New truck supply remains scarce

COVID-19 is mostly behind us, so you’d think that truck builders and all their suppliers would be pretty much back to normal operations and the truck supply rebounding.

But they’re not, and though some progress is reported, it might take another year before the supply chain is working like it was before the onslaught of the devastating pandemic that sickened and killed millions of people and disrupted production of materials and parts around the globe.

An added factor is the grinding war in Ukraine, along with petroleum shortages and the rise in oil and fuel prices that followed Western countries’ sanctions on Russia, which started the conflict with its invasion.

One statistic illustrates how crippled North American truck supply still is: In the first five months of 2022, Class 8 production rose just 3.6% over the same period in 2021, according to Ken Vieth, president of Columbus, Ind.-based ACT Research, which monitors developments in the industry. By contrast, before the pandemic and the war, production rose 26% in that period of 2019 over 2018. Truck order backlogs stretch out by 10 to 12 months, not because of booming sales but because of shortages of parts and components.

“Production shortages are broad-based,” Vieth said, “with semiconductors at the top of the list, plus aluminum parts, tires, wiring harnesses, and down the list of semiconductor-related parts, all in tight supply as well. The sanctions on Russia are starting to squeeze supplies from there – palladium, nickel, steel and, of course, oil.

“You’ll have one part one week but you won’t have it the next week. A lot of it goes back to the pandemic. Even now you have China shutting down, as an example. Labor, global trade relations, and demographics are issues. The labor force has grown only 2.6%, and that affects wages. The Mexican steel industry went down in mid-2021, India steel toward the end of ’21. The global supply chain is very fragile.”

“They’re (truck manufacturers) running 100,000 trucks behind demand,” said Don Acke, vice president of commercial vehicles at Bloomington, Ind. based FTR Associates, a marketing research firm. “They would like to be producing a lot more … If you need a new truck, you’re out of luck. If you need a new trailer, you might be able to get one” because production of trailers, which use few if any chips, is recovering faster. “Used trucks should be more available in the second half of the year. But not late-model trucks, because trade-ins are still going to be limited from the big fleets.”

Used truck prices, which rose to historic highs in 2021-22, are now tumbling, reported Neil Fyda, manager of development at Fyda Freightliner, Columbus, Ohio.

“The used market has gone down by 20% in unit values,” he said. “The threat of recession got people concerned about prices and financing terms, so demand has gone down. Customers are now calling around and price checking instead of just grabbing equipment. I hope it keeps going that way. It’s been a crazy market for the last two years – high demand and no supply. It became outrageous. More used trucks are now available on the market.”

But new trucks remain scarce.

In the frenzy to acquire equipment, “some new trucks have been bought and resold a number of times, going for as much as 90 grand over standard market,” Fyda said. “Production has remained quite low. Supplies are still an issue. But manufacturers say they have figured out their supply chains, and are bringing on new suppliers. Prices for materials are coming down, so it seems like they’re shaking it loose. So it should get back to normal. But when? No one knows when. People have been proven wrong so many times.”

Locally, “we have zero availability” of new trucks, Fyda continued. “There are some trucks on the lot, but all of them are sold. There’s one black dump truck, a six-axle, out there, but you won’t like the price – $234,000.” truck supply

Going back to used units, he said, “We have four refurbished dump trucks. We took off refrigerated bodies and put on landscaper bodies.”

Very gradual improvements might be noted going into next year, analysts think. As noted, the principal culprit is the shortage of all-important microchips that populate the electrical systems of modern heavy trucks and other automotive products. A typical Class 8 truck has 35 to 45 chips, Acke said. The semiconductor industry is struggling to recover, but it, too, is facing supply shortages.

“Demand for chips is extremely strong right now and companies that make the machines that make the chips are having trouble keeping up with demand,” Vieth said.

Meanwhile, several chip plants in the U.S. are being expanded to lessen America’s dependence on foreign sources. And Intel Corp. has announced plans to build two new factories in central Ohio, pending the passing of a subsidy law by Congress.

Finally, the war in Ukraine is expected to put the squeeze on another material – neon gas. “Prior to the war, Ukraine was supplying about 50% of the world’s purified neon into the semiconductor market (where it’s used for etching microcircuits),” Vieth said, “and by end of this year a shortage could develop.”

What’s next – a shortage of neon signs? LL