Class 8 orders keep falling, medium-duty truck demand remains steady

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Fleet Owner  /  May 4, 2016

Class 8 orders dropped 39% in April on a year-over-year basis and declined 16% sequentially.

By contrast, medium-duty truck orders remained relatively healthy, down 10% sequentially but up 12% year-over-year.

Class 8 orders reached 13,700 units in April, while orders for Class 5-7 trucks topped 20,100 units.

Drivers of soft Class 8 demand remain intact from previous months: overcapacity resulting weak freight rate environment; softness in late-model used truck values; and excessive new vehicle inventory.

John Larkin, managing director and head of transportation capital markets research at Stifel Financial Corp., noted in a recent market update that motor carriers have, for the most part, backed off on capacity additions.

“With a few exceptions, carriers have canceled orders for incremental tractors and trailers,” he said. “Instead, carriers are intensely focused on improving equipment utilization and revenue yield, even though rate increases will be hard to come by.”

He added that revenue yield improvements will likely be driven more by customer selection, lane selection, and lane balance initiatives rather than via “classical” freight rate increases.

Class 8 orders have annualized to a paltry 190,000 units over the past three months, with the annualized rate hovering at 237,000 units for the last 12-month period.

OEMs will not be able to maintain current build rates under these order conditions and it appears more production cuts are on the way. Backlogs are quickly shrinking and are expected to fall below 2014 levels relatively soon. A big order month could stop the bleeding, but we are entering the ‘summer slump’ so Class 8 order activity will probably get worse before it gets better.

By contrast, medium duty demand remains bolstered by a number of macro-economic factors: a decent jobs market; rising incomes, which support discretionary spending; plus improved housing and automotive sales activity.