“We’re in catch-up mode and we’re going to be in catch-up mode for a while.”
That’s how Don Ake, vice-president – commercial vehicles for industry forecaster FTR characterizes the current truck and trailer markets. He estimates there are 13,000 to 20,000 “red tag units” – Class 8 trucks that are sitting incomplete due to semiconductor and other parts shortages – parked in rented lots and fields as truck makers struggle to keep pace with demand.
Trailer OEMs also have red tag units waiting to be completed, indicating it’s not just semiconductors that are in short supply. Some OEMs are employing temporary plant shutdowns, while others continue to add to their red tag inventory.
This, as freight demand continues to grow. Ake said FTR anticipates the goods transport segment of GDP will grow at 4.5% in the third quarter, and 6.8% in Q4, before moderating next year. Even when it levels off at 3% growth, Ake said “That is still going to generate a tremendous amount of freight.”
FTR says truck loadings are up about 6% this year, which is driving high demand for new trucks and trailers. Loadings are also expected to grow about 3% next year and 2.2% in 2023, which is still “healthy growth.”
All this would be excellent news for truck and trailer makers, however they are currently unable to take advantage due to supply shortages and uncertainty over pricing. Ake said the industry is in the midst of “the worst supply chain shortage since WWII.”
More than 20 parts are in short supply, and possibly as many as 40, with the most prominent of them being semiconductors.
“OEMs are very cautious about booking 2022 orders,” Ake said. “They don’t know what price to quote. They’ve had to put in, in some cases, surcharges.”
Class 8 truck makers collectively have capacity to produce about 1,600 units a day, and are running at a deficit of 11,500 units per month. Trailer makers are producing at a deficit of 8,800 units per month. This is causing backlogs to grow to near record levels. The Class 8 backlog is 268,334 units and Ake said that will balloon to record levels once OEMs begin fully opening up the 2022 order boards.
“Inventories at dealers are at critically low levels,” Ake said. “Their only source of income is used truck sales and maintenance, so they’re hurting a lot because they can’t get inventory.”
Trailer orders have stalled because manufacturers are not yet taking orders for 2022.
“The demand is there, so when OEMs decide to enter 2022 orders they’re going to see a jump,” Ake said. “We expect record [trailer] backlogs above the 237,000 recorded a couple years ago.”
The parts shortages make forecasting a tricky business. But FTR’s outlook is for pent-up demand to spill over into 2022 and possibly 2023.
“We’ll be playing catch-up well into 2023,” Ake predicted, noting Class 8 demand should peak in 2023 before declining gradually. Trailer output will peak in 2022 and then see a soft landing.
FTR projects 360,000 Class 8 factory shipments in 2023, which would mark the second-best year ever. That’s up from 274,000 factory shipments this year and 335,000 next year.
Trailer production is expected to total 341,000 units in 2022 and 330,000 in 2023. If that pans out, 2022 will be the best year ever for trailer production.
In Canada, there will be 22,500 trailers added in 2022 compared to 18,000 this year.
Medium-duty truck demand is also expected to remain high due to e-commerce and home deliveries. Those segments are not immune from the semiconductor shortage but Ake said “there will be robust demand for medium-duty trucks – once we get cranking, we’re going to crank production for a long time. Every market in the medium-duty sector should be humming in 2022-2023 as the economy continues to improve.”
To conclude, Ake said the extraordinary pent-up demand coupled with semiconductor and other parts shortages will ensure truck and trailer makers remain busy for the foreseeable future – once they are able to ramp up production.