The National Truck Equipment Association (NTEA) reported last month that the commercial truck and transportation equipment industry saw significant sales increases in the fourth quarter of 2004. Chassis sales increased 52.3 percent for Class 3 and 43.1 percent for Class 8. Class 4 to 7 sales also increased by 10 percent, 22.6 percent, 12.4 percent and 23.4 percent, respectively. Class 2 sales declined 2 percent in the fourth quarter.
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For the year, chassis sales increased in all segments. Classes 6 and 8 led the way with annual increases of 36.8 and 43.1 percent. Class 5 registered growth of 25.1 percent, while sales of Classes 3, 4 and 7 grew at rates of 18.1, 18.7 and 12.7, respectively. Class 2 ended the year with growth of 4.4 percent.
According to the Federal Reserve, production numbers were also on an upswing in 2004. Class 8 chassis production grew by 48.2 percent, while medium-duty production increased 44.9 percnet. Since the medium-duty production data includes Classes 3 through 7, and none of those classes registered a rate of growth as high as 44.9 percent in 2004, it appears that medium-duty chassis inventories were increasing. This is also true for Class 8, but the difference in sales and production growth rates was not as significant for the heavy-duty segment. In the expansionary phase of the business cycle, it is good to build inventories to some extent. However, the gap between medium-duty production and sales growth rates could become worrisome if sales do not pick up in the first quarter of 2005.
TRAILER SEGMENT SHOWS GROWTH. The trailer segment of the industry also saw impressive growth in 2004. Production increased 22.8 percent in the fourth quarter and 25.3 percent for the year. This rise in production was necessary to support continued increases in freight shipments throughout 2004. However, the growth rate of freight shipments decelerated from 7.6 percent in the second quarter to 6.3 percent in the third quarter and closed the year with a growth of 2.4 percent. Freight shipments in the first quarter of 2005 will determine if trailer manufacturers need to continue increasing production at a high rate of growth.
According to the NTEA’s truck equipment sales index, sales increased steadily throughout 2004, growing 6.8 percent in the first quarter, 19.9 percent in the second quarter and 23.6 percent in the third quarter. (Sales date for the fourth quarter was not available at press time.) The above growth rates are mostly in line with chassis sales.
STEEL PRICES LEVEL OFF. As 2005 begins, it is important to note that a trend of rising steel prices established in 2002, which continued throughout 2003 and 2004, appears to be nearing an end. The combination of steel industry trade protection and surges in global demand that led to huge price increases seems to be under control. In the fourth quarter of 2004, prices of carbon steel scrap increased by 6 percent, down from the annual rate of 53.2 percent.
The market for steel products also cooled off in the fourth quarter. U.S. prices of hot-rolled sheet and strip increased 6.5 percent, down from 28.8 percent for the year. Hot-rolled bars, plates and shapes prices increased only 2.6 percent in the fourth quarter, compared to 53.1 percent for the year. Prices of steel pipe and tube increased 3.1 percent, down from 66 percent for the year. Steel prices continue to remain a problem, but it appears that the global market for steel is settling down. In fact, by the end of the year, prices for scrap steel and steel products may begin to decrease as new production capacity comes on line.
EXPORTS & INTEREST RATES. The forecast for 2005 remains quite positive, one reason being expected growth in much of the industrialized world – namely primary trading partners. That would normally bode well for U.S. exports of commercial truck and transportation equipment, but for the first half of 2005, exports should be boosted beyond normal by the depreciated dollar. In addition, capital expenditures are expected to continue increasing while interest rates remain historically low.