Class 8 orders remain subdued in May

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Fleet Owner  /  June 3, 2016

Orders for medium-duty units also slowed to their lowest level since July of 2014

Class 8 orders were characterized as “subdued” in May by industry analysts, increasing just 4% over April’s order volume to 14,100 units.

On top of that, medium-duty orders slowed to their lowest level since July 2014, notching just 17,100 units for May.

However, despite that 14% month-over-month and 18% year-over-year decline in medium-duty orders, medium-duty order intake remained 4% higher on a year-to-date basis.

Michael Baudendistel, vice president of the transportation & logistics research group at Stifel Financial Corp., noted that though Class 8 orders in May were “somewhat stronger” than expected, they are “still very weak relative to demand seen last year, down 30% year-over-year.”

Stifel anticipates orders would be down slightly sequentially, as trucking conditions remain poor or continue to deteriorate, plus May is "generally somewhat weaker" for truck orders than April on a seasonal basis.

“Still, the slight variance relative to our expectations in the month is not significant enough to change our Class 8 expectations for full-year 2016 or beyond,” Baudendistel said.

He added that Class 5-7 medium-duty data was “somewhat weaker than expected,” with the decline from prior-year levels “somewhat of a surprise after stronger-than-anticipated demand in recent months.”

Regardless, Stifel continues to believe that medium-duty production will be up slightly in the low-single digits for 2016 based on the order intake over the last few months.

The Class 8 forecast, however, is not so rosy to the eyes of Don Ake, vice president research firm FTR, with order activity in May the lowest for the month since 2010 and 30% below a year ago. The past three months of Class 8 order activity annualizes to just 175,000 units, he added, with the annualized rate for the past twelve months continuing to fall, now at 231,000 units. 

“The soft order activity [in May for Class 8 units] was expected. The good news is that they did not fall further from April, [and] some erosion in order activity is expected during the slow summer months,” Ake explained. “But fleets do not need to order many trucks in the current environment because in most cases they have enough trucks to handle the freight. Freight demand is still sluggish due to the build-up of business inventories.”

He pointed out that dealer inventories of Class 8 trucks “remain bloated, so the only truck orders now are mainly for replacement purposes, with preferred specifications.”

With backlogs expected to keep falling – they are now below May 2014, Ake said – it will “be a challenge for the OEMs to schedule production through the summer,” and thus “extended vacation shutdowns” are anticipated.

“Three consecutive months of decidedly lower net orders for heavy duty commercial vehicles appear more closely aligned with current activity in the manufacturing and energy sectors of the broader economy,” added another analyst.

“While metrics in these segments are improving, they can best be described as not being as bad as they were previously,” he noted. “[That’s] framed by the ongoing overcapacity narrative – too many trucks chasing too little freight – the resultant weak freight rate environment, and continued softness in late-model used tractor values.”

 

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Heavy Truck Orders Tumbled 31% in May

The Wall Street Journal  /  June 3, 2016

Weak freight demand has trucking companies trimming fleets, vehicle factories laying off workers

Trucking companies ordered fewer new big rigs in May than they did a year ago, reflecting concerns that freight volumes will stay low heading into the peak shipping season.

The industry ordered 14,300 Class 8 trucks, the type used on long-haul routes, extending a deep slowdown this year. The figure was down 31% from the same month in 2015, though up more than 4% from April.

The trucking industry went on a vehicle buying binge in 2014 and 2015, and many companies are now struggling to find enough freight to fill their expanded fleets. Most large trucking companies have said they will sharply reduce purchases of new trucks until the market shows signs of improvement. Orders typically see a lull in May, but were still well below the 18,000 to 19,000 new vehicles per month needed just to replace aging and damaged trucks, analysts said.

A turning point may be some time off, analysts say.

Freight volumes typically pick up in late summer, as stores restock for back-to-school and holiday shopping seasons. However, retailers are holding onto historically high inventories, meaning they need to buy fewer goods to keep shelves full and replenish warehouse stocks. For the trucking industry, that means fewer trips between ports and distribution centers, or between warehouses and stores.

“That freight’s already been delivered,” said one analyst. “Until consumers and businesses get out there and drive inventories down, we don’t see a reversal or improvement in the situation.”

Old Dominion Freight Line Inc., one of the largest less-than-truckload carriers—in which trucks carry shipments for several customers, typically retail stores—said this week that shipments inched up 0.2% in May compared with a year earlier, while tons moved per day fell by 1%. Chief Executive David Congdon described the market as “challenging.” Saia Inc., another LTL carrier, said shipments fell 3.3% in May from a year earlier, with tonnage down 4.9%.

Since truck orders dived last fall, truck manufacturers have laid off thousands of workers and announced production cutbacks.

In late May, Volvo AB said it would lay off workers at its Dublin, Virginia plant in late May, on top of job losses at the same facility announced in December. Even so, dealers have struggled to move large inventories of unsold trucks, another factor depressing new orders.

“Dealer inventories of Class 8 trucks remains bloated, so the only truck orders now are mainly for replacement purposes,” said Don Ake, vice president of commercial vehicles at FTR Research, which published a similar estimate of big rig orders. He said he expected more production shutdowns over the summer.