Trailer Makers Expect Another Banner Year, Cast a Wary Eye on Component Inventories

Trailer manufacturers may be facing an embarrassment of riches: too much business.

With double-digit growth in sales expected for every type of trailer this year, industry experts said sufficient stocks of materials should be available to handle projected demand.

But if orders exceed those already rosy forecasts, trailer makers are likely to face a shortage of necessary components, analysts warn.

“Currently, production and component supply are in a comfortable equilibrium,” said Frank Maly Jr., director of CV transportation analysis and research for ACT Research Co., Columbus, Ind., which studies commercial vehicles.

But he added, “Our discussions around the industry indicate that there is not a lot of excess component supply to support significant increases in production levels.”

Those sufficient-supply claims were backed up by trailer makers, and are similar to what heavy-duty truck maker executives have been saying.

“We have agreements with our preferred vendors that allow us to have products at our plants when we need [them],” David Gilliland, vice president of branch sales and operations for Great Dane Trailers, Savannah, Ga., said. He added that the manufacturer does not “anticipate supply issues, but others may.”

“Our suppliers responded exceptionally well to keep pace with the unprecedented rise in customer demand experienced in 2011. We’re confident in their abilities to manage through any unforeseen challenges that might arise,” said Tom Rodak, corporate marketing director for Wabash National Corp., Lafayette, Ind.

According to ACT Research, manufacturers built 212,924 commercial trailers in 2011, a 69% jump from the 125,929 constructed the previous year.

However, Hyundai Translead Inc., San Diego, is not seeing the same supply sufficiency cited by Gilliland.

“Some of our suppliers either reduced their output or idled plants,” said Stuart James, vice president of sales. “This, of course, has put a bit of a strain on not only Hyundai Translead but all [original equipment manufacturers]. As our suppliers have begun to ramp up their production of materials and components, [we have] been able to adjust its schedule accordingly.”

Manufacturers said the biggest inventory concern this year will be tires, but they also said they see a potential for shortages of steel and lumber.

“Supplies are tightening up across all categories, which causes us to have to forecast and plan and schedule more tightly,” said Charlie Wells, vice president of sales and marketing at East Manufacturing Corp., Randolph, Ohio.

Wells said the greatest problems have been with tires and suspensions — and noted that steel prices have risen 15% since November.

“We know tires are in tight supply (1-16, p. 1). We are having no problem getting what we need. There is nothing we’ve run out of that holds us up [from meeting customer demands], but we are keeping an eye on the tire situation.” said Dave Giesen, vice president of sales and marketing for Stoughton Trailers LLC, Stoughton, Wis.

“Currently, we do not face any problems getting the lumber needed to make floors. However, that’s not to say it couldn’t happen if the sawmills continue to struggle,” said Jim Jannell, U.S. sales manager for Prolam Floors, Cap-Saint-Ignace, Québec.

Other trailer floor and deck manufacturers agreed with Jannell there is plenty of inventory on hand, and some continue to add to it.

Havco Wood Products LLC, for example, “has taken the opportunity during the last several years to add capacity to the Havco Composite Floor production lines in our plants,” said John Carr, vice president of sales and marketing for the company, based in Cape Girardeau, Mo.

“In addition to the expansion of composite production, Havco has made significant investments in plant automation designed to increase productivity. We have also taken steps toward improved availability of key materials used in our manufacturing process,” he said.

Similarly, Rockland Flooring has been “steadily ramping up production over the past two years, so we’re already near our 2012 target levels, said Chris Wolford, vice president of sales. Rockland, which is based in Red Wing, Minn., makes laminated oak and maple floors for dry vans and aluminum floors for refrigerated trailers, as well as Apitong products that include decking, tie slats, fillers and floor sills.

“Our lumber inventories are in great shape, and we have buffers [for example, extra stock] in place, should the market go higher than expected,” Wolford said.

Jannell said, “Like most other component suppliers in the trailer industry, Prolam has ramped up its production to meet the increased demand. However, we have, in the last 10 years, invested a lot of money in automation and technology, so it is a lot easier to ramp up our production than before.”

Company representatives for Ancra International LLC, which manufactures Lift-a-Deck products, and MinStar Transport, which offers dry van services and a double-deck trailer system, said they are seeing more demand for interior decking.

In November, Ancra’s cargo division, based Erlanger, Ky., began to receive orders for this year, and all are at or above 2011 levels, said Paul Wolford, director of engineered solutions, adding that some less-than-truckload carriers have increased their orders by 20%.

“We are ramping up our inventory of components,” Wolford said. “Some of that is [for] new customers that are moving into double-decking or load-maximizing systems.”

“At this point in time, we are able” to meet demand, said Mitch Miller, president of MinStar, Eagan, Minn., a company whose activities include trucking, trailer leasing and trailer-deck manufacturing.

If a customer had a need that MinStar could not immediately fill, the wait time could be several months, he said.

While trailer manufacturers are finally seeing increased demand, it is not expected to match previous record levels.

ACT Research’s Maly said demand is likely to increase in most cargo sectors, with building materials the exception. The market for dry and flatbed trailers is expected to climb by double digits this year over 2011, “continuing the cyclical turnaround that started in 2010,” with a 15% to 18% rise forecast across all types, Maly said. Demand for refrigerated trailers also should continue rising, though at a slower pace, he added.

Havco’s Carr gave an assessment similar to Maly’s.

“After numerous discussions with trailer OEMs and key suppliers, I have heard numerous 2012 trailer-build projections estimated to be 5% to 10% better than 2011,” he said. “I personally feel there is the potential for [growth in] trailer builds to be even higher than 10% in 2012, if the economic recovery increases its pace in the first quarter.”

Jannell, of Prolam, said, “The majority of our customers are forecasting a 10% to15% increase in demand for laminated dry van flooring in 2012.”

“For perspective, from a trailer industry production-capacity standpoint, our outlook for 2012 still comes in at 10% below the recent industry cyclical peak volume that occurred in 2006.” Maly said.

He added, “Our analysis shows that virtually all new trailer demand today is the result of replacement activity, rather than new capacity additions. The notable recent exception to that market dynamic is the energy-sector-driven demand in the tank and heavy low-bed segments,” he said.

“The fleet is the oldest it has ever been, and replacement activity is long overdue,” Maly said. “Illustrating the lack of investment, in 2011, average fleet age was a full year older than it was in 2006. . . . The recent improvements in fleets’ financial health and years of deferred capacity expansion have been major factors supporting the increase in new trailer demand.”

Charles Dutil, president of trailer maker Manac Inc., Saint-Georges, Québec, said, “The main business remains replacement units and not fleet growth. This supports a more steady flow of business.”

ACT’s Maly also said, “Our modeling suggests that, from 2007 to 2011, the overall population of trailers in the U.S. fell by about 9%.”

The reefer market is expected to continue its slow, steady climb — or to stay flat — Maly said, pointing to “consistent freight demand for temperature-controlled transportation.”

Affecting the market for dump and flatbed trailers, “Construction-oriented freight demand will be weak because of the long-term issues for residential and business investment, although some strength is generated by residential remodeling demand. There is some strength occurring in infrastructure construction, such as highways and bridges, particularly in infrastructure repair,” he said.

The demand for tank trailers is at a historic high because of “energy support, sub-shale oil and gas prospecting,” which have also buoyed lowbed and flatbed demand, Maly said. “Currently, there are very strong backlogs for tank trailers, with some backlogs stretching into early 2013.”

Flatbed, dry and auto-rack vans “are the major benefactors” of strong growth in product and component manufacturing activity in Mexico, although the United States remains the world’s top manufacturer, he said.

To meet the expected increase in demand, trailer makers are ramping up production.

At Wabash National Corp., “we continued to ramp up production throughout 2011 and have completed that process. From a capacity standpoint, we’re well-positioned to support forecasted demand and meet our customers’ trailer needs in the coming year,” Rodak said. “Our suppliers responded exceptionally well to keep pace with the unprecedented rise in customer demand experienced in 2011. We’re confident in their abilities to manage through any unforeseen challenges that might arise.”

Great Dane’s Gilliland said, “We have all of our plants running at high levels, and we are working on avenues to further increase production to meet the demand of our customers.”

“Hyundai Translead has added shifts and personnel to our production facility to meet the current demand of trailers for our customers,” James said.

East Manufacturing Corp., Randolph, Ohio, continues to ramp up production, said David DePoincy, the trailer maker’s president and chief operating officer. The company is “working overtime, adding shifts and hiring additional workers. Production grew 60% from 2010 to 2011, year-over-year. We anticipate an additional 15% growth this year,” he said.

And with increased demand, comes increased costs — although they are expected to be less dramatic than in 2011.

“Cost variations should be ‘less drastic’ in the next few quarters,” said Manac’s Dutil.

Last year, the industry “saw rubber, steel, copper, aluminum and other materials move too high, too fast on price,” he added. “As we enter 2012, those costs are higher, but they are ‘in the system;’ it is a lesser evil to deal with.”

“The continued rise in the cost of goods and components and the inability to recoup the increase at the customer level continues to be one of the largest hurdles that we are facing in today’s market,” said East Manufacturing’s DePoincy.

“We have been able to pass on the increases received for tires but not much else. The plan is to continue to increase sales prices to more completely offset the increased material cost over a period of time,” he said.

“We constantly monitor material and components pricing as it fluctuates throughout the year” Gilliland of Great Dane said. “We work closely with our customers to work out solutions that benefit both parties.”

“Raw materials and components have increased in cost as the upswing in production began to increase,” James said. “In the beginning, Hyundai Translead was able to absorb a majority of those costs to win orders. Now, with the leveling of pricing, it is now possible to pass [along] some percentage of those cost increases.

“It’s a mixed scenario,” Prolam’s Jannell said. “Our cost is rising because raw material and labor cost are rising. On the other hand, it is our responsibility to innovate and update technology as much as we can to increase our productivity and raw material yield every year, to compensate this increased cost as much as we can.

“But in reality, sometimes because the cost is rising too quick or too high . . . in the end a part of the rising cost will inevitably be transferred to the OEM,” Jannell said. “Besides that, our research and development is also a tool to fight against rising cost.”

“Costs can fluctuate with the price of base and raw materials, transportation expense, oak pricing, chemicals, adhesives and composite materials,” Carr said. “Oak lumber can be influenced by housing starts and furniture market demand.”

“We work very hard to manage costs, but even the best plan can be derailed by unforeseen spikes in lumber,” Rockland’s Wolford said. “By carrying large inventories, we can be more selective in our purchasing and often avoid higher-priced lumber during seasonal shortages or peak-demand periods. We do not expect lumber prices to increase over the next five to seven months.”

MinStar’s Miller said that, because of the economic recession, “equipment prices were favorable, but they began swinging up last year.”

Prices for 2011-model trailers were 3.5% above those for 2010-model units, and the increase for 2012-model trailers is 6%, Miller said.

Vanguard National Trailer Corp. and Utility Trailer Manufacturing declined to respond to requests for comment.