“Sales” of Heavy Trucks Highest Since 2006 as “Orders” Collapse by 70%:
But There’s a Lag. And Sales Are Next
Now there is this phenomenon: Orders for Class 8 trucks – the heavy
trucks that move a big part of the goods across the US – have collapsed by about 70% in May and June compared to a year
earlier, to just over 10,000 truck-orders per month, the lowest in years. But
sales of Class 8 trucks in June, as measured by deliveries to trucking
companies and truckers, reached 48,168 units, the highest since 2006. So what
gives?
This chart shows the number of sales of heavy trucks through June as
reported by the Bureau of Economic Analysis (not seasonally adjusted):
Many of the trucks that were delivered in June and earlier this year were
ordered in 2018, which was a banner year for truck orders, that soared to
all-time records in July and August with over 52,000 orders each month,
according to FTR
Transportation Intelligence. These orders created a record backlog at
manufactures, already operating at capacity, which lengthened the delays in
getting the trucks built. These delays led trucking companies to speed up
their orders to get them into the system before the others, which further
increased orders, backlogs, and delays. And now these orders are being
delivered at a near-record pace.
But orders for Class 8 trucks started declining late last year. In
December last year, shipments of goods across all modes of transportation
(truck, rail, barge, and air) began to decline. And the capacity crunch
dissipated and turned into over-capacity, which put downward pressure on spot
rates for truckers.
Orders for Class 8 trucks have now plunged eight months in a row and have
hit the lows of the 2015-2016 “transportation recession,” to just barely
above 10,000 units a month:
So there is no mystery: The big sales numbers being reported currently are
largely based on orders that truck manufacturers received last year during
the capacity crunch and the ensuing ordering panic. Now,
truck manufacturers and their suppliers are working through their backlogs,
and these backlogs, given the plunge in orders, are shrinking rapidly.
These are all 2019 model-year trucks that are being delivered now. Truck
manufacturers are in the process of opening up orders for the 2020-model
year.
The last cyclical sales peak occurred in mid-2015 at 40,000 trucks per
month. At the time, orders had been declining for months. Sales then dropped
26%. Nurtured by the backlog at the beginning of the “transportation
recession,” manufacturers kept up production and sales for a while before it
hit home, leading to layoffs at truck manufacturers and engine and component
suppliers.
The lag between orders and sales continued on the upswing, though the lag
was shorter, with orders picking up first in late 2016. By February 2017,
sales started picking up, as lead times had been whittled down due to lack of
orders in 2015 and 2016. Now the same process is beginning to happen, but
more extreme.
The chart below shows orders and sales, juxtaposed, in terms of the
percent change each month from the same month in the prior year. Sales are
less volatile than orders because sales have a battery, so to speak, namely
the backlog that gets charged up during good times and that manufacturers are
able to draw on during tough times for a number of months, when they also cut
capacity by laying off workers. That peak year-over-year decline in sales
during the transportation recession was in July 2016 at 26%, while orders
plunged by over 50%:
So far, so good for truck manufacturers: Peterbilt and Kenworth of Paccar
[PCAR];
Navistar International [NAV]; Freightliner and Western Star of Daimler; and Mack
Trucks and Volvo Trucks of Volvo Group. The backlog from the pile of orders
in 2018 for Class 8 trucks is still feeding them, and they’re still
manufacturing at capacity.
For now, the hope still is that orders for the 2020 model year will start
flooding the manufacturers. But trucking companies are adding capacity on a
daily basis in form of these new trucks that were ordered last year and that
are being delivered now – the “sales” of heavy trucks that have hit the
highest level since 2006.
And given this rapid addition to capacity alongside the current decline in
shipments of goods by all modes of transportation, and the downward pressure
on spot rates and contract rates, trucking companies have become careful with
their ordering strategies, and manufacturers will soon be confronted with the
cyclical sales decline that is already preprogrammed by the plunge in orders
and the decline in the backlog.
After truck manufacturers eat up their backlogs, then what? Read...
Trucking
is Infamously Cyclical, But This is a Tad Extreme
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