The high cost of steel, like the high cost of fuel, is starting to make a financial impact on fleets, such as increased costs for truck bodies, trailers, liftgates, and other upfit equipment. The price of steel is cyclical; however, in this cycle, the price of steel has increased sharply from $400 a ton to as high as $800 a ton. (By way of context, it takes about a ton-and-a-half of steel to build a car.) What has kept steel prices high so far this year has been resurgence in capital spending, a low inventory of steel as a result of the massive global consolidation of steel producers, and the emergence of China as a huge steel importer, which has created an enormous demand that barely existed in previous cycles. A June 2004 survey by Purchasing Magazine revealed that 72 percent of steel buyers polled expected steel prices to remain ele-vated through the third quarter. From the fleet perspective, upfit-ters are increasing equipment costs to compensate for their higher cost of steel. For instance, on Aug. 2, Utilimaster Corp. in Waka-rusa, Ind., raised the prices on all of its truck body and walk-in van product lines. “Escalating costs of raw materials – aluminum, steel, wood, and petroleum based products – require price in-creases in our product lines ranging between 6 and 8 percent,” said Utilimaster’s VP of Sales and Marketing Kevin Page.
Similarly, Supreme Industries, a manufacturer of specialized truck bodies headquartered in Goshen, Ind. has implemented an aggregate 11-percent price increase during the first seven months of 2004 to mitigate the escalating cost of steel, aluminum, and wood. “Since the cost of the major commodities used in our prod-ucts have not yet stabilized, we implemented an additional 5-percent price increase in July,” said Omer Kropf, president of Supreme Corp. Earlier, Supreme had raised prices 1 percent in March and 6 percent in early April. Strong Truck Demand Creates Long OTD
Demand for medium- and heavy-duty trucks is up 40 percent this year, according to Standard & Poor’s, which has prompted manufacturers to substantially boost output for the first time since the late 1990s. Ford plans to increase commercial truck production by 30 percent during the second half of the year. A second shift will begin producing TopKicks and Kodiaks in September at GM’s Flint Truck Assembly. Freightliner has added a third production shift at its Cleveland, N.C., assembly plant and another 100 jobs at a chassis and cab parts factory in Gastonia, N.C.
One example of the strong demand for work trucks is U-Haul International, which has added 5,000 10-foot GMC moving trucks to its fleet in the past year. According to U-Haul, it is witnessing an increase in moving activity all across the country, which it says is a strong indicator that the economy is improving. In addition, the average age of commercial trucks on the road is 5.9 years now — a 10-year high, which is triggering a strong replacement market. In other cases, some fleets are accelerating truck acquisition timetables so that they occur before the more stringent federal emission regulations covering diesel engines take effect in 2007.
The drawback for fleets, especially those predominately comprised of trucks, is that order-to-delivery times for medium-duty and heavy-duty trucks are starting to take 9-10 months. One fleet manager told me that he had cut a P.O. for his ordered trucks in November 2003 but was told he would not receive the trucks until mid-summer. Not only is there a shortage of medium-duty and heavy-duty trucks in the market, there is likewise a short supply of truck trailers.
The significant shortage of raw materials is also impacting Class 3-6 truck production. “The raw material shortage for both production parts and replacement parts to a certain extent is holding back the output of many manufacturers,” said Rainer Schmueckle, president and CEO of Freightliner LLC. “As the world economy starts to align and countries like China provide a significant strain on raw materials, we may struggle even more to reach the (truck) output in 2006, (meaning) the reductions in 2007 could be even graver than what we saw in 2002-2003.” Let me know how these issues are impacting you. [email protected]
Originally posted on Automotive Fleet