Heavy-Duty Truck Orders Slide as Freight Demand Weakens

August 03, 2016 by Tony Dreibus

Large-truck orders in July plunged to the lowest level in almost six years as shippers stepped back from the market because of tepid freight demand.

Truck builders took orders for 10,500 trucks in the biggest Class 8 weight segment last month, down 57 percent from July 2015 and 19 percent from June and the lowest level since September 2010, according to preliminary figures from ACT Research. Sales for medium-duty Class 5-7 trucks fell to 14,500 vehicles, ACT reported.

Though some of the weakness in July can be attributed to a seasonal slump — sales tend to be weakest from July through September — demand was exceptionally weak last month, said Kenny Vieth, ACT’s president and senior analyst.

“In line with the two-speed U.S. economy of healthy consumers and weak industrial activity, the two-speed commercial vehicle story continued to unfold in July,” Vieth said. The figures are preliminary, and final numbers will be published in mid-August, ACT said.

FTR Transportation Intelligence said in a separate report Wednesday that Class 8 orders were down as trucking companies canceled orders after buying too many trucks at the end of 2015.

The American Trucking Associations’ freight index shows tonnage in June fell 1.5 percent from the prior month and was down 4.7 percent from an all-time high in February. Tonnage fell in three of the four months ending in June, and likely will remain “choppy” going forward, said Bob Costello, ATA’s chief economist.

Large-truck builders including Navistar, Paccar and Cummins will be most-affected by the downturn in vehicle orders, said Ann Duignan, an analyst at JPMorgan Chase.

Macro indicators including the Institute for Supply Management’s new-orders index were mixed and trucking companies have outperformed broader indexes recently, belying a decline in truck orders, which have fallen year-over-year for 17 consecutive months, Duignan said.

JPMorgan Chase is forecasting a 28 percent decline in output in 2016, “though production may need to be cut further if orders do not pick up in the near term,” Duignan said. “Paccar and Cummins may underperform on the weak (heavy-duty) orders.”

Stifel analysts led by Michael Baudendistel from the company’s transportation and logistics research group, said the sales data wasn’t much of a surprise as they had expected a sharp decline in orders. The industry is facing headwinds that make truck builders a hazardous investment, Stifel said.

“The Class 8 data was, for the most part, as bad as expected, though the sequential decrease was somewhat steeper than we would have expected,” the analyst said. “We continue to believe there is more risk to the downside than upside in the next few years, especially for those names that are most exposed to the North American heavy duty cycle, and that consensus industry production estimates are likely optimistic.”


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