Above: Aggregate lead times for trailers are low at between six and seven months. Flatbeds may be delivered much sooner, according to ACT Research’s Kenny Vieth.

Build rates for commercial vehicles remain lethargic as inventory overhang persists

April 2017 - North American Class 8 truck and trailer production rates will remain virtually stagnant through the first three quarters of this year, according to analysis issued by the Americas Commercial Transportation (ACT) Research Co. Largely due to inflated inventory levels, manufacturing figures for these models plummeted from roughly 320,000 units in 2015 to approximately 230,000 units at the end of 2016. Kenny Vieth, the president of ACT, offered his insights on North American Class 8 truck volumes. 

“Our current forecasts are for North American Class 8 truck builds to drop on a full year basis to 207,200 in 2017 from 228,300 in 2016,” says Vieth. 

“Class 8 builds are currently running below a 200,000-unit annualized rate, so the forecast actually represents some modest improvement in conditions through the year. Our expectations for Classes 5-7 production in 2017 call for builds of 244,600 units versus 233,000 units built in 2016. Orders for both medium- and heavy-duty vehicles were well above trend in January. If orders remain elevated, there is an upside to our 2017 expectations.”

Similar to North American Class 8 trucks, Vieth forecasts a decline in the number of trailers built this year versus 2016. Yet, Vieth foresees a potential upward trend in this division, too.

“Trailer production in 2016 was 286,900 units in the United States. Total North America production—if you include chassis and dollies—was 357,900 units,” says Vieth. “Expectations for 2017 are 261,000 [trailer] units and 324,000 units [including chassis and dollies], respectively. Very strong orders the past three months suggest there is upside to that forecast as well.”

Backlogs of unbuilt orders for trucks continues to mount but many of these orders are pre-existing ones and not new requests. “Backlogs are growing, but much of the existing backlog is scheduled through the year, rather than ‘as soon as you can’ orders. Realistically, you could get a truck built in about three months across the industry.”

Aggregate lead times for trailers are low. Conversely, disaggregated lead times for rigs have been erratic. In aggregate, Vieth says, a trailer ordered in January would be delivered by June or July. “Disaggregated, supply and demand is all over the map. If you want a reefer van, get in the line—that is currently pushing late Q3 for deliveries. Flatbeds or tanks? When do you want one? Without the level of customization typically found in heavy-duty trucks, I would say that medium-duty deliveries are doable in two to three months.”

While ACT doesn’t maintain comprehensive trailer inventory data, Vieth says that manufacturers successfully aligned their output with its demand by the end of 2016. 

“For Class 8, at the end of 2015, there were 65,700 units in inventory,” says Vieth. “By December 2016, that volume had been pared to 44,700 units [to 2.8 months’ on hand].”

Regulatory changes

The Federal Motor Carrier Safety Administration (FMCSA) introduced new regulations for fleet owners last year. Drivers are required to use an electronic logging device (ELD). “The biggest new regulation for fleet owners in 2017 and at the start of 2018 is the ELD mandate for drivers to electronically log their hours of service to reduce logbook cheating,” says Vieth. 

“The ELD mandate takes effect in mid-December and ACT’s analysis suggests that a 3 percent to 4 percent capacity take-out as illegal miles are curtailed. 

Vieth also cited the Greenhouse Gas Reporting Program (GHGRP). This program requires fleet operators to reduce the amount of greenhouse gas (GHG) that emits from their vehicle.

“At the start of 2018, trailers are subject to the first step in phase 2 of the GHG mandate. Given the sharp spike in trailer orders the past three months, we suspect that a component of that strength may be some pre-purchasing that is occurring ahead of the mandate,” he says.

The Truck Trailer Manufacturers Association filed a lawsuit challenging the Environmental Protection Agency’s GHG regulation for trailers. Essentially, the complaint disputes whether the agency has the power to regulate vehicles that are not direct sources of emissions. 

Beyond new regulations and forecasts for truck and trailer production rates, the industry has not experienced incredible change over the past couple of years. But as Vieth says, one thing that will never change in the truck and trailer field: “Shippers will always seek better, faster and cheaper.” MM