New orders for Class 8 trucks spiked in December. The month’s tally came in at 38,700 units— a 25.2% month-over-month increase from the 30,910 reported for November, according to a preliminary report from A.C.T. Research Co.
Fleet expansion and replacement demand were cited as the obvious reasons for the spike in new orders. But it also indicates a disproportionate demand for ’06 equipment to avoid the more complex and thus more expensive equipment that will meet mandated EPA emissions standards in 2007—also known as a pre-buy
“This is the beginning of the replacement cycle for the New Year,” Ken Vieth, principal of A.C.T. Research Co. and co-principal of ACT Publications told FleetOwner. “Secondly, if you’re going to buy a truck ahead of the ‘07 mandate, you can’t wait forever. And lastly, truckers are profitable so they’re able to take the higher cost of fuel and equipment and build it into their freight rates.”
The preliminary report does not specify the number of orders slated for delivery in either the first or second half of 2006. That will come when A.C.T.’s revised data is published. That information will provide a clue as to how many orders were the result of pre-buying.
“I would guess this December has a large portion of orders for the first half of ’06,” Vieth speculated. “Freight is growing, there’s no an excess of drivers so therefore capacity is not growing at the pace of freight. The pricing power remains with the trucker, not the shipper. To me, the trucker is going to remain profitable in 2006.”
Regardless of pre-buy, a profitable trucking industry will drive sales for new equipment, Vieth added. He noted the stark difference in the economic climate to come before OEMs roll out their lower-emissions ’07 equipment compared with the previous EPA-mandated truck equipment overhaul for ’02 models.
“[Fleets have] a fantastic reason to buy equipment,” Vieth said. “This time we’re coming off of a strong economy in an emissions-mandated period. Truckers in ‘01 were going bankrupt and upside-down. There was almost no information [on the ’02 technology] until a few months before the [’02 trucks] came out. This time there’s a lot more information on [’07 models] and ‘05 and ‘06 will be profitable for truckers. It all helps to support [that 2006] is going to be a good year.”
“The way carriers plan their equipment purchases, I expected the strong signs of pre-buying to appear by mid-February,” Chris Brady, president of Commercial Motor Vehicle Consulting told FleetOwner. “But carriers had also planned for expansion in ‘06, due to fourth-quarter momentum. They’re operating at a high utilization rate and there’s more pressure to meet shippers’ freight schedule.”
Brady added that strong 2005 truck sales have been propelled by pent-up replacement demand over the last 18 months to two years. Although that demand has diminished, fleet expansion will play more of a role in ’06 sales than ’05, Brady said. And 2006 truck sales are likely to exceed 2005, he added.
“I wouldn’t say it will be a substantial increase, but higher than ’05,” Brady explained. “Regardless of pre-buying, sales would’ve been strong but growth over ‘05 would be related to a pre-buy.”