Truck Orders Hit Record During Normally Slow July

This story appears in the Aug. 11 print edition of Transport Topics.

Class 8 truck orders surged 70% year-over-year to 29,900, the highest July on record, ACT Research reported.

July is traditionally a weak period, according to analysts, but the accelerated market strength comes as fleet owners are more confident about the economy and therefore opting to replace aging vehicles for ones that offer greater fuel efficiency.

ACT Vice President Steve Tam said the month’s preliminary net orders total was the highest July since the firm began tracking in 1982, narrowly eclipsing the July 1998 total of 29,697.

“July is usually when everybody is going fishing, not ordering trucks,” Tam told Transport Topics.

He said that while July is historically the weakest month for truck orders, it was the highest total since the 34,558 figure in January.

July’s figure was the 10th straight above 20,000, and year-to-date orders are 198,828, up 33% over the same timeframe of 2013.

ACT also revised June’s total slightly higher to 26,729 from an originally reported 26,600. FTR Associates reported a similar July Class 8 order total, with 29,516 units, for a 71% year-over-year increase.

“The market is actually gaining strength in the summer,” said Don Ake, FTR’s vice president of commercial vehicles. “This is the third straight month of order increases [and] orders for the last 12 months have been 312,000 units, so production should catch up at some point.”

FTR said OEMs are increasing build rates “and this level of orders will challenge capacity constraints by year end.”

David Hames, general manager of marketing and strategy for Daimler Trucks North America, said that “long production lead times are driving stronger-than-average order rates in what is normally a slow time of year for order activity.”

“While orders for vocational trucks and medium-duty vehicles remain consistent, most of the increased order activity is coming from the on-highway vehicle segment,” he added.

Magnus Koeck, Volvo Trucks’ vice president of marketing and brand management, said “the industry is experiencing an uptick in orders as a result of the ongoing need to replace aging vehicles, as well as growing consumer confidence in the economy. We’re also continuing to see a strong shift toward integrated powertrains as fleets re-evaluate their traditional specifications in search of greater fuel efficiency.”

Other OEMs declined to comment last week, but industry analysts said the strong figure mirrors trucking’s strength this year.

“Obviously it was very seasonally strong and that’s a good thing,” BB&T Capital Markets transportation analyst Rhem Wood told Transport Topics.

“Fleets are [getting] older, carrier profitability is pretty good, the new models are getting better fuel economy,’ he said. “More importantly, production slots are filling up this year, so if you want a truck, you better go ahead and place your order.”

Tam said that if order activity had followed seasonal patterns, its total would have been closer to 20,000 than 30,000. ACT has pegged an annual industrywide production rate of 300,000 units.

Order levels seem to have “departed from normal seasonal patterns,” he said. “The underlying fundamentals in the trucking segment right now are very strong. The economy is doing well . . . [and] increased growth means more freight, which means an increased need for trucks.”

Fleets “can place an order in July and still take delivery in most places within two months, so you could have the truck by the end of August. But you’ll be able to get it into service this year,” Tam added.

Along with replacement, there is a “little bit of fleet growth, but not a lot,” he said. “As optimistic as truckers are, they are also very cautious.”

Stifel, Nicolaus & Co. analyst Michael Baudenstiel wrote that “based on ACT’s data, 45,000 Class 8 build slots were remaining for 2014 at the end of June.

“As a result of the preliminary orders, OEMs’ backlogs should rise by 1,000 to 2,000 units from June, which were 119,400 units — representing just under five months of production.”

ACT also reported that July medium-duty orders for Classes 5-7 were 15,500, which “fell almost perfectly between the May and June volumes,” said Kenny Vieth, ACT’s president and senior analyst.

That’s in the “middle of the road in terms of comparisons: up 3% month-to-month, but down 4% compared to year-ago levels,” Vieth said.

“Part of the recent occurrence of modest negative year-over-year comparisons can be chalked up to tough [comparisons as] the medium market began to strengthen appreciably starting in April of last year,” he said.

“The [medium-duty] weak orders were somewhat expected, due to seasonal factors,” analyst Ann Duignan wrote in an investors note, adding that her firm, J.P. Morgan, expects 5% growth in Classes 5-7 this year.