January Class 8 trailer orders see declines, reports FTR

Freight transportation consultancy FTR reported today that final Class 8 trailer orders for January, at 26,300 units, were down 3% compared to December and down 39% annually.

While orders were down, FTR said that this tally was higher than expected, with the order level in line with current trailer production rates and backlogs near record levels.

Addressing the significant annual decline, FTR said that it is the result of what it called a “huge spike in orders that occurred in January 2018, when fleets were in a rush to catch up with robust freight growth. And it added that cancellations were elevated in January for the second month in a row, as fleets shifted orders around more precisely to fit requirements and specialty trailer orders were very strong as well. Trailer orders over the last 12 months, through January, came in at 396,000.

“This was still a positive month for trailer orders considering how many orders are already in the backlog,” said Don Ake, FTR vice president of commercial vehicles, in a statement. “All trailer segments are expected to start off 2019 with momentum, which is good news for the industry and general economy. The business uncertainty and more subdued economic indicators have not impacted the trailer market as of yet. We do expect the market to cool slightly in the second half of the year as freight growth moderates, but for now, there is still a huge demand for new trailers across most segments.”

Earlier this month, FTR reported that ordered Class 8 units in January were off 26% compared to December and the lowest monthly output going back to October 2016’s 15,600 units.

FTR added it was the lowest order month for January since 2010, while observing that January’s low Class 8 order number was somewhat expected, given that the majority of fleets already have all of their 2019 orders in the books and are not expected to place additional orders for a while. While Class 8 order backlogs are pegged to decrease, FTR said it expects the rate to be more than 70% higher annually, adding that over the last 12 months, Class 8 orders are at a total of 402,000.

“Orders had to fall below 20,000 units at some point,” said Ake. “There were record breaking orders placed last July and August, and this is the payback for that volume.

Even with the weak January numbers, over 330,000 trucks have been ordered in the last nine months, so demand for trucks in 2019 remains strong. This is more of a resting point than a turning point. There is an enormous amount of orders in the backlog. The key will be how many of these trucks get built and when. The fundamentals of the economy and freight growth remain solid, so there is no reason to panic.”

Ake added that the production rates the first few months of the year will be a better indicator of Class 8 demand than current orders are, saying that FTR expects the cancellation rate to remain elevated, as fleets move their orders around in the backlog.

“Order rates are expected to remain suppressed for a few months, but build rates and retail sales are forecast to climb,” he said.

Ben Hartford, transportation analyst for Robert W. Baird & Co., commented in a research note that these lower Class 8 unit orders could be intact for a while.

“Continued weakness in Class 8 net orders and elevated cancellation rates are likely during 2019,” he wrote. “Combined with expected growth in 2019 build rates (~335k, +5% yoy), backlogs should fall through 2019, improving investor sentiment among cyclical truckers on the margin. That said, while annual replacement demand for Class 8 units is likely above the implied current level (~265k), incremental fleet growth in 2019 is expected given assumed 2019 build levels, limiting visibility to the timing of a trough in industry yield growth—an important catalyst for cyclical truckers, in our view.”