BALTIMORE, (Feb. 21, 2005) — Rapid growth of class 8 truck orders doesn’t mean the truckload capacity shortage will be over soon, say Legg Mason analysts John Larkin & David Ross. Majority of new tractor orders are replacements, not additions, the U.S. firm says.

Class 8 tractor sales surged in ’99-2000, due in part to aggressive pricing and financing, they note. Tractor replacement cycles expanded during the 2000 industrial recession and were further extended with fleet reluctance to buy ’02 EPA-compliant engines.

“Existing fleets are now, by some measures, the oldest they have been in almost 15 years,” they say. “Not only do carriers need to catch up on ’02 engine purchases, they want to reduce average fleet age significantly in anticipation of the next round of EPA engine emission rules scheduled to take effect Jan. ’07.”

Chronic truckload driver shortage has prohibited most carriers from seating existing trucks, let alone additions. While some small fleets may be adding equipment, Larkin & Ross say they see no evidence of drivers flocking to small fleets. Thus, expansion by some smaller fleets likely isn’t representative of a broad pattern or trend that will significantly “move the overall truckload capacity needle.”

Other factors expected to keep capacity tight: Surge in imported containerized freight is expected to continue in ’05; railroads can’t add capacity quickly enough to alleviate the demand for trucks; and potential rerouting of container ships to smaller, less congested ports would squeeze capacity elsewhere.

Larkin & Ross also note that some 20 percent of class-8 truck orders are straight trucks, so at least a portion of the recent surge is likely fueled by strong industrial & construction sectors, not by truckload carriers. Moreover, order trends have historically been much more volatile than sales.

According to their analysis of the past five to 15 years, average monthly class-8 orders have exceeded average monthly sales by almost 22 percent. “Accordingly, the recent spike in class-8 orders should translate into a much smaller increase in the actual number of tractors being delivered to carriers,” Larkin and Ross say.

— from Heavy duty Trucking