Class 8 truck orders come out of the gate slowly to start 2019

Class 8 commercial truck orders were down in January, according to recently issued data from two U.S.-based companies tracking commercial truck buys and orders.

ACT Research reported that based on preliminary North America Class 8 net order data, 15,800 units were ordered in January, which represents a 26% decline compared to December and a 68% annual decline.

“Regarding Class 8, recall that January 2018 marked the point at which orders went vertical,” said Kenny Vieth, ACT president and senior analyst in a statement. “We view this January’s order softness as having more to do with pulled-forward orders and a very large Class 8 backlog than with the current supply-demand balance. Softening freight growth and strong Class 8 capacity additions suggest that the supply-demand balance will become a story in 2019, but January seems a premature start to that tale.”

Data from freight transportation consultancy FTR noted that ordered Class 8 units in January were off 26% compared to December and the lowest monthly output going back to October 2016’s 15,600 units.

FTR added it was the lowest order month for January since 2010, while observing that January’s low Class 8 order number was somewhat expected, given that the majority of fleets already have all of their 2019 orders in the books and are not expected to place additional orders for a while. While Class 8 order backlogs are pegged to decrease, FTR said it expects the rate to be more than 70% higher annually, adding that over the last 12 months, Class 8 orders are at a total of 402,000.

“Orders had to fall below 20,000 units at some point,” said Don Ake, FTR vice president of commercial vehicles, in a statement. “There were record breaking orders placed last July and August, and this is the payback for that volume. Even with the weak January numbers, over 330,000 trucks have been ordered in the last nine months, so demand for trucks in 2019 remains strong. This is more of a resting point than a turning point. There is an enormous amount of orders in the backlog. The key will be how many of these trucks get built and when. The fundamentals of the economy and freight growth remain solid, so there is no reason to panic.

Ake added that the production rates the first few months of the year will be a better indicator of Class 8 demand than current orders are, saying that FTR expects the cancellation rate to remain elevated, as fleets move their orders around in the backlog.

“Order rates are expected to remain suppressed for a few months, but build rates and retail sales are forecast to climb,” he said.

Ben Hartford, transportation analyst at Robert W. Baird & Co., commented in a research note that these lower Class 8 unit orders could be intact for a while.

“Continued weakness in Class 8 net orders and elevated cancellation rates are likely during 2019,” he wrote. “Combined with expected growth in 2019 build rates (~335k, +5% yoy), backlogs should fall through 2019, improving investor sentiment among cyclical truckers on the margin. That said, while annual replacement demand for Class 8 units is likely above the implied current level (~265k), incremental fleet growth in 2019 is expected given assumed 2019 build levels, limiting visibility to the timing of a trough in industry yield growth—an important catalyst for cyclical truckers, in our view.”