.

May’s intake also rose 4.3% from the 24,831 orders placed in April.

“We’re starting to hear dealers and even carriers talk about fleet expansion,” ACT Vice President Steve Tam said. “They’re whispering when they say it, but nonetheless we’re starting to depart from replacement only. Any growth is going to be cautious, but I think we’re to that point.”

Through five months, orders stand at 141,984, up 25.3% from the 113,292 booked during the same timeframe last year, ACT said.

Last month’s total also was the highest level for May since 2006, when manufacturers booked 29,397 orders.

Jack Allen, chief operating officer at Navistar Inc., said customer sentiment is “increasingly positive on a number of fronts,” including freight levels, rates and profitability.

“This has spurred an increase in new orders, and we believe retail sales in the second half of the year will be stronger than we had planned,” he said on the company’s June 5 earnings call (see story, p. 3).

Navistar said orders for its International trucks increased sequentially and year-over-year in its fiscal second quarter ended April 30. The company said it finished the quarter with an 82% larger order backlog than a year ago.

Magnus Koeck, vice president of marketing and brand management at Volvo Trucks, said the strong order activity is a reflection of carriers’ “increasing confidence in the economy.”

“Key economic indicators, like the manufacturing index and housing starts, suggest the climate will remain favorable for fleets, which helps alleviate some lingering hesitance to replace aging units,” he said. “We’re also seeing signs of expansion in certain segments of the market as freight capacity tightens.”

Mack Trucks believes 2014 will be “a good year for the trucking industry” and is ramping up production this quarter at its cab and vehicle assembly plant in Macungie, Pennsylvania, said John Walsh, the company’s vice president of marketing.

“The need to replace aging vehicles continues to drive demand, though we are seeing that some customers are beginning to add to their fleets,” he said.

Other truck makers did not respond to requests for comment by press time.

Meanwhile, research firm FTR’s preliminary data showed that Class 8 net orders rose to 25,605 units in May, a 14% year-over-year gain.

FTR said backlogs remain at “very high” levels, and manufacturers “will continue to increase build rates in response to this growing demand.”

“The recent order activity confirms that the market has some real strength,” FTR Vice President Don Ake said. “We do expect Class 8 orders to slow down in the summer, as generally is the case, but they will remain above last year’s levels.”

Rising freight demand and tightening freight-hauling capacity are driving the need for some fleet expansion, ACT’s Tam said.

The lack of excess capacity has contributed to increases in both spot and contract rates, he said.

Another factor contributing to the order growth is the greater fuel efficiency of new truck models that comply with the Environmental Protection Agency’s 2014 greenhouse-gas standards, Tam said.

“Even though they come at a slightly higher price, the trucker is getting a payback for that,” he said.

Industry analysts agreed that manufacturers may need to further accelerate their build plans to meet the demand.

“Freight growth, tight capacity and rising trucking rates should continue to support production increases,” Karen Ubelhart of Bloomberg Industries said in a June 4 note.

“May orders should add to backlog and put upward pressure on future OEM build plans,” said analyst David Leiker of R.W. Baird & Co.

Rhem Wood Jr. of BB&T Capital Markets noted that Class 8 orders accelerated sequentially in May, even though that month usually marks the beginning of the seasonally slow period for orders.

Lawrence De Maria, an analyst at William Blair & Co., said orders seem to be increasing based on replacement and fleet expansion.

“We are firmly in the camp that the recovery in commercial vehicles in North America is gaining traction,” he said in a June 4 note. “Recently, the solid monthly numbers have also seen fleets make full-year purchase orders because of increased confidence in the market and upward pressure on freight spot pricing.”

During the first quarter, first-time registrations of new Class 8 trucks in the United States rose 9.2% from a year earlier, according to the latest Polk commercial vehicle report from IHS Automotive.

ACT’s Tam said many of the new trucks ordered in the past several months haven’t been built, indicating that retail sales and new registrations should expand at a more significant pace later this year.

Tam said ACT’s forecast for full-year North American production stood at 286,100, but he added that the firm was likely to raise that projection based on the continued strength in order activity.

In May, manufacturers added nearly 2,000 units to their backlogs, which stood at 119,700 at the end of April, he estimated.