Based on its analysis of truck order trends aligned next to second -quarter earnings report, consulting firm ACT Research believes most fleets are only going to buy the trucks they need in the near-term, largely shying away from adding any new capacity.
“Lack of capacity right now is good for rates, so we see carriers growing profits first before they contemplate any expansion efforts to attract more business,” John Burton, ACT’s vp-transportation sector, told FleetOwner.
“Though we’re projecting a significant increase in truck orders, for example, it will still end up below nominal replacement demand,” he pointed out.
In the latest release of its North American Commercial Vehicle Outlook, ACT projects full-year production of heavy-duty Class 8 vehicles will be up 26% compared to 2009 and accelerate into 2011, with medium-duty orders growing more slowly.
Production of commercial trailers is expected to increase by 47% in 2010 and also post strong growth 2011, according to ACT.
“Even with modest economic growth, commercial vehicle demand should continue to rise as carriers appear to be replacing an aging fleet but not adding capacity,” Burton noted. “Demand for new heavy-duty vehicles continues to be well below normal replacement levels, meaning overall fleet capacity is shrinking due to scrappage and export of used tractors. This will allow truckers to retain pricing leverage and profits.”
FTR Associates reported that Class 8 net orders dropped to 11,473 units in July, which is a 27.2% decline month-over-month from June.
“Right now, we’re sitting at a nine-month average of 12,000 net Class 8 orders per month. If we were to be in a stronger growth mode, we’d see that order-level up around 20,000 per month,” Eric Starks, FTR’s president, told FleetOwner. “That’s the next benchmark that’ll indicate significant economic improvement.”
According to commentary from major fleets, however, such a large bump in orders may not be likely.
“Our average fleet, including owner operators, grew slightly to 3,753 tractors,” noted Kevin Knight, chairman & CEO of Knight Transportation, in the company’s second-quarter earnings statement. “If contract rates and the operating ratio continue to improve, we plan to add 100 to 150 tractors during the second half of 2010.”
This comes despite healthy revenues and profits posted by the carrier. Knight reported that total revenue increased 14.4% to $185.4 million, with net income climbing 26% to $15.8 million, compared to the same period last year. Year-to-date, Knight’s total revenue increased 13% to $351.1 million with net income jumping 15.9% to $28.2 million, compared to the first half of 2009.
“Many of the truckload markets we serve experienced capacity constraints. As a result of demand outpacing available capacity, we experienced improvement in revenue per mile, miles per truck, and average length of haul while decreasing non-paid empty miles,” Knight said.
“Increasing our less capital intensive operations remains a priority and we increased the number of independent contractors with a contract to Knight by 25.8%, year over year,” he added. “We expect to grow our revenues in each business as business conditions continue to improve.”
