Truck manufacturers are struggling to keep up with orders due to freight companies ordering trucks at an unusually rapid pace. According to Business Insider, there’s a six-month backlog for new commercial truck orders due to freight companies ordering trucks in advance to keep up with demand.
“[The backlog] certainly indicates demand is there and the manufacturers are struggling to keep up with [the] order,” said Michael DiCecco, the executive managing director of Huntington Bank’s asset finance sector.
Huntington Bank lends to trucking companies as a part of the bank’s $6.5 billion asset finance business so the companies can buy new equipment and trucks.
It typically takes 10 weeks for freight companies to receive a new commercial truck, but manufacturers have recently been flooded with orders. Now, freight companies will need to wait up to six months to receive new trucks.
For this reason, analysts have advised that freight companies reduce their orders to allow the industry to slow down by mid-2019. But for now, the high demand for new trucks is a sign the freight and trucking industry are both doing well.
According to freight exchange service DAT Solutions, spot rates were up by 19.6% in August, which was also the month for an all-time record month for new truck orders. August is usually one of the slowest months for new truck orders.
July was also a record-breaking month when orders were up by .89% and up an additional 150.3% year-over-year. Rates for the trucking industry first began increasing earlier this year due to a new law limiting how many hours truck drivers were allowed to work at one time.
Companies didn’t often buy new trucks during the slower years, said freight-equipment research group FTR vice president Don Ake. But now that the economy has picked up again many trucking companies are seeing a fast rate of new trucks because there’s an equipment shortage.
“You basically have a shortage of new trucks,” said Ake. “That shortage was caused by a strong increase in demand, due to the economy growing faster than people expected, and manufacturing being a lot more robust than people expected. So freight growth this year has been excellent.”
Freight trucks are used by a variety of shipping industries. Approximately 500,000 reefer trailers are currently in operation across the U.S. and up to 94% of daily hazmat shipments are conducted by truck.
Unfortunately, shipping trucks are also a common issue among car accidents and traffic congestion. Compared to the national average, South Carolina, which is a major port for steel imports, has 62% more fatal car accidents every year.
In an effort to reduce car accidents and traffic congestion, self-driving trucks have also become more popular and have been increasingly developed in recent months.
Still, companies have been recommended by industry experts not to over-invest in their new trucks. The average price of a new vehicle is $35,309, and the explosive growth in truck orders is expected to mellow out by mid to late 2019. If trucking companies continue to order new vehicles, they may end up with an overabundance of trucks.
“As trucking companies are adding trucks, at some point we will reach a tipping point of too many trucks and excess capacity to haul freight,” said Steve Tam, the vice president of ACT Research. “Once that happens, we’ll start to see freight rates trending downward.”
Although you can’t tell people not to buy trucks or build trucks, Ake says, it’s important that companies don’t invest too much at the risk of going bankrupt.
It’s financial cycles like these that are all too common in the trucking industry. There’s an unexpected growth in the truck industry and companies make the move to rapidly purchase new equipment.
Eventually, there’s a downturn in growth and that downturn eventually comes back and effects freight companies, drivers, and manufacturers.
“We will build too many trucks, and then any pullback that you have in the economy causes this large down cycle,” Ake said. “It’s bad for everyone in the industry, but you can’t control it.”