Q1 Truck Orders Plunge as Industry Works Down Backlog

April 04, 2019 by Alan Adler, @AlanAdler

Heavy-duty truck orders plummeted 64 percent during the first quarter from a record sales pace achieved in the same period a year earlier.

The big issue driving orders lower is the backlog of reservations from 2018 and the inability of manufacturers to match the pace, said Tim DeNoyer, an analyst at ACT Research.

“It’s hard to put water in a full glass,” he said.

The manufacturers have cranked up production by working overtime, but they haven’t added new shifts, and no new factories are about to come online.

257,000 TRUCKS

An order placed this month likely will not be delivered until early 2020 because the production backlog has reached about 257,000 trucks, DeNoyer said.

That backlog stood at 208,000 trucks at the end of the first quarter of 2018.

Truck makers logged 489,000 orders last year, an industry record. Cancellations were just over 1 percent through February, slightly below the industry average of 1.5 to 2 percent.

“The pull forward of orders last year means there are few choice build slots left, and thus orders have been weak the last three months,” said Don Ake, vice president of commercial vehicles at FTR Transportation Intelligence. “You won’t see a year-over-year order increase until October at the earliest.”

But orders should rebound later this year after truck makers whittle the current backlog, analysts said. Motor carrier profits are strong, and they will keep buying new trucks, DeNoyer said.

SLOWING ECONOMIC GROWTH

While the U.S. economy is healthy, the rate of growth is slowing. The positive impact of business tax cuts last year was offset by the threat of higher tariffs on Chinese imports. That led to a shipping bubble of Asian products in the third and fourth quarters of 2018. Much of that inventory is still in West Coast warehouses waiting to be moved by rail or truck, DeNoyer said.

Freight capacity was so tight last year that several major haulers, including Schneider National Inc., stopped accepting shipments in the second and third quarters. They had no trucks available. The imbalance of supply and demand led to a spike in the spot market, where prices rose 30 percent higher year over year for several months. They have eased now.

FALLING FREIGHT RATES

Spot freight rates began falling in late 2018 and continued to decline through the first quarter, according to DAT Solutions, which tracks load prices.

Shippers typically sign contracts in the second quarter that set how much they will pay per load for the next year. Spot rates paid for hiring a truck on the day of shipment fell 14 percent in the first quarter compared with the same period last year. Those rates are a strong clue to what will happen with contract rates.

Record low temperatures in January and flooding in the Midwest in March also negatively affected freight rates. More trucks were available than loads to ship.

Housing starts fell in February by the most in eight months, according to the U.S. Department of Commerce. That likely affected the number of flatbed loads delivering home-construction materials.

RECESSION WATCH

Twenty percent of fleets responding to a recent Piper Jaffray & Co. survey said they plan to add trucks, while 12 percent said they plan to reduce fleet sizes.

“Murmurs of a recession haven’t translated into a lower appetite for fleet expansion,” said Alexander Potter, senior research analyst.

With freight demand growing only about 1 percent, it would be unwise to rule out a pullback, ACT Research said.

“We don’t think a recession is a base case, but we would have our head in the sand not to make it a consideration,” DeNoyer said.

Alan Adler April 2, 2019
Truckers have been making fewer trips to dealer repair facilities for software updates as ease of remote reprogramming grows and cybersecurity improves.

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