Preliminary data from ACT Research suggests that North American Class 8 orders dropped for a third consecutive month, with a net 20,000 intake in March. This follows 22,366 orders in February and 25,300 in January, and implies a three-month average annual run rate of 270,520.
Coming off the back of a buoyant Mid-America Trucking Show (MATS), these numbers are, bluntly, disappointing. ACT predicts a 300,000 market for 2012, so a 270,000 run rate after the first quarter is some way off.
What is going on? The macro picture is mixed: ISM New Orders have trended downwards for the past three months, and currently sit at 54.5 (March) down from 54.9 (February) and 57.6 (January). But, as we referenced in our MATS report, ATA preliminary Truck Tonnage Index for February, usually the weakest month for truck freight, saw the strongest figures on both an adjusted (+5.5%) and unadjusted (+10.5%) basis in the Index’s history. Clearly the economy is still positive, freight is still being moved, but truck orders are patchy. North American trucking, like its European counterpart, is getting better at doing the same with less, and the numbers will thus be smaller.
North American trucking, like its European counterpart, is getting better at doing the same with less, and the numbers will thus be smaller.
A number of things are worthy of examination. Traditionally, North American Class 8 annual replacement rates have been assumed to run to around 240,000. Given the structural changes in the industry, that number now seems high, and 215,000-225,000 sounds more plausible. North American trucking, like its European counterpart, is getting better at doing the same with less, and the numbers will thus be smaller.
Similarly, one of the clear messages to emerge from Mid-America is that trucking fleets are not in the business of buying vehicles to sit empty in depots. In previous cycles, the driver shortage was something of a mythical beast; that cannot be said today. Trucks are standing idle because drivers are not coming forward, and thus the procurement process has stalled somewhat. We do not doubt that the driver shortage is readying itself to visit no little mayhem on the North American trucking industry, but it is not solely responsible for March’s lackluster performance.
More immediately, two specific issues present themselves as the causative villains. Much was made in late-2011 of capacity constraints throughout the North American truck supply chain. It seems reasonable to suspect that truck buyers may have reacted by placing more orders than were actually necessary, and, now that those same constraints have been lifted, orders are being cancelled. There are, we are told, 20,000 build slots open for Q2. We are now in Q2, and this seems high for an industry that is still replacing capacity following the 2007 downturn.
Is it time to call the peak on this cycle? Probably not quite yet. Is it a lot closer than many observers would like to think? Without a doubt.
That is the easy explanation. The more difficult and far less palatable analysis is also far more succinct: the buyers aren’t there.
The big fleets, well capitalised and possessed of a plan have been spending money. The small and medium-sized operators are notably absent, and yet, would no doubt love to be rid of their ageing 2006/2007 trucks. But credit is still tight, costs are risingand the drivers are not there. We hear of a recent example of a large fleet acquiring a smaller operator not for its work, footprint or vehicles, but for its drivers. The business dynamic has changed, and a return to the old ways seems unlikely. The role of the mid-size fleet is now questionable in North America, just as it is in parts of Europe. And if the mid-sized fleets do not emerge from the darkness, then 300,000-strong Class 8 markets will be but a fond memory.
Is it time to call the peak on this cycle? Probably not quite yet. Is it a lot closer than many observers would like to think? Without a doubt.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Oliver Dixon is Editor, World Truck Analysis
The AutomotiveWorld.com Expert Opinion column is open to automotive industry decision makers and influencers. If you would like to contribute an Expert Opinion piece, please contact editorial@automotiveworld.com
