Heavy Truck Deliveries Slowed by Bearing and Component Shortages

At the Mid-America Trucking Show, medium-duty and heavy-duty truck manufacturers publicly aired their displeasure with structural shortages of key components, and bearings in particular. Representatives of Navistar International and PACCAR (Kenworth and Peterbilt) complained their North American heavy-duty and medium-duty truck plants continue to face short supplies of axles and transmissions. DaimlerChrysler, which produces Freightliner, Sterling, and Western Star trucks, declined to comment for its eight manufacturing plants in North America. North American (United States, Canada and Mexico) production of heavy-duty and medium-duty trucks began to recover in 2003 and has come on very strong since early 2004. Deliveries ended last year over 40% higher than 2003. Even though it is not the only bearing manufacturer serving the heavy truck industry, Timken, as the highest profile vendor, has been taking much of the blame for being caught without enough production capacity or extra inventory to cover the increased demand. For basic material suppliers such as Timken, the problem is that demand has stayed strong for an unusually long time, depleting inventories and leaving production unable to keep up. Few component manufacturers can afford to keep production online during a recession. Cutting production capacity during the most recent recession left many unable to ramp back up as quickly as demand would dictate. Navistar International said in a press release that it has chosen to work through the parts shortages rather than cut production, meaning it is assembling incomplete trucks, then setting them aside until the needed parts arrive and can be installed. Navistar President Daniel Ustian said, "While some of our competitors have cut production, we believe our decision will best serve the needs of our customers and shareowners. We anticipate that our overall market share will grow because of this strategy and that our earnings will be greater in 2005 than if we had cut production." The total heavy truck market increased 42% to just over 255,000 trucks in 2004. Demand has been driven by sharply increased economic activity in North America, more imported goods reaching the shore and needing to move to final destinations by truck, and the need for fleets to modernize their equipment following a recession that saw those purchases delayed. With more efficient utilization and freight rates rising, fleets can now afford the new equipment. Component shortages due to higher truck sales in North America have been exacerbated by somewhat higher sales across Europe, although the European growth in heavy truck sales has been less robust than North America's. And the boom is not over; a recent survey by ACT Research indicates the North American market for medium-duty and heavy-duty trucks will continue to grow strongly through the end of 2006, when a cyclical downturn is projected. Truck manufacturers have complained that Timken's bearing deliveries have affected availability of both axles and transmissions. However, the axle manufacturers, ArvinMeritor and Dana, both said their deliveries were continuing largely uninterrupted. Both also mentioned they were now second-sourcing bearings -- reportedly from SKF -- to fill in wherever Timken was backordering. One industry analyst, however, pointed out that may not be the case. With all the specialty bearings involved in heavy-duty transmission and wheel-end applications, and with many designs tied to a specific manufacturer back at the design stage, the number of SKF bearings which could be directly substituted in OEM Timken applications would be, "limited." A Timken spokesman told eBearing, "...in the face of a strong industrial cycle like we're currently seeing, it's not at all uncommon to see shortages develop temporarily in the supply chain. This isn't a problem that's specific to bearings, of course. If you researched it, I believe you'd also find periodic supply shortages of other materials. This is business as usual at the height of product demand."