OEM Off-Highway recently interviewed Power Systems’ Chris Fisher for their OEM Industry Update podcast. Here we present it with their permission
This week on OEM Industry Update we speak with Chris Fisher, Senior Commercial Vehicle Analyst, Power Systems Research, about the current state of the North American commercial vehicle market. He says truck demand continues to be strong and is expected to remain so through 2022 and possibly even into 2023. Inventory stocking and solid growth in single family housing are among the factors positively impacting the market.
Transcript
Welcome to the PSR PowerTALK podcast, produced by Power Systems Research.
00:13 Sarah Jensen:
Welcome to OEM Industry Update; a weekly podcast examining the latest news and technology trends impacting product development teams and the heavy-duty on and off highway equipment Industries. I’m Sarah Jensen, editor of OEM Off Highway and in this week’s episode I’ll be speaking with Chris Fisher, Senior Commercial Vehicle Analyst at Power Systems Research, about the current state of the North American commercial vehicle market. Let’s take a listen now:
…And then if you could just kind of give an overview of the current state of the North American commercial vehicle market?
00:52 Chris Fisher:
Yeah, it’s, well, it’s definitely a lot better than it was about 8-9 months ago. We’ll say that.
So a little bit about this… So what we’re seeing is commercial truck demand started to rebound in the fourth quarter of last year, which was a very good thing, primarily in the Class 8 heavy truck segment. Order rates for the class cape ,sorry, order rates for class eight came in stronger than expected; which will definitely bode well this year, at least through the first half of the year.
However, there is certainly some concerns surrounding the supply chain. Currently, the supply chain is struggling with a surge in demand and companies are really having difficulty hiring enough workers. Imported parts are also experiencing delays at the ports and we’re expecting these, these issues to continue through at least the first half of the year. So basically truck demand is not the issue, it’s getting, getting the various components, uhm, to the line so they can, they can manufacture. We’ve actually taken up our Class 8 forecast this year from around 200 and, somewhere around 240,000 up to around 265-270 thousand. So that’s, that’s a very good sign.
02:01 Sarah Jensen:
Uh-huh. OK, and so you say this, uhm, this, like, surge in demand could be a challenge just for the first half of the year? Do you think, will it be that, will there be some, is there something that will help alleviate that issue at some point so that it could get better in the second half of the year? Or is it kind of still uncertain? (what)
02:22 Chris Fisher:
It’s still, it’s still pretty uncertain, uhm, I know the first half we’re struggling and hopefully they can get some of these issues ironed out and at least have a good run in the second half as well.
02:32 Sarah Jensen:
Mm-hmm
02:33 Chris Fisher:
No, that’s a, that’s a, that right there is a $64 question.
02:37 Sarah Jensen:
Yeah, yeah.
02:38 Chris Fisher:
Very much so.
02:39 Sarah Jensen:
OK.
So what are maybe some of the key drivers that are helping the market have such this surge in demand or and is that expected to continue throughout 2021?
02:52 Chris Fisher:
Yeah, we believe so. What we’re seeing is freight rates remaining relatively high and this trend is expected to continue throughout the year. Strong consumption, inventory, restocking, and solid growth in single family housing bills are positive factors in fact affecting this trend. Congress also passing another round of economic stimulus also bodes well for the commercial vehicle adoption rates.
While Corona virus continues to negatively impact the economy, PSR does believe the effects will cause significant slowdown, or does NOT believe it will cause significant slowdown this year. And we’re really hoping these increasing vaccinations will also help come to a stronger overall economy. Possibly the service sector, which is, as we all know, has really taken a hit this year.
We’ve also seen over the past year or so or 8-9 months. The freight has also been uneven. For example, the trucking sectors at whole for the industrial and energy industries are not seeing the surge in freight like the consumer side of the economy.
Currently, retail freight continues to see stronger volume than heavier industrial production. However, we have seen some improvement here and we’re hoping that continues throughout the year.
And of course, as we would expect, commercial food services continue to be down, while grocery delivery demand is up. Although commercial food service should see improvement throughout this year. Again, the ongoing vaccinations were basically hoping that the bars and restaurants can start opening up.
04:23 Sarah Jensen:
Mm. Right.
OK. And so can you, maybe, talk a little bit about, maybe, what are some of the challenges and or opportunities for the market in 2021?
04:35 Chris Fisher:
I would say there’s one in particular. I want to focus on that, and that would really be the supply chain. You know, that is, I had talked to somebody in the know, I believe it might have been Tim Kraus at HDMA awhile back, and his comment to me was that the CEOs, and this has been a few months ago, they can’t re-shore production from China fast enough. We’re seeing and we’re seeing the so-called re-shoring. We believe that’s really heading towards South Asia as well as Mexico, and we’ll certainly get some here in the states. But really, it is a supply chain. I mean, ’cause really after a number of years of companies shifting their production to China driven by of course lower production costs, the trend has started to reverse and the CEOs are really trying to decentralize production. They’ve, they’ve realized during the past year how fragile that supply chain really is.
Also interesting too is, I believe was a week or two ago, the White House announced that President Biden will sign a new executive, order if he hasn’t already, aimed at restoring the United States supply chain; secured, or supply chain security in the coming weeks. The administration is currently identifying the choke points and really trying to address the long-term issues. ‘Seems like semiconductors are really the biggest problem. Also, having some steel issues as well.
05:54 Sarah Jensen:
Mm-hmm. Right. Yeah. Here I saw news that he had signed that executive order yesterday.
06:02 Chris Fisher:
Oh OK. Yeah.
06:03 Sarah Jensen:
Yeah. So yeah, so do you see that maybe will that help the market in any way? Or will is it too soon to tell and it’ll kind of depend on how that policy progresses.
06:14 Chris Fisher:
Well, this person… You know how like how that goes. You know, the policy… not too sure. But the, the really good thing is when, when the CEOs have identified this as a serious issue, you know not just the virus, but I believe that Trump tariffs caused little impact too earlier last year as well, and so they’re, they’re realizing the fragility of their supply chain, and they’re, they’re trying to decentralize that a bit. I think that’ll really be the driver.
06:42 Sarah Jensen:
Mm-hmm. OK.
So what are we some of the biggest trends you’re currently seeing in the North American commercial vehicle market?
06:52 Chris Fisher:
Oh, there’s, there’s a number of them. Some are, some are longer term, some are shorter. Uhm, but a lot of times we’re seeing it. Also, in order to retain drivers, the fleets have been transitioning their focus to more regional haulers as opposed to long haul. Basically the truck drivers do not want to live on the road.
07:10 Sarah Jensen:
Right.
07:11 Chris Fisher:
E-commerce has also facilitated, helped facilitate this by distributing inventory to a wider range of locations. And there’s a lesser known factor too: we’ve kind of noticed, and we’ve not seen a huge impact, but the widening of the (penantic) Panama Canal has also been a factor. It lets, you can receive the imported goods closer to your end destinations, so that would definitely drive more need for regional haul as opposed to long haul, you know. So you don’t need to bring everything into California. Then, you know, truck them clear across the country in the, in the long haul class eights.
And we’re also, also seeing this have been talked about quite a bit, but during the past decade the commercial vehicle market has come under pressure to adopt alternative fuels such as natural gas, hybrids, electric, and more recently, hydrogen fuel cell technology.
The hybrid vehicles never gained traction and natural gas is still relegated to specific applications.
Now currently, why the, well the first two I was talking about – that’s older technology. Currently the electric trucks are still in the test phase while the hydrogen fuel cell trucks are just beginning their test phase. Much like the rest of the world, all major OEM’s have electric and hydrogen trucks in the testing stage with serious production expected to commence probably no, no sooner than the 2023-2024 timeframe. However, there’s, as you can imagine, there’s still numerous barriers that have to be overcome before adoption be taking place on a large scale. Primarily with trucks. Not so much buses, but the the trucks, the for-hire.
And it’s also becoming too clear, a lot more clear, that large scale adoption will require government regulation and incentives to drive the economies of scale to reduce the cost of the electric and the fuel cell trucks.
So basically, at this point, I mean, currently we believe the strongest growth will be in the transit bus and pickup and delivery segments where their charging infrastructure is more readily available.
09:14 Sarah Jensen:
Mm-hmm
09:15 Chris Fisher:
Well, since the transit bus purchases are typically controlled by local and state governments, this is a prime segment for electrification. Basically, the municipalities are typically not-for-profit, and so if they have money they can spend it.
One thing too we’ve seen, I don’t know if you’re familiar with this or not, but many of the large cities in this, in the United States, have committed to 100% adoption of electric transit buses.
09:41 Sarah Jensen:
Mm-hmm
09:42 Chris Fisher:
You know, a lot of these time frames. I’ve got a whole bunch of examples. You have California CARB established a mandate requiring all trans’s to be zero-emission by 2040. Los Angeles is very similar. I think they’re starting theirs in 2028 or I guess have all electric by 2028. San Francisco by 2035. And of course, Seattle, New York, Chicago, as well as, uhm, as well as a number of cities in Canada have also put in timelines to have zero-emission.
Now, whether they hit it or not, it’s hard to tell, but they’re definitely going that way. And if, if any segment can do it, I would definitely say the buses can. They’ve got the infrastructure there.
10:24 Sarah Jensen:
Mm-hmm. OK.
And how do you really foresee the market continuing to progress through 2021 and maybe into 2022.
10:36 Chris Fisher:
Well, looking ahead we believe heavy truck production will continue to improve through at least 2022 and likely into 2023 as really the truck capacity rebalance. So we had in 2018 and 2019 extremely, extremely strong years in demand and production levels for Class 8, so the fleets are still somewhat young, but they are aging with this year in such sharp, sharp decline — I’m sorry — LAST year in such sharp decline.
And generally the “shock and awe” of the pandemic is past and the global economies are generally stronger than they were six months ago.
So at the end of the day, freight continues to be hauled. Fleets need to be upgraded. While we expect the negative effects of the pandemic to remain throughout the year, it’s really, the drama’s out of it, compared to last year. So we’re seeing we’re seeing very good things moving forward.
11:34 Sarah Jensen:
Well, I think those are all the questions I had for now. I don’t know if you had anything else you wanted to add about what you guys are seeing with the North American commercial vehicle market?
11:43 Chris Fisher:
I think that’s a pretty good summary. I mean, there’s always, always nits in there, but that’s a that’s a pretty good overview and, and basically we do believe the worst is behind us, hopefully.
11:53 Sarah Jensen:
Yeah, fingers crossed.
Thank you for listening to this week’s episode of OEM industry update. Thank you again to Chris for providing his insights into the commercial vehicle market. Be sure to tune in each week for another episode to stay up to date on our ever-changing industry.
12:14
Thank you for joining the PSR PowerTALK podcast. This podcast will be available on demand. Search for “PSR PowerTALK” in your podcast app or Google “Power Systems Research” to sign up today. This podcast is used with permission.
