Class 8 truck orders posted their worst month since July 2016, according to ACT Research, barely topping 10,000 units in May. Class 5-7 medium-duty orders followed suit, dropping 21 percent year-over-year in the month, according to preliminary data.
Final numbers will be reported by ACT in mid-June.
May Class 8 orders came in at 10,800 units, down 27 percent from April and 70 percent compared to May 2018, ACT said. Year-to-date, Class 8 orders are off 64 percent compared to the first five months of 2018.
For the first three months of 2019, Class 8 orders have averaged 15,900, well off the record highs seemingly posted month-after-month in 2018, although an order dropoff was expected as the current backlog has fleets waiting until the end of this year to get already ordered vehicles. An economy that appears to be slowing from its strong pace in 2018 is also a contributing factor.
“Fraying freight market and rate conditions along with a still-large Class 8 order backlog contributed to the worst NA Class 8 net order performance since July of 2016,” Kenny Vieth, ACT’s president and senior analyst, said.
Just 7,035 Class 8 orders were recorded in July 2016.
FTR reported nearly identical numbers for Class 8 at 10,400 units, 29 percent below April.
Vieth told FreightWaves that truck manufacturers are still looking at plant capacity (at build rates of 30,000 units a month) remaining “essentially full” through the end of the year. OEMs have not started selling 2020 build slots, he added, so the slowdown in orders relates to the 2018 demand.
“May’s low orders were consistent with it being the last month in this year’s cycle. The 2019 order pattern was pulled ahead by three months, so May’s orders are similar to what you normally would see in August. Ordering for 2020 is expected to begin in June, with several OEMs expected to start taking orders for next year,” Don Ake, FTR vice president of commercial vehicles said.
“All that said, the sharp fall-off in spot freight rates and contract rates going upside-down in May (per DAT), weak metrics broadly (excluding the ATA’s April tonnage and loads numbers), coupled with strong capacity additions and growing economic uncertainty, does not make for a compelling environment to rush out and order trucks,” Vieth said.
Retail sales remain strong for trucks, with North American sales averaging over 28,000 units per month over the past three quarters. April’s sales were 29,100 units, making the three-month sales rate annualized and seasonally adjusted (SAAR) to 352,000, indicating that while orders are dropping, the truck market remains strong.
The U.S. tractor market is still showing similar trends. Over the past 9 months, sales have averaged 17,800 units per month, with 18,000 units delivered in April and the year to date SAAR tracking at 224,000 units.
Many have expected cancellations to pick up as the economy slows, but Vieth said that, through April, that has not been happening.
To date, there is good follow through from orders to sales,” he said. “While we do not have a May cancellation number, cancellations were very well behaved in both March and April. Cancellations as a percentage of backlog in those two months were at levels not seen since the 2004-2006 cycle.”
Medium-duty orders also fell in May, dropping to 19,300 units, down 21 percent year-over-year and 19 percent from April. It was the weakest order month on an actual basis in 22 months.
Class 6-7 truck orders year-to-date (blue mountain) compared to the previous three years as displayed in SONAR. (Chart: FreightWaves SONAR)
Vieth noted that medium-duty inventories are up nearly 12,000 units April over April, and without a federal infrastructure plan that could boost construction medium-duty orders are facing headwinds. The medium-duty backlog is at 89,000 units, though, which is 20,000 units higher than a year ago.
Continued infrastructure investment at the state level and more e-commerce related to heavier and bulkier items “should provide a secular growth path that supports medium-duty vehicles,” Vieth said.