Another Gauge of the Goods-Based Economy Heads South.
Orders for Class-8 trucks – made by Daimler (Freightliner, Western Star), Paccar (Peterbilt, Kenworth), Navistar International, and Volvo Group (Mack Trucks, Volvo Trucks) – plunged 58% in February compared to February last year, to 16,700 orders, according to FTR Transportation Intelligence after they’d already plunged 58% year-over-year in January and 43% in December.
The orders in January and February were back in the range of the “transportation recession” that had hit the industry in 2015 and 2016. At the time, truck and engine manufacturers reacted with layoffs. But for now, they’re sitting on a massive backlog from the boom in orders last year (data via FTR):
The business is infamously cyclical, with regular booms that lead to over-ordering and then overcapacity, followed by busts that then sort it all out again. The industry is also seasonal, so we can use year-over-year comparisons to eliminate most of the effects of seasonality.
The chart below shows the percent change of Class-8 truck orders for each month compared to the same month a year earlier. The year-over-year plunges over the past three months are of the same magnitude as the plunges during the last transportation recession (data via FTR):
“The weaker orders mean that backlogs will tumble for the second straight month, but they remain at historically high levels,” FTR says. These backlogs will keep plants running at capacity until mid-2019, and some truck makers “are booked solid for 2019 with limited sales slots open for the remainder of the year,” according to FTR.
So truck makers are going to stay busy for a while, and fleets are getting their trucks, and trucking capacity is expanding and will continue to expand, even as orders get slashed.
This rising capacity finally provides some relief to shippers, such as retailers or industrial companies that need to ship their products to their customers. The transportation recession – as tough as it was on truckers, railroads, and truck and component makers – was nirvana for shippers: lower freight rates and no bottlenecks. But in 2018, they’d been complaining about soaring freight rates and shipping delays, and any loosening of those shipping conditions is a godsend to them.
Now, shippers are getting a break as the trucking sector is cooling off, according to FTR’s Shippers Conditions Index. The index, which gauges the temperature of the freight market — including trucking, rail, and intermodal — from the shippers’ point of view, combines freight demand, freight rates, fleet capacity, and fuel price into an index value.
A positive index value signals “good, optimistic conditions” for shippers – not truckers. A value around zero represents a neutral operating environment. A negative value signals “bad, pessimistic conditions” for shippers, according to FTR. “Double digit readings (both up or down) are warning signs for significant operating changes.”
Index values had been deeply negative, with several months in the double digits, until late last year, then the pressure came off. The index for November, released a month ago, turned positive for the first time since August 2016, and index for December, released at the end of February, rose further into positive territory (data via FTR):
“Stable fuel prices, a turn in rail service levels, and loosening truck capacity have combined to create a favorable environment for shippers seeking to move freight,” said FTR’s VIP of rail and intermodal, Todd Tranausky.
Now there’s the same problem on the horizon that contributed to the transportation recession of 2015 and 2016: Inventories have been piling up. In December, latest data available, wholesale inventories rose 7.3% from December 2017, to a record $662 billion, even as sales have begun to stall. As companies react by whittling down their orders, shipments decline.
This is already happening, according to the Cass Freight Index – and it’s causing a peculiar situation. “In 30 years, I’ve never seen anything like this,” fretted the CEO of warehouse operator Pacific Mountain Logistics. Read… Inventory Pileup Sounds Alarm for Goods-Based Economy
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‘At the time, truck and engine manufacturers reacted with layoffs. But for now, they’re sitting on a massive backlog from the boom in orders last year’
I’ve learned more about the cavalier way airlines order and then cancel billions of dollars worth of planes, without much or any penalty. It sees like the important thing is to remain on good terms with the customer, not matter what.
I gather that this is not the same with these tractor orders and they pretty much can be relied on for work by the factories. Is there any way of knowing how firm these orders are? E.g. is a big deposit required?
Or do we have subprime orders?
“January truck orders fall; cancellations start rising
February 06, 2019 Brian Straight ”
“January’s North American Class 8 orders followed the trend of the past few months as evidence builds that some of the record order numbers from 2018 will not result in as many physical deliveries as hoped.”
March 06, 2019 by Alan Adler,
Order Cancellations Rise
“Order cancellations from 2018 are beginning to rise as fleets determine how many new trucks they need to handle moderating freight demand. A clearer picture of whether the cancelations are permanent rather than motor carriers shifting delivery timing will become clear by summer, Ake said.
“It jumped up a lot,” Andrej Divis, director of automotive at IHS Markit, told Trucks.com. “They are in the low double digits now. It will be interesting to see if they are going to continue at that level.”
Probably just waiting for Tesla semi. It’s real, Elon unveiled it.
On an aside Class 8 trucks are enormous vehicles (some call them big rigs) which cost $120,000 and burn through nearly that amount of diesel per year of operation.
We know inventories are piling up and banks have begun to tighten up lending standards somewhat, however, who thought it was a good idea to extend the purchasing power of consumers with cheap unserviceable credit? Thereby stealing “wealth” from the future.
Yup, without cheap credit this would be impossible.
$120,000.00 is a little light for a big rig, try $170,000.00 to start and then add your frills brings you to around $$185,000.00.
I,m retired so I don,t need the worry of increased prices. I mean, going back 30 yrs. I picked up a new “Road Commode” for appox. $40,000 .
I mean where will it all end? That,s what scares me and a lot of us old timer,s. I understand the equipment is of much better quality, but that won,t mean a thing if no one can afford it !
This has been the battle cry, of truckers since the 2nd world war. The dynamics of cost must change. Or increase the rates by 10-15% without any increase in taxes !!
Nobody spends 120k a year on fuel. If you are then throw the whole truck away.
I am retired from one of the mentioned truck companies and at one time my job was to lay out the truck per specs and work with the dealers. Basically, we ran a CAD layout on each order. A dealer had three days that he could make changes. After that, the order was locked and could only be changed for an additional charge. If an order was cancelled, there was also a charge. This prevented the dealer from placing an order just to hold a spot. Also, because our trucks were very customize (guess which company I worked for) and because of JIT (just in time inventory) we had to have a lead time. It used to be 12 weeks, but when times got lean we could turn a order into a truck in two weeks if it was not too specialized.
I also worked at CAT at one time, and know how quickly the market can turn. In 1979, it took 18 months to get any piece of CAT equipment when the order was placed. In 1982 I was laid off because so many of those orders were ghost orders just holding a slot. We had 350 road graders built for Iran, but when the Iran/Iraq war broke out, all of a sudden we were stuck with 350 ready to ship CAT road graders and no check in hand. You can’t mount a machine gun on a road grader. It mushroomed from there and by the time I was laid off we had 1000 CAT road graders and mining trucks sitting on blocks with no buyers.
So, yes ghost orders do exist but there is a cost involved. The company needs time to juggle parts around. In a hot market the dealer wants a building slot. We built 170 customized trucks a day, so juggling inventory is a big problem. Twenty years ago, there were over 30,000 available options across all the truck models. Some options were listed, some were available only if you knew about them, and if you had a big enough order, some were made available just for you. You can imagine what a nightmare that was, trying to make sure everything would work together.
Truck manufacturing is truly a feast or famine market. But it was fun, especially building the oil exploration trucks and the heavily customized ones.
Thanks O: answers some of my thoughts about orders. It costs to cancel.
So we’ll see how many this backlog of orders cancels.
Thanks, Ohio, for sharing your perspective. I really had no idea about the magnitude of the production and its complexity.
We used to listen to that war, as a child, across the border. Then it was Kuwait’s turn, partly because of debt Iraq borrowed from it for that. There was a lot of US play in how this happened, but like yourself I experienced part of the following war from the manufacturing side, manual work on shop floor in UK, twenty four hour continuous production of gas mask cartridges, they needed millions literally, and “yesterday”, had warehouses piled with them, and that was months before Iraq invaded . For whatever reason, was back there as that happened also. I guess trucking supply is something like that, as new ventures and avenues open and close trucking gets called in to fill part of the framework. These tend to be in episodes, with a lot of heavy backing behind them, tend to be part of a wider national enterprise, maybe that is something of why they are so cyclical.
Seems to me the boom and bust aspect of trucking has changed since the 90s. Then it was 3 good years then a bad. Seems like Now we have shorter booms and longer busts.
There is a lot of old equipment on the road now which I think lead to record orders. We also thought the boom would be longer than 10 months.
Is there a good explanation for this seemingly irrational boom bust cycle? Cheap, risky credit no doubt plays a part, but experienced operators would see the busts coming, because they always do, and adjust behavior
(guess which company I worked for)
Pacar: (Peterbuilt, Kenworth) ?
The Rolls Royce of trucks! Peterbilt
My suspicion is that this trucking boom had a lot to do with either the ramp up in online sales or the fracking boom, or both.
The online boom has got to be hitting some reality with regards to true costs. Not to mention that like all new things (restaurants, bars, online purchasing) there is a discernable level of new interest that eventually fades back. American consumers are notoriously fickle when it comes to something “new” and “cool”.
And the fracking boom, well low oil prices are putting a real damper on things there.
Low oil prices (imports) but increasing US trade deficit at same time says something, like China not buying it from US.
It looks to me like trucking cyclicality reflects the general cyclicality of the economy. The central banksters have been pouring out dirt chep credit, smoothing out the cycles and at the same time blowing ginormous bubbles.
Isn’t the biggest bottleneck not having enough qualified drivers? I thought the electronic log books changed things a lot and drivers could no longer make the money they once did? I thought the current administration also changed some regulations so the older trucks that were very dirty in terms of exhaust were allowed to remain on the road, correct me if that is wrong.
When I fill up, I notice the price of diesel which is way more than regular gas now. A few years ago this was not the case. Cummins was working on a NG engine for over the road trucks, is the engine good and available and can it replace existing diesel and defer the need to buy a new truck or said another way, how many trucks work fine but need to go because of environmental regulations.
I was curious as to how many trucks the big operators have in their fleets:
If I may… Daimler, Isuzu and Toyota have been selling natural gas industrial/commercial engines since 2015, with the former focusing on city buses and the other two on smaller (±10 tonnes) lorries. I think class 4 and 5 Isuzu’s are sold in the US already.
The main problems for larger engines are chiefly two.
First is that Class 7/8 lorries tend to cruise at engine speeds above the optimum for large NG engines, which is around 1,500rpm. This is not a problem for city bus in a stop and go scenario, nor for a smaller lorry used, say, for garbage collection, but at 2,000rpm already the diesel wins in the power and especially torque department.
Second is running costs and range. An NG engine may be based on a diesel engine (see the Daimler M936G), but it’s ignition system is basically that of an ordinary otto engine. This means spark plugs that need changing about every 50,000km, and these days even decent quality chainsaw spark plugs don’t come cheap. Oil needs changing far more frequently as well (the engine runs hotter and there are higher fuel contamination chance: the latest Daimler NG engines have their oil changed every 60,000km and need a very specific PAO-based Mobil1 oil. Walmart’s special won’t do the trick.
Finally there’s the issue of range. I think the latest Class 8 rigs have about 1,000 miles range, giving a lot of flexibility on where they can be refueled (read: companies can fill them up where diesel fuel is cheaper). NG at the moment cannot go any further than 400/450 miles, at least not without tanks so big they will become more of a liability than an asset.
In my experience only cities and government can afford to run heavy duty trucks and buses on NG, many problems with reliability, Cummins shop is packed full of them in for repair.
Interesting info, knew none of it. Thanks for sharing.
Not sure how tied the US and European goods based economies are, but the OECD just revised EU gdp predictions 2019 down by half, and that for a soft Brexit scenario. Though it is known the forecasts are usually high, this is a big cut, maybe some political motivation goes with this as even amateurs can consistently figure when gdp expectations are way out.
Living in Northwest, have seen constant supply of east and west bound trains packed with every size container for years. Saw my first train of empty container flatbeds headed east. For storage in Midwest? Will have to see how rail freight inter-modal shipments are holding up.
Yes, I worked for KW. The Peterbilts are made in Denton, TX. I always liked the looks of a Pete too but I think from dealers’ comments that a KW had tighter specs. Dealers would complain to me because KW would not allow things that Peterbilt would. Either way, I am glad they are owned by the same company-helps my retirement. The next time you pull up next to a Kenworth, look at the frame rails on the truck (tractor) portion, not the trailer portion. Notice there are no extra holes drilled in the frame rails. Each hole is custom drilled so only necessary holes are drilled for frame strength. Look at some of the competition, and the frame rail looks like swiss cheese. Frame rails will break, usually right behind the cab. Not on the highway variety, but on construction or farm trucks driving on roads that twist the frame. Dump trucks will be double-framed, which is a frame rail inside a frame rail, and some trucks like cherry pickers or milk trucks will be triple framed.
We built a number of NG trucks for UPS. I did not know there were so many mechanical problems with the NG engines. A diesel does not have sparkplugs. Instead, when the diesel fuel is compressed, it ignites. We had a special setup for trucks used in natural gas fields. If natural gas was leaking in a field a diesel engine would suck in the NG through the air intake, and it would become a run-away engine that you could not shut it down. You can turn the ignition off, but that does no good because it runs by compression, not spark plugs-so it does not need electricity to run. Anyway, our system would detect that the RPM had jumped indicating a run-away engine, and would trigger dampers to shut off the air intake. I tested them before, and the vacuum created would basically collapse the 6″ rubber air lines running from the air filters. These trucks also had air starters. Instead of electric starters, you would use air from your air tanks to start the engines.
One factor in the boom-bust are all of the EPA changes. We had major changes in 2007, 2010, and 2013. Customers want the old style engine before the new EPA engine are required, so that created an artificial boom/bust. Caterpillar made probably 75% of our engines before 2007. By 2010 they had dropped out of the truck market entirely because of problems with their EPA approach. Ask an old trucker if he remembers the CAT 3406, (pre-2007) and he will smile like hotrodders do when someone mentions a 327 or 396. Customers will try to buy a truck before the new EPA regulations go into affect, so 2006 was a boom year and everyone stockpiled as many engines as they could. In the last round, we had one customer order hundreds of gliders (a truck with no powertrain-no engine, transmission, and sometimes no rear axles). These are usually used when a customer wrecks a truck but wants to reuse his old powertrain. This customer bought every old scrap yard engine they could find, and rebuilt them because that way they could have an engine without all of the extra EPA gizmos that causes most of the breakdowns.
Wolf, I enjoy your articles and appreciate your letting me talk about the fun side of building trucks. My article is too long, so I will not even tell you about the double front axle COEs we made years ago for the Chinese government to be used in the Gobi desert for oil exploration.
When you talk about the nuts and bolts of trucks, under a trucking article, your comments are not too long for me. I love this kind of stuff. Thanks!
As part of our Ford store back in the day, we had the Ford Heavy Truck franchise, including a shop, when Ford was still in that end of the business. We specked out all kinds of trucks. We also owned a company that added front-drive axles (mostly for oil field use). In the 70s, long before I got there, they sold quite a few of those to the Middle East. For years, I kept hearing all the wild fun stories from the old-timers.