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Smaller fleets drive heavy truck sales
Industry analysts say the increase in heavy truck orders and sales this year is being driven by small motor carriers and vocational fleets.

Small fleets are the ones buying trucks

Opportunities for small motor carriers are on the rise – even according to executives running large trucking companies.

The increase in heavy truck orders and sales this year – which is convincing some OEMs to revise their total Class 8 production projections upward or 2017 – is being driven primarily by small motor carriers and vocational fleets, according to analysts. Larger fleets are expected to step up and be the big buyers next year.

“This year, rather consistently, the order growth has come from small to mid-size fleets and vocational customers due to strength in industrial activity and still-aged equipment at smaller fleets,” according to Michael Baudendistel, vice president of Stifel Capital Market’s transportation & logistics research group.

“Next year, however, it appears likely that large fleets will return to the marketplace, as they have seen an increase in profitability and are expressing optimism over … contract rate increases,” he added.

According to data tracked by ACT Research, preliminary North American Class 8 net order volume topped 22,600 units back in September, up 62% in year-over-year comparisons.

FTR Transportation Intelligence posted similar numbers, noting its preliminary North American Class 8 net order volumes for September hit 22,100 units, up 7% in month-over-month comparison with August and up 62% compared to September of last year – adding that North American Class 8 order volumes over the past 12 months would equal total year production of 239,000 units.

As a result of that strength in orders, several OEMs are raising their total year Class 8 production forecast.

For example, Jonathan Randall, senior vice president of sales for Mack Trucks North America, noted during a press conference at the 2017 American Trucking Associations (ATA) annual Management Conference & Exhibit this week in Orlando, FL, that his company is raising its total Class 8 production in 2017 to 235,000 units from its previous prediction of 225,000 units made at the start of the year.

“And we believe it will be significantly higher for 2018,” Randall said.

Roger Nielsen, president and CEO of Daimler Trucks North America (DTNA), noted in a roundtable discussion with reporters at ATA’s annual gathering that truck production is expected to “finish strong” this year, with “no pause at all” in commercial vehicle orders.

While he didn’t provide specific numbers, he added that year-to-date (YTD) truck sales are up for DTNA versus the same point in 2016. Freightliner Business Class medium-duty model and severe-duty model sales are up 9% and 16% versus last year, while Western Star sales are up 30%. Meanwhile, sales of Freightliner Custom Chassis Corp. (FCCC) and Thomas Built Buses (TBB) among other “specialty” models are up 9% as a group.

Though sales of “premium” linehaul tractors are off 1% versus last year, overall, DTNA’s total YTD truck sales for the NAFTA region is up 6% versus 2016.

Even executives at large TL motor carriers believe the future for small fleets looks bright.

“We have more freight than we can handle and we’re giving it to the small carriers,” noted Clarence “C. L.” Werner, founder and chairman of TL carrier Werner Enterprises, during a panel discussion at ATA’s annual conference.

“There is great opportunity over the next five years for small carriers; they know how to keep equipment up and get drivers home. Thousands of logistics companies are looking for them” to haul their freight, he pointed out.

“Definitely the small carrier with one to five trucks can succeed – as long as they understand their costs,” added Dan England, chairman of C.R. England, during that same discussion.

In separate commentary, Kenny Vieth, ACT’s president and senior analyst, noted that strong order volumes are helping reduce Class 8 production backlogs, which contracted in September for a fifth consecutive month.

“Backlogs typically decline in September. When we seasonally adjust the data, the Class 8 backlog actually rose slightly from August,” he explained. “But the month’s {September’s] smaller backlog along with stronger production reduced the Class 8 backlog/build ratio to 78 days, the skinniest backlog cushion for the industry since late 2013.”

Vieth added that September’s lower Class 8 backlog/build ratio was predominantly driven by an increased build rate.

“The Class 8 build rate rose to 1,208 units per day, the strongest rate of production in nearly two years,” he said. “Through year to date, Class 8 build is up 4.5% compared to the same period last year.”

Vieth also noted that hurricanes Harvey, Irma, and Nate should boost freight levels higher as 2017 draws to a close.

“Analysis of previous hurricane [impact] suggest that there is a three to four month ‘pop’ in freight following the storms before volumes return to the pre-storm trend,” he said. “Given the timing, the hurricane surge and the seasonal fall freight peak are lining up into the end of 2017. Freight and rate data clearly show the convergence of improving economic activity, the hurricanes, and ELD [electronic logging device] adoption on trucking industry capacity relative to freight activity.”

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