Lead times stretch as order books for truck and engine manufacturers fill up

November 2014 - Manufacturers of commercial trucks, especially the Class 8 semi-tractors, have seen incoming orders—during 2014 in particular—rise strongly from the depth of the recession. Because many had to cut or even shutter capacity during that economic hit, some have had uneven success meeting resurgent demand.

“Right now, for the Class 8 truck, it’s getting interesting,” remarks Steve Tam, vice president-commercial vehicle sector for ACT Research in Columbus, Indiana, a market analysis and forecasting firm.

Although truck builders are selling out production schedules into the first quarter of 2015, “manufacturing capacity is not at 100 percent,” Tam says. “Say I want a Freightliner with a Detroit Diesel engine, they have no more capacity to get it with the Detroit Diesel. You can get a Freightliner with a different engine in it but not the Detroit.”

The constraint is occurring at the engine manufacturer, “so we are looking at lead times for the entire industry of  three or four months.”

During fourth quarter, truck builders are changing over to the newest model “so we will actually start building model year 2016 on Jan. 2, 2015.” This means new orders placed now are for 2016 model-year trucks. This compares with 2011, when a fleet operator could get a factory-new truck delivered in four to six weeks.

ACT Research forecasts continued strong demand for commercial trucks next year, by studying retail and industrial delivery requirements and the age of the fleet. 

The active fleet, which eliminates older trucks sitting behind someone’s barn, now averages 6.2 years, down from the peak of 6.7 years during the recession. Trucks have a shorter life span than passenger vehicles due to high mileage.

“Six to 6.2 years is where the average age of a fleet has to be to meet on-time delivery requirements, doing the job for customers,” Tam says. For Walmart, for example, “You have to be 99.9 percent on time and in a 15-minute window. If you have a truck more likely to break down, it won’t pass muster.”

Freight rates jump

Both spot and contract rates have risen this year. “We went from January, when flatbed contract rates were $1.60 [per ton] to over $1.72 by August,” up 7.5 percent, Tam says. “The spot market rate went from $1.57 to $1.90 in the same time frame,” for a 21-percent hike.

“Late last year, freight hauling capacity hit a wall. The runup in the first quarter was weather related, but the increases stuck. Carriers are getting rate increases, and they are ordering new equipment. They tell you they cannot expand their fleets because they don’t have drivers, but they have to buy the trucks to keep their equipment current,” Tam says.

Trend spotting

Through September, heavy-duty truck shipments rose 16.6 percent compared with the same nine months of 2013, according to figures from the U.S. Census Bureau. That rise is likely to have contributed to a 7 percent improvement in shipments of primary metal products and a 3.3 percent gain in shipments of fabricated metal products.