The overall prosperity currently lifting the commercial vehicle industry—and the U.S. economy as a whole—is a welcome contrast to the situation that existed a year ago. However, as ACT Research’s recently released Transportation Digest explains, there is a downside.
“Our heavy-duty forecast continues to reflect the current ‘perfect storm’ of upbeat economic, freight and trucking indicators, with most at, or on the verge of reaching, all-time record levels,” said Kenny Vieth, ACT president and senior analyst. “And, it’s easy, if not particularly pleasant, to remember the business environment of 2020’s second quarter, with significant uncertainties in not knowing the extent of the virus and how deep the downside could be.”
But the recent good times and good numbers at a macro level “obscure an uncomfortable truth,” Vieth added.
“Life in the trenches is a jungle right now,” he said. “For purchasing managers in the equipment manufacturing chain, the struggle is obtaining supplies in a capacity-strained world, while for financial managers, it’s a battle to protect margins against rapidly rising costs.”
And fleet managers, of course, always have the “driver shortage headache,” made worse because the wait list for heavy-duty vehicles stretches past year-end, but they need that equipment today.
“The management skill set is really being tested to make the best of current good times, if this is really ‘as good as it gets,’” Vieth said.
Similarly, while question of commercial vehicle demand for 2021 has been answered, the remaining question is the industry’s ability to meet that level of demand, ACT Research explains in its latest Commercial Vehicle Dealer Digest.
“This year’s challenge is to ascertain the impact of supply constraints on 2021’s production potential, and the two numbers that get to the heart of identifying the near-term production ramp are units-per-day and days-per-period,” Vieth said. “The timing of a 100 units-per-day swing from assumption to reality can still have a material impact on full-year output.”
And a third, “hidden factor” is likely to come into play at some point in the coming months: the completion of "red-tagged" units, or those units that are essentially built, but unfinished and waiting for parts. Based on “anecdotal conversations”, ACT puts the current number of red-tagged units at around 5,000 units industry-wide.”
“Given demand conditions, we reiterate that when the inflection comes, it will be exceedingly sharp, and that’s why we’re advising our clients to be prepared,” Vieth concluded.
Case in point: April net US trailer orders of 14,387 units fell nearly 52% from the previous month and rose more than 3,600% compared to the severely COVID-impacted April of 2020, according to this month’s issue of the ACT Research State of the Industry: U.S. Trailer Report. Before accounting for cancellations, new orders of 18,900 units were down 44% versus March, but 219% better than the previous April.
“While seasonals call for a sequential decline in net orders in April, other market pressures drove net orders down to 14,400 trailers for the month, less than half that of March bookings,” said Frank Maly, director–CV transportation analysis and research at ACT Research.
But, Maly noted, the unprecedented COVID-related impact in 2020 renders year-over-year comparisons much less valuable in determining the strength of the market.
“The industry is also grappling with extended backlogs, and, on average, the next available production slots for dry vans and reefers are in Q2’22,” Maly said. “That challenges OEMs as they struggle to confirm component and materials pricing, as well as supply, that far into the future. Fleets, too, struggle with determining true equipment requirements that far out.
“Some OEMs have announced a pause in order acceptance, as they search for a bit more certainty in the long-term. Re-negotiation of pricing on already-booked orders may also cause some fleets to step to the sidelines, seeking a bit less uncertainty on future CAPEX commitments, and simultaneously reducing new orders in the short term.”