April Class 8 Truck Orders: Too Much Of A Good Thing?

A year after the global pandemic nearly zeroed out Class 8 truck orders, the reopening of the economy is stressing supply chains, making it unlikely that any of April's 33,500 orders will be produced this year.

The situation is practically a repeat of 2018, when manufacturers produced 325,000 trucks for the year. The build rate through the first quarter was the same as that year. But the backlog is bigger and supply constraints are unrelenting, Kenny Vieth, senior analyst and president of ACT Research, told FreightWaves.

"It's not too much of a stretch to say that for all intents and purposes there are no open build slots remaining in 2021," Vieth said.

After six consecutive months of at least 40,000 new orders, demand moderated slightly in April, down 16% from March but a staggering 689% above April a year ago. 

"Last year, the industry was faced with all the negative challenges of the pandemic," said Don Ake, vice president of commercial vehicles at FTR Transportation Intelligence. "We came through that surprisingly well under the circumstances. This year we have a whole new set of challenges. It's almost as if conditions are too good."

Nowhere To Go

With only 17,000 build slots available based on ACT's full-year 2021 production estimate of 303,000 trucks — less 69,000 units built in the first quarter — April's orders have nowhere to go. 

• Daimler Trucks North America is taking rolling downtime at plants in North Carolina and Mexico. 
• Volvo Truck North America resumed production Monday after the UAW called off a 13-day strike last Friday. Swedish parent Volvo AB said two to four weeks of downtime are likely at some plants this quarter.
• PACCAR Inc. PCAR is parking unfinished trucks at its plants, reinserting them on assembly lines as microchips become available.

With first quarter annualized U.S. economic growth at 6.4%, freight demand, tender rejections and spot prices remain elevated. Class 8 tractor inventories are at about 1.9 months, lower than the desired two months. 

Fleets in need of more capacity are buying up late-model used trucks to substitute for delayed new equipment, driving pre-owned truck prices higher.

The next step, Vieth said, is for manufacturers to open order books for 2022 early — as soon as June or July — instead of the traditional months of September or October. But uncertainty about prices for steel, aluminum and wood may prompt them to hold off as long as they can. COVID-ravaged India is the world's No. 2 steel manufacturer after China.

When order boards for 2019 opened in June 2018, the industry saw its first back-to-back months of more than 50,000 orders in history. Orders remained elevated until November and backlogs approached 300,000 units.

"Our view is that things that don't get shipped this year, we will ship next year because there is a supply constraint," engine maker Cummins Inc. CMI CEO Tom Linebarger told analysts Tuesday on the company's first-quarter earnings call.

Canceled Orders

Orders in April a year ago started out above 12,000, but fell to about 2,700 after one manufacturer canceled 10,000 bookings because of the pandemic. That is how year-over-year orders came to such a stratospheric percentage increase.

"The last time the industry saw negative net orders was in August and September of 1995," Vieth said.

Back then, major fleets placed multi-year equipment orders to get better prices. But it left them susceptible to economic factors out of their control, such as rising interest rates. Massive order cancellations followed such a Fed increase in February 1995.

Related articles:

March Class 8 orders of 40,000 add to dizzying industry backlog

Seller's market for newer used trucks is hot, hot, hot!

Cummins raises financial guidance on blazing truck demand

Click for more FreightWaves articles by Alan Adler.

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