This is what heavy truck manufacturers face after 19-month order collapses to historic lows

“The recovery is expected to be slow and uneven. It hasn’t quite started yet based on the weak Class 8 orders in May. “

By Wolf Richter for WOLF STREET.

The past three months have been catastrophic for segments of the trucking business, after an already difficult period that began in late 2018. In May, orders for Class 8 trucks – the heavy trucks that carry much of the world. commodity-based economy across the United States – plunged 37% from lows in May a year earlier, and 81% from May two years ago, to 6,600 orders, according to the estimates of FTR Transport Information today.

In April, orders for Class 8 trucks slumped 73% to 4,000 units, the lowest in 1996. Orders in March had plunged 52% to 7,400 trucks, the lowest since 2010:

May was marked by the bankruptcy of Comcar Industries, operator of four trucking companies with approximately 950 employees, including 700 drivers: CCC Transportation, a bulk carrier, and CT Transportation, a flatbed carrier, both focused on materials. of construction ; CTL Transportation, a liquid bulk chemical transporter; and MCT Transportation, a freight carrier by refrigerated and dry vans.

The privately-held company, whose main shareholder was Pimco, is considering liquidating in bankruptcy court by selling its trucking divisions, for which it had already lined up buyers.

In 2019, due to a sharp decline in the freight industry, falling mileage rates and debt pressures, hundreds of small trucking companies filed for bankruptcy. But Celadon’s chaotic collapse and bankruptcy in December, which left some of its 3,000 drivers and 2,700 tractors stranded in North America, marked the largest truck transporter bankruptcy in US history. .

Falling orders in May reduced 12-month Class 8 total orders to 155,000 trucks, down nearly 70% from the 12-month total to October 2018 high of around 500,000 trucks.

It can be as low as possible. Economic activity is starting to pick up from lows, and freight volumes have also bottomed, although “fleets remain reluctant to order trucks,” FTR said in the emailed statement.

“The recovery is expected to be slow and uneven. This has yet to start based on the low Class 8 orders in May, ”said FTR.

“Most of the country still had severe restrictions in place for part of May. It is difficult for fleets to plan for future equipment requirements under these very abnormal conditions, ”Don Ake, vice president of commercial vehicles, said in the statement.

“Carriers worry more about what’s going on today, their labor needs and their short-term issues, than ordering trucks. The concern over the pandemic goes beyond commercial and economic concerns and significantly lowers the confidence of the fleet, ”he said.

“Expect Class 8 orders to gradually increase as caution wanes and fleet buyers begin to focus on the second half of the year and equipment needs,” he said.

American truck makers halted production in March due to the pandemic. This too is now part of the theme in many industries: a supply and demand shock happening at the same time. Demand collapsed and supply was cut off due to the pandemic. This can create an unpredictable dynamic afterwards.

Class 8 orders – and much of the rest of the trucking business – suffered a sequential double whammy: first the freight recession in 2019 that followed the historic boom of 2018; and second, when orders started to bottom out in late 2019 and early this year, the pandemic.

The graph below shows the monthly percentage changes in Class 8 orders compared to the same month a year earlier. January’s first slight year-over-year increase after 14 straight months of declines was wiped out in the following months:

“Sales”, which are several months behind “orders”, began to slip last October.

The time lag between the day an end user, such as a trucking company, places the order, and the day the truck is delivered to the end user spans several months. During the spike in ordering panic associated with the 2018 boom, when truckmakers’ backlog was huge, the time lag between orders and sales could be as much as a year. So truck “sales” remained strong during much of the 2019 “order” plummet, as truck makers reduced their backlogs and recorded record sales.

The Bureau of Economic Analysis reports sales of heavy trucks (over 33,000 pounds GVW) and medium trucks (classes 4-7, 14,000 to 33,000 pounds GVW), all combined. These sales peaked in September, more than a year after the Class 8 orders peaked in August 2018. In October, sales began to plummet.

In May, according to given by the BEA, sales of heavy and medium trucks combined plunged 32.8% year-on-year to 30,600 trucks (seasonally adjusted) after plunging 38.6% in April.

The May sales were for orders placed months before the pandemic. The impact of the pandemic – historically low orders placed in March, April and May – won’t show up in sales data for months:

During the financial crisis, sales of heavy and medium trucks hit a low of 15,000 units in April 2009, after peaking in 2006. This time around, given the historic slump in orders over the past three years. In recent months, sales are expected to bottom near or below these levels later this year.

And as the graph above shows, the recovery from the financial crisis to return to peak sales before the financial crisis in 2006 took 13 years.

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