Bookings of new Class 8 trucks rose to their highest level in five months in August as manufacturers opened their 2022 order books a crack. But completion of equipment is hostage to microchip shortages and across-the-board supply constraints.
In Chillicothe, Ohio, some 350 Kenworth Truck Co. workers will be laid off next Friday because of a shortage of semiconductors that power various functions in the heavy-duty trucks built there, according to a report on the Scioto Valley Guardian website. A Kenworth spokesman did not immediately respond to a FreightWaves request for confirmation.
The inability to complete assembly of new trucks has led to so-called red-tagging: parking unfinished trucks at plants and elsewhere until parts are available to finish them. PACCAR Inc, the parent of Kenworth, Peterbilt and European DAF Trucks, previously said it had 6,500 red-tagged trucks at the end of June.
“While the support for new vehicle demand remains in unprecedented territory, the industry’s ability to convert that demand into vehicles remains constrained by numerous supply-side issues that begin with, but are not limited to, semiconductors,” said Kenny Vieth, president and senior analyst at ACT Research.
Bumping 2021 orders into 2022 production
ACT Research pegged preliminary August orders at 36,900 units, substantially higher than recent months when manufacturers filled their last remaining build slots for 2021 and bumped some orders into Q1 and Q2 next year.
Discussions with fleet customers on their needs in a red-hot freight market replaced physical orders because fluctuating — mostly higher — prices for steel and aluminum complicated the pricing of finished goods. Manufacturers walk a delicate line between absorbing and passing through costs after an order is placed.
Consequently, only a trickle of 2022 orders were accepted until last month. Class 5-7 medium-duty trucks posted the fifth-highest orders of any month in nearly 40 years of ACT record-keeping.
“Demand is there in spades,” Vieth told FreightWaves. “But supply will dictate production next year.”
FTR Transportation Intelligence reported 200 fewer preliminary orders than ACT but agreed on the state of the market.
“Ordering has commenced for 2022 deliveries, but at a much more measured pace than expected,” said Don Ake, FTR vice president of commercial vehicles. “Fleets have wanted to place their 2022 orders for months. They are in desperate need of trucks and with the freight market being so robust, anticipate that build slots will again be scarce next year.”
Fleets desperate for trucks
FTR said preliminary net orders for Class 8 trucks rose 51% from July to 39,400 units.That was up 91% over the same month a year ago. Class 8 orders now total 456,000 units on a rolling 12-month basis. A very strong year for truck production is about 325,000 units, so the gap between demand and supply continues to grow.
“Demand for Class 8 trucks will be huge in 2022 due to growing freight markets and pent-up demand left over from 2021,” Ake said. “Orders will be substantial from August until the end of the year.”
After that, wide month-to-month fluctuations are possible as manufacturers open and close the spigot to deliberately slot and manage orders.
“Once commodity costs stabilize and the supply chain gets into balance, orders will soar, and build rates will jump,” Ake said.