New Class 8 Orders Increase 5%

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

New Class 8 truck orders rose 5% in April, even as demand for new equipment slowed from the rapid growth seen in previous months, ACT Research Co. reported.

North American truck makers received 24,400 net orders last month, the lowest since November. The latest total, though, still was up from 23,228 in April 2013, according to ACT’s preliminary data.

Sequentially, the April tally fell 11% from the 27,410 orders placed in March.

“We’re seeing an elevated level of activity built on higher confidence within the trucking industry,” ACT Vice President Steve Tam said.

The harsh winter put a damper on fleets’ first-quarter profit margins, but the underlying fundamentals have not changed, he said.

“They realize it’s an anomalous situation and that, longer term, things are expected to continue to improve,” he added.

Through the first four months, manufacturers have added 115,533 orders, a 27.5% gain from the 90,604 booked in the same timeframe in 2013.

Another factor pushing the market forward is tight capacity, as evidenced by elevated spot freight rates.

“What it says is we’re at the point now where we need more trucks to keep up with demand on the freight-hauling side,” Tam said.

April’s 5% gain was down from year-over-year growth rates of 24.4% in March, 30% in February and 50.8% in January.

ACT said industry backlogs stood at 118,300 units at the end of March and likely rose to about 119,000 in April.

Research firm FTR said its preliminary data for April put North American Class 8 net orders at 24,115.

The firm said order activity slowed from the “torrid” pace of the previous four months, falling 11% from March, but still came in 5% above year-ago levels.

FTR also said it expects truck manufacturers “to continue to raise build rates to meet the demand.”

“Class 8 order activity was bound to fall back some from the velocity of the past four months,” FTR Vice President Don Ake said. “With orders up almost 28% year to date, the industry is on track for a great year.”

Bill Kozek, president of Navistar Inc.’s North American truck and parts business, agreed.

“Industry performance continues to be strong compared to last year, with April order intake coming in at a more normalized rate,” he said. “While this is the lowest month of the year for orders, our backlog continues to reflect a positive outlook with volume up 80% year-over-year.”

On May 8, Navistar announced that truckload carrier Celadon Group had purchased nearly 500 of its International LoneStar tractors, the largest one-time sale for that model.

“The industry is seeing all fleet segments considering equipment replacement in 2014,” both to attract drivers and enhance their bottom lines, said David Hames, general manager of marketing and strategy at Daimler Trucks North America, which sells Freightliner and Western Star trucks.

He said one factor supporting this year’s higher order levels is “the slight capacity expansion by the national fleets, being driven by strengthened freight rates and increased shipper demands.”

Magnus Koeck, vice president of marketing and brand management at Volvo Trucks, said strong freight demand and customer confidence were driving the replacement of older models.

He added that newer trucks offer fleets stronger results, including lower fuel expenses and higher driver retention.

In its earnings report late last month, Paccar Inc. also pointed to “the ongoing replacement of the aging truck population” as the primary source of the growth.

“The truck market in 2014 may also benefit from some expansion of industry fleet capacity, reflecting continued strong freight demand,” Dan Sobic, Paccar executive vice president, said in the statement.

David Leiker, an analyst with Robert W. Baird & Co., said April’s order intake was “still supportive of rising production.”

“Looking at freight and economic trends, hiring levels, rising backlogs and [original equipment manufacturer] plans to raise production into [the second quarter], we believe the heavy-truck market remains on an upward bias with strong growth potential in 2014,” Leiker said in a May 5 note.

The average age among all active Class 8 trucks in the United States was about 6.5 years at the end of 2013. ACT expects that figure to drop to 6.2 years by the end of 2014, Tam said.