May big rig orders fall to lowest level in 7 months, up 18% from same month in 2016

Orders of medium- and heavy-duty commercial trucks in North America fell 11% to 38,100 units in May, from April, according to preliminary data from ACT Research. The sales provide some insight into future activity in the trucking industry.

Complete data on the orders is expected to be released in mid-June.

“Differentiating May from April is the fact that all of the month-over-month decline in May resulted from a dramatic slowing in heavy-duty order intake,” said Steve Tam, vice president at ACT Research. “Despite the month-over-month decline, May’s combined HD and MD volume bested May 2016 by 20%.”

Orders of class 8 trucks, the largest commercial trucks or big rigs, fell 30% to 16,800 units in May, from April. Orders in May were at the lowest level in seven months but were up 18% from May 2016.

“While the magnitude of the decline is greater than expected, the timing is spot on,” Tam said. “May is typically the time of the year when order intake drops below average.”

The 18% rise in May from a weak order total in the same month in 2016 was below expectations, according to transportation analysts Michael Baudendistel and Brady Cox of Stifel. “We are not shocked, however, to see a mid-year lull in order activity materialize, as recent order trends have belied persistent weakness in core trucking markets.”

“Following continued strength in demand in April and several consecutive months of a disconnect between freight and equipment markets, our bias has shifted more positive, and we believed it was more likely than not that May orders would cause us to increase our 2017 production outlook,” according to Baudendistel and Cox. “While we still believe there is more potential upside than downside to our 215,000 unit 2017 forecast, given a steeper-than-expected decline in May and the potential that the weak month could be the first in a series, we are leaving our outlook unchanged for now.”

Since the order season started in October, the industry has ordered 164,188 class 8 trucks. This represents an 8% increase compared to the same period in the previous order season, “and far better than expectations at the start of order season,” according to Baudendistel and Cox. The analysts expected a 6% decline for the year, “which we believe remains justified given a 5% inventory headwind, lower build-rates in (the first-quarter), and potential for summer order weakness.”

But they might change their production outlook for 2017 if original equipment manufacturers “were to build at or near the (second-quarter) build plan in the back half of the year, which will be dependent on the direction of orders in the next few months,” according to the Stifel analysts, who viewed the May order weakness “as a step back from unsustainable levels.”

In 2017, 228,000 class 8 trucks are expected to be produced, according to ACT Research. In 2018, production is projected to rise 16% to 265,000 units.

INDUSTRY TRENDS
In May, spot market loads rose 100%, from the same month in 2016, according to DAT Trendlines. However, spot market loads fell 9.2% in the week of May 28, which included Memorial Day, compared to the previous week. Over the same period, spot market capacity declined 19%, but the ratio of van loads to trucks rose 22%, the highest level since 2014.

“Normally during a four-day work week, we expect to see a 20% drop in loads and posts, but demand was greater than expected,” according to DAT.

Van spot rates rose 9.7% in May, compared to the same month in 2016. And, the ratio of van loads to trucks rose 109%, from May 2016. The ratio of flatbed loads to trucks increased 117%, while refrigerated trucks to loads was up 98%.

“National average rates increased for vans, reefers and flatbeds, with rates for reefers and flatbeds hitting their highest marks in nearly two years,” according to DAT.