Production Challenges Could Impact Commercial Vehicle Market in 2021

ACT Research reports demand is strong to start 2021, but component supply shortages could pose challenges for truck manufacturers.

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ACT Research's latest North American Commercial Vehicle OUTLOOK indicates demand for commercial vehicles will remain strong in 2021. Thus far orders are above those of the previous year. Orders for Classes 5-8 trucks were down in January compared to December, but still well above January 2020.

However, the supply chain's ability to respond to demand could pose challenging for manufacturers and make it difficult to keep up with demand.

“Because of the global surge for resources that began in the last half of 2020, the added challenges of ramping the supply chain rapidly in a pandemic, and other exogenous factors bubbling up, we are comfortable taking a cautious approach to our full-year 2021 calls,” said Kenny Vieth, ACT’s President and Senior Analyst, in the research firm's press release announcing the availability of its report.

“As we start 2021, the high points for CV demand include strength in key freight generating economic sectors, carrier profitability that is expected to rise to record levels this year, strong orders and rapidly-filling backlogs.

“While demand is strong, supply chain impediments are accumulating, from steel production constraints created by global economic reengagement during a pandemic, to silicon chip shortages, and in late January the Mexican government ordering oxygen producers to give medical demand precedence over industrial supplies.”

Market similarities to 2018

ACT's recently released State of the Industry: NA Classes 5-8 Report also reflects these potential supply chain challenges. It notes 2021 is starting much like January 2018 during which front-end challenges to production were experienced by truck manufacturers.

“In 2018, the industry was beset with labor challenges reflected in sub-4% unemployment rates that posed production challenges through the first half,” said Vieth. “Similarly, factors are in place that mirror the beginning of 2018, and as then Class 8 production expectations are for significant growth in 2021. On top of pandemic-related challenges of keeping and growing staff are material shortage issues.

“Most immediately, the industry is on the front-end of a silicon chip shortage. While chips have taken center stage, the diversion of oxygen production in Mexico from industrial to medical purposes and reports that steel has become increasingly challenging to secure are in the wings as potential constraints.”

By commercial vehicle segment, Vieth comments, “Even with these constraints, the economy is growing in all the right places for freight, with freight rates strong and carrier profitability rising. The fallout of this is reflected in Class 8 orders, especially for tractors, backlogs, and build rate pressures.”

Regarding the medium-duty segment, he notes, “Like their bigger peers, the medium-duty market continues to put down strong numbers, reflecting strength in goods demand and construction.”