Heavy Truck Orders Weigh Well on Industry's Recoveryby Jana Ritter - Published: 4/25/2013
Net heavy truck orders have been above 20,000 since December, which is a strong indicator that the trucking industry is recovering well from the US recession.
Truckers need to buy about 20,000 vehicles a month just to replace older ones made by companies such as Navistar International Corp. and Paccar Inc. But North American net orders have averaged 21,619 a month since October and stayed above 20,000 since December. In February, net orders grew 3.4 percent to 22,816, the first such monthly gain in 14 months. A clear sign that trucking companies are doing more than just swapping out aging tractors for new ones.
Truck production has risen each of the past two years as well. In fact, it has topped the typical replacement level of 250,000 in 2011 for the first time since 2006 after a fitful recovery from the recession-low of 120,000 in 2009. Forecasters initially expected new orders of 285,000 last year but it ended up at 273,036, after a sluggish economy slowed demand in the second half of the year, said Karen Ubelhart, an analyst with Bloomberg Industries.
New trucks are needed to replace aging models and to handle more goods as the economic recovery gains traction. While fleets tend to replace trucks after three to seven years of use, or about 500,000 miles, the American Trucking Association's truck tonnage index has risen 7.6 percent since October to the highest level since December 2011.
The rate of canceled orders also is an important industry indicator. Class 8 order cancellations in North America dropped to 4.4 percent in March, the lowest level since December 2011, from 7.1 percent in February, according to FTR. A cancellation rate below 10 percent is a positive sign.
While still shy of a full-fledged rebound in the industry, investors see the early signs as reasons for optimism in an industry that is an economic bellwether. Carriers are moving more automobiles and home construction equipment, helping drive demand for Class 8 tractors, the backbone of interstate hauling. "There is a lot of optimism out there," Kristine Kubacki, a St. Louis-based analyst at Avondale Partners LLC. "It's really geared toward a back-half recovery."
"Freight started to improve and that ultimately is what's going to move things," Ubelhart said. "What drives freight? The economy. A couple of sectors finally turned. The stock market looks at orders and confidence is going to build if orders stay at this level." The U.S. economy may grow 2 percent this year, the median forecast of 76 economists surveyed by Bloomberg. The nation's jobless rate fell to 7.6 percent in March.