Truck Orders Soaring on Growing Freight Demand

Date: Tuesday, June 5, 2018
Source: Wall Street Journal

The market for new heavy-duty trucks is growing at a nearly unprecedented pace this year as fleet owners and big-rig manufacturers race to keep up with accelerating U.S. freight demand.

Trucking companies ordered 35,600 trucks in May, more than double the orders from the same month a year ago, according to preliminary figures by ACT Research. That leaves manufacturers with an order backlog of more than 200,000 trucks, or 8.4 months of production.

“This is an astonishing rate of order placement,” Kenny Vieth, president of the Columbus, Ind.-based ACT, said Tuesday. “What’s facilitating it is that truckers are absolutely crushing it on freight rates and profitability right now.”

Mr. Veith said fleets ordered Class 8 trucks, the rigs that commonly haul goods on highways, at a seasonally adjusted annual rate of 475,000 orders in the first five months of this year, the strongest pace ACT has seen since truckers ordered 376,000 rigs during 2006.

A separate report by research group FTR estimated May orders of Class 8 trucks, reached 35,200 units. Truckers have averaged over 40,000 orders over the past six months, the strongest pace the group has seen.

The orders come as trucking companies are seeing shipping demand grow at a rapid pace as factories bulk up production and retailers build up stocks, leaving capacity in freight networks extremely tight and freight rates rising.

 

Truckstop.com, an online freight service that matches available loads to trucks in the sector’s spot market, says it is seeing 500,000 to 600,000 loads a day posted on its system. The market usually carries about 250,000 available loads a day.

“It’s out of control,” said Brent Hutto, chief relationship manager at Truckstop.com. The hefty truck orders “tell me that fleets have confidence in the marketplace, that they feel good about their ability to secure and move freight profitably in the future.”

Trucking companies are adding capacity to handle the growing number of shipments as rising freight prices and gains from the new tax law give them more cash for capital spending.

Old Dominion Freight Line Inc., which says it handled 11% more shipments in May than it did a year ago, has opened three additional terminals in its less-than-truckload network this year and rival Saia Inc. has opened two since the start of the year. XPO Logistics Inc.recently said it was buying 770 new trucks for $90 million to upgrade its fleet of about 8,000 trucks.

The orders are boosting earnings at truck manufacturers.

Navistar International Inc., one of the biggest makers of heavy-duty trucks, reported Tuesday that it swung to a $55 million net profit in the second quarter from an $80 million loss last year. The manufacturer’s revenues increased 16% increase, to $2.4 billion. Sales in the company’s core truck segment rose 22% to $1.7 billion, and Navistar told investors it is already taking production slots for their 2019 fiscal year.

The only brake on the manufacturers’ momentum may be the ability to keep factory lines moving in line with the accelerating orders.

FTR Vice President Don Ake said truck makers are facing shortages of some components as parts suppliers struggle to keep up with the “red-hot market.”

With all sectors of the economy growing, Mr. Ake said, “the truck-equipment industry is competing for components with other industries, competing with other industries for raw materials and competing for labor.”

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