Get in Line: Backlog for Big Rigs Stretches to 2019 - WSJ

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WSJ LOGISTICS REPORT

Get in Line: Backlog for Big Rigs Stretches to 2019

With freight demand red-hot, truck manufacturers expect to break records for orders this year, and deliveries will reach deep into next year

Analyst group ACT Research says manufacturers are on track for 450,000 orders for heavy-duty trucks this year, easily

 

By Erica E. Phillips

Aug. 17, 2018 600 a.m. ET

Anyone ordering a new heavy-duty truck this summer will have wait until sometime next year to get it, assuming strained manufacturing supply chains hold together.

An unprecedented run of orders for big rigs has pushed the backlog at truck factories to nine months, according to industry analysts, the largest since early 2006, when truckers stocked up to get vehicles in place before tougher environmental restrictions would take effect. Typically the backlog is about five months for the truck industry’s manufacturers, analysts said.

“It is longer than it should be,” said Magnus Koeck, vice president of marketing for Volvo AB’s North America operation, where Class 8 truck orders this year soared to 25,000 from 11,000 during the first six months of 2017. “Of course we are not alone in this situation,” he said. “Everyone is in the same boat.”

North American freight-haulers ordered more than 300,000 Class 8 trucks in the first seven months of this year and are on track to order a record 450,000 of the heavy-duty vehicles for the full year, according to ACT Research. That would be the largest book since 2004, when orders reached 390,000, according to analysts.

In July, North American fleets ordered more than 52,000 trucks, an all-time monthly record.

Freight-hauling fleets are trying to keep up with swelling demand in a robust U.S. economy even as they say they face difficulty finding drivers. New trucks are one recruiting tool, and the new vehicles also get better fuel mileage—an attractive feature for fleets as other costs are rising.

The orders are coming at a rapid pace as more U.S. companies, from construction equipment makers to retailers, say rising transportation costs and tight truck capacity are crimping their

ability to grow and slicing into profit margins. Cass Information Systems Inc., which processes freight payments, says its monthly index of U.S. trucking costs rose more than 10% in July, the first double-digit year-over-year increase in the 13 years of the measure.

It may be months before trucking capacity scales up enough to meet the growing shipping demand. Many of the new trucks are aimed at replacing older vehicles, trucking companies say, and production still lags far behind orders. Manufacturers delivered 30,000 new vehicles in June, ACT said, but factories are still catching up after trouble earlier in the year getting the parts they needed to keep up with demand.

 

“There’s basically a shortage of trucks right now because of supply-chain issues,” said Don Ake, an analyst with research group FTR. Manufacturers “can’t build trucks fast enough because their suppliers can’t keep up.”

Navistar International Corp. NAV 1.73% ▲ , Daimler AG DMLRY 0.29% ▲ and Volvo, along with engine-maker Cummins Inc., CMI 1.84% ▲ have said they faced supply-chain problems earlier this year as the broader manufacturing sector coped with delays in supplier deliveries to factories. “It doesn’t matter if it’s one tiny screw or one tiny hose, if it’s missing or late, you can’t complete the truck,” said Volvo’s Mr. Koeck.

Any delays at one supplier can ripple across the business, companies say, because companies often build certain parts for several different truck manufacturers. And companies say the low national unemployment rate makes it tougher to fill vacant jobs.

“The challenge was finding the labor, I suppose the next challenge is keeping the labor,” said Kenny Vieth, an analyst with ACT.

 

Manufacturers say their suppliers have hired the necessary staff and now are pushing through parts at a faster pace. Volvo Trucks North America delivered 15,658 vehicles through June, up 71% from its deliveries in the first half of 2017.

“With the strong demand and the corresponding increases in production levels, the entire industry has been faced with supply constraints and pressure on delivery timing,” Jeff Allen, senior vice president of operations and specialty vehicles at Daimler Trucks North America, said in an emailed statement. “Recently we have begun seeing these constraints lifting and an overall improvement of the situation.”

Still, Mr. Ake said maintaining the high pace of production across all factories will remain a challenge. “The situation is week to week,” he said.

Michael Cancelliere, president of Navistar’s truck and parts division, says the company has been meeting with customers and with suppliers to make sure they are getting the components they need to keep assembly lines moving.

“The system gets somewhat stressed when you’re dealing with the capacity we’re dealing with,” Mr. Cancelliere said. “That’s forced us to get better.”