Makeup orders boost tractor and trailer production — for now

Robotic assembly at Daimler Trucks North America

Makeup production of tractors and trailers is creating a mini-boom for equipment manufacturers. It is even leading to rehiring of some laid-off workers. But how long will the good times roll?

“June through August, which are usually slow months, will all be good months,”  Dave Giesen, vice president of sales at Stoughton Trailers in Stoughton, Wisconsin, told FreightWaves. “The first five months of the year were really slow. We need months like this to get some backlog. We’re all crossing our fingers.”

Net U.S. trailer orders of 18,851 in July were 40% above June and 80% above July 2019, according to ACT Research. Before cancellations, new orders of 20,000 units were up 26% versus June and 44% better year over year.

Trailer orders hit their highest level of 2020 in July as canceled orders from earlier in the year came back into the system with some additional ordering because of the highest sport rates for freight in two years.

Cancellations are always a factor in uncertain economic times. They became a plague to trailer builders earlier this year. The net build of trailers in April was zero. Giesen said 17,500 orders were canceled across the industry from January through June.

“The industry continues to climb from the COVID-generated historic low order volume posted in April,” said Frank Maly, ACT director of commercial vehicle transportation analysis and research.

Stoughton is the sixth-largest trailer maker in the U.S. by volume, according to Trailer Body Builder,. It fared better than some larger competitors. Stoughton shuttered one of its three plants. But it deployed workers to its other two plants, Giesen said. All three are in Wisconsin.

Trailer age declining

“This is just bigger fleets needing trailers right now,” he said. “In the last five years, fleets are in the best position in terms of the age of equipment. Companies could pause buying trailers if they wanted to.”

The average age of a dry van trailer is about six years, Giesen said. That compares to 11 or 12 years coming out of the Great Recession in 2008-2009. If a second wave of COVID shutdowns occurs, trailer orders could go into hibernation.

Used trailers coming off seven-year leases command surprisingly good prices, said Jim Griffin, chief operating officer at Fleet Advantage, a Fort Lauderdale, Florida-based provider of equipment leasing and lifecycle management services.

“Some of them are coming out of the merchandise sector and going into the grocery sector,” Griffin said, adding that buying good-quality, well-maintained used trailers is less financially risky than ordering new.

“While they may need extra capacity at the moment, they may not need to invest into a long-term asset,” he said.

How long can it last?

The question no one can answer definitively is how long the equipment boom will last.

Daimler Trucks North America (DTNA) CEO Roger Nielsen said Monday the company’s 27,000 medium- and heavy-duty tractor retail sales in July could be replicated monthly for the rest of 2020. DTNA’s order backlog is full for the fourth quarter. The company has some orders booked into 2021.

Mack Trucks, a unit of Volvo Group, is recalling 230 of 305 workers laid off in February at its Lehigh Valley, Pennsylvania, plant. They return in September.

“Mack is seeing an increase in demand for our trucks, despite continued uncertainty around how the coronavirus pandemic and heavy-duty truck market will evolve in the future,” spokesman Christopher Heffner said in an email.

Tractor pull

Class 8 truck orders hit a nine-month high in July. ACT Research forecasts Class 8 orders at 193,000 this year, up from an earlier estimate of 169,000. 

“Despite the economy still operating well-below pre-pandemic levels, freight rates are soaring,” Kenny Vieth, ACT Research’s president and senior analyst, said in a press release Tuesday. “It is fascinating that the economy can contract 9.5% in Q2 and there is an almost-immediate trucking capacity shortage pushing spot freight rates to a two-year high.”

The Wall Street Journal reported Wednesday that Bank of America’s monthly survey of global fund managers found just 17% expect a V-shaped recovery for the economy. Thirty-seven percent now expect a W shape, also known as a double dip. That is up from 30% in July.  

Fleet Advantage expects to exceed its typical purchases of 2,000 to 2,500 power units this year. Like the used trailer sales, Griffin said it is a bit of a surprise.

“What’s that saying? Make hay while the sun shines,” he said.

Related articles:

Trailer orders roar back in June

May trailer orders improve – to second-weakest month on record

Freight demand takes Class 8 truck orders for a ride in July

Click for more FreightWaves articles by Alan Adler.