The word “headwinds” always conjures up some bad mojo where trucking is concerned, but it seems such negative forces are growing for the trucking equipment sector– particularly for Class 8 trucks.
Michael Baudendistel, vice president of Stifel Financial Corp.’s transportation & logistics research group, noted in a recent report that mediocre freight volume, an already low average equipment among many large fleets, declining prices for used trucks, “bloated” truck dealer inventory levels, are going to drive down truck production levels this year and probably down even farther than what Stifel is forecasting.
He added that "intensifying" TL pricing pressure – particularly on the spot market – is only going to add to the problem.
“We are reducing our North American Class 8 production estimates for 2016 through 2019,” he said, with Stifel’s current production estimate of 250,000 Class 8 units for 2016 being trimmed down to 230,000 units, which Baudendistel took pains to note is 3% below recently-lowered estimate of 236,500 units posted by ACT Research.
That’s off from 2015’s high of 323,000 Class 8 units, he pointed out.
“We are more considerably below ACT's forecasts in 2017 through 2019, as we believe several of the headwinds impacting 2016 [truck] demand are likely to persist,” Baudendistel stressed. “Additionally, the risk of a recession during that period leads us to believe our estimates are more likely to be proven too bullish than too bearish.”
Here’s a quick snapshot of what Stifel is expecting in terms of Class 8 production for the next several years:
- 2016: 230,000 units
- 2017: 220,000 units
- 2018: 210,000 units
- 2019: 230,000 units
By contrast, though, things are a lot better in the medium-duty side of the truck equipment sector, as North American medium duty orders were up 5.5%% year-over-year during the first quarter of 2016 to 61,500 units.
Baudendistel pointed out, though, that the medium-duty segment is about 40% “less volatile” than the heavy-duty side of the market, with inventory-to-sales ratio at a “more stable” level running between 2.5 months to 3.5 months of supply. On the heavy-duty side, that ratio is around 3 months, which is higher than the 2.5 month upper-end marker analysts think supply should be at.
Yet the big money in the truck equipment market is in big rigs, and right now, the order boards don’t reflect much potential for increased sales.
Baudendistel said that by the end of February this year, 30% of the second quarter “build slots” for Class 8 units remained open among all the North American truck makers, with 48% of the third quarter’s build slots also open.
“We believe that could lead OEMs to post disappointing quarterly results if those build slots remain unfulfilled,” he added.
We’ll see how this all plays out in the coming months.