Carriers can expect to pay more for new equipment in the coming years — if said equipment can be found to purchase at all, according to industry analysts.
May Class 8 truck sales on the U.S. market reached 20,715 — the biggest sales month of the year to that point. That number, according to data received from Wards Intelligence, represented the fourth-best sales month since December 2019. It was not, however, a cause to assume that production constraints at truck manufacturers are over.
Supply chain issues have haunted the industry for the past two years, with no end in sight. The lack of availability of semiconductors has been highly publicized, but the problems extend to base materials like steel, aluminum, plastic resins, and more. The problems impact the vendors that supply to the OEMs, so the production problem extends far beyond the tractor assembly line.
OEMs have countered the shortages by building trucks that are missing key components and then parking them on the lot until the parts come in and can be installed. Another tactic is for customers to take delivery of trucks that are missing nonessential parts, ranging from passenger seats to window actuators, some ADAS features, and others. Buyers who need trucks to replace aging equipment in their fleets can circle back to dealerships later, when the parts are in, and have them installed.
Orders for new trucks have far outstripped production, resulting in wait times of a year or longer for delivery. Carriers, not able to buy replacements, kept trucks longer than their scheduled turn-in date, hoping that maintenance costs wouldn’t escalate due to the extra age and mileage. The same supply chain constraints that impacted manufacturers also hit at the dealer level, as parts needed to repair equipment were sometimes hard to come by.
“At the end of 2021, the OEMs are trying to get product out the door and of course their customers want to buy the product, because everybody wanted that sale to fall in the last quarter of 2021,” explained ACT Research’s President and Senior Analyst Kenny Vieth. “Even now, the OEMs don’t have a particularly good handle on supply chain issues, because new problems keep cropping up.”
FTR reports that new truck orders are dropping to levels far below last year’s pace, but part of the reason is that OEMs are reluctant to book orders so far in the future. In FTR’s June update, Vice President of Commercial Vehicles Don Ake commented, “The supply chain was making slight improvements in the last few months, but some of that progress stalled due to disruptions in China and Russia. The OEMs are not confident they can increase production in the second half of the year; therefore, they are not able to take more orders.”
In an effort to secure more parts — especially semiconductors — needed by manufacturers, both chambers of the U.S. Congress passed bills that create government incentives to help create U.S technological and manufacturing independence. Both versions included more than $50 billion for the CHIPS for America Fund semiconductor incentive program and for microelectronic research and development.
An article co-written by the Truckload Carriers Association’s Senior Vice President of Safety and Government Affairs David Heller and Government Affairs Manager Caitlin Smith was published by Freightwaves April 15. In “Viewpoint: A closer look at proposed U.S. competitiveness packages,” the authors wrote, “There is a reason that tech companies go oversees for component manufacturing; they can cut labor costs and increase efficiency to deliver lower prices to consumers.”
Heller and Smith quoted from a recent report, which estimates that costs to bring component manufacturing to the U.S. and away from a global supply chain would add 35% to 65% to semiconductor prices over the long term.
“The long-fought and politically-charged debate remains whether the United States needs to prioritize self-sufficiency to insulate itself from geopolitical shifts, or whether it is ultimately disadvantageous to bring home this type of manufacturing, which largely consists of cheap, unskilled, end-stage assembly,” the article noted.
The article ended by saying that trucking should welcome the measure, “since it will make it easier to purchase the technologies and parts needed to keep America moving.”
As supply chain issues are addressed, another manufacturing issue is growing larger: inflation, combined with a low number of available workers, is driving labor costs upward.
“Initial claims for benefits declined 11,000, to 200,000 seasonally adjusted, which is well below the 2019 average,” explained FTR Vice President of Trucking Avery Vise in a June 6 podcast. “Continued claims for unemployment fell 34,000 to 1.309 million, and that is the lowest level since December 27, 1969.”
In the same podcast, Vise pointed out a Bureau of Labor Statistics report that showed about 6.5 million hires in May, compared to about 11.5 million non-farm job openings. Job quits (employees who voluntarily left their current employer) were at nearly 4.5 million in the same month. That’s an indication that large numbers of employees are leaving jobs to fill an open position elsewhere, often to pursue higher wages.
To add to current production issues, the U.S. Environmental Protection Agency (EPA) published a request for comments on a proposed rulemaking that would greatly reduce greenhouse gas emissions from diesel engine-equipped heavy-duty vehicles. TCA’s President Jim Ward signed the TCA response that said, in part, “TCA is disappointed with the proposed standards put forth by the EPA because the measure does not fully appreciate current market and technology constraints within the trucking industry.”
The TCA comment referred to a report that forecast price increases of $18,000 to $35,000 per vehicle under the new regulations. Higher prices and manufacturing delays would have another impact on emissions, the letter stated. “If motor carriers, due to the proposed standards, are unable to find available, reliable, and affordable technology and parts, they will be incentivized to keep their older, higher-emission vehicles and engines longer — leading to worse environmental consequences than intended.”
Finally, the comment expressed TCA’s desire to “work together to put standards in place that move the industry forward by reducing emissions and advancing climate-positive outcomes in a progressive, but manageable manner that roundly considers material and financial limitations.”
Cliff Abbott is an experienced commercial vehicle driver and owner-operator who still holds a CDL in his home state of Alabama. In nearly 40 years in trucking, he’s been an instructor and trainer and has managed safety and recruiting operations for several carriers. Having never lost his love of the road, Cliff has written a book and hundreds of songs and has been writing for The Trucker for more than a decade.