Truck Orders Stay Strong

This story appears in the June 10 print edition of Transport Topics.

Orders for new, heavy-duty North American trucks rose nearly 30% in May above the same month last year, according to two industry reports.

Fleets ordered 23,300 Class 8 trucks during the month, compared with 17,988 in the year-ago period, a gain of 29.5%, ACT Research Co. said June 4. In April, the preliminary tally was the same, but it has since been revised down slightly to 23,222.

Also last week, FTR Associates reported that the rise in orders was 29%, to 22,541.

Both firms agreed May was the eighth straight month for net new orders topping 20,000 units, following a six-month streak in the middle of last year when orders sagged to as low as 13,000.

“It was a very nice gain,” ACT President Kenny Vieth said of the May results. “Orders keep coming in, but we’re not seeing too much of an accumulation” because the trucks are being built and delivered rapidly.

Fleets placing orders are interested in getting the vehicles quickly, Vieth said. Cancellation rates are low, and customers want to take possession of new trucks well within three months of when the order is placed.

“During the first quarter of this year, 35% of orders placed were supposed to be delivered during the same quarter,” Vieth said. In 2010 and 2011, he said, same-quarter requests were as low as 20%.

“Our order activity has increased, maybe not by 30% but more like 22%,” said Drew Linn Jr., CEO of Southland International Trucks in Homewood, Ala.

In his market, small- and medium-size fleets with 20 to 150 trucks are placing the orders, and Linn described the purchases as replacement vehicles rather than fleet expansion.

“People buying now want to take possession in 60 to 75 days,” said Linn, adding that Navistar Inc. is able to make its Internationals in that time frame.

As for cancellations, “I’ve had just one in the last 12 months,” Linn said. His customers are eager to try out Navistar’s new engine options from Cummins Inc. and an in-house model as well.

A large impediment to further growth, Linn said, is the driver shortage.

“I had a customer tell me he’d buy 10 trucks from me if I could find him drivers,” he said.

Despite the quick timeline from order to possession, Vieth said the backlog of unfilled orders has increased to ordinary from threadbare. At the end of last year, the backlog-to-build ratio was 3.2 months, meaning it would take OEMs that long to build all orders on file.

“That’s as low as I’ve seen it in doing this for 20 years,” Vieth said. Now the ratio is at four months, and he characterized four or five months as “neutral.”

“Order activity for May was stable with only a small drop from April. This is a positive sign for this time of year as we tend to see orders drop heading into the summer months,” FTR President Eric Starks said.

Stock analysts tried to place the order surge in a larger context.

“U.S. macro indicators for truck purchases are unfavorable at the current time,” Ann Duignan told clients of J.P. Morgan Securities. Declines in the Cass freight index and the new orders component of the ISM manufacturing index are significant challenges for truck demand, she said.

“While the immediate reaction is positive, we believe the unit number is the more relevant gauge of industry health [rather than percentage gain],” David Leiker said for Robert W. Baird & Co.

Leiker said general expectations are for manufacturers to produce 66,000 or 67,000 heavy trucks a quarter during the year’s two middle quarters and about 75,000 for the last three months. In order for that to occur, “orders must continue moving higher,” Leiker said.

ACT also reported that North American businesses ordered 17,200 new medium-duty trucks in May, a 12% increase over the same month in 2012.

Vieth said Classes 5-7 orders tend to be more stable than in Class 8.

“The 30% increase is more of a reflection of how bad things were a year ago in heavy-duty. Medium is . . . just chugging along, compared to its wild, big Class 8 brother,” he said.

Navistar declined comment for this story, citing its upcoming earnings release. Other truck makers either declined comment or did not return a call by press time.