Wabash is following through on its attempt to smooth out the boom-and-bust cycles in trailer making. It has signed a multiyear supply deal with J.B. Hunt Transport that will cover 15,000 trailers over coming years.

The deal — the exact length was undisclosed — is significant. It helps Wabash reduce uncertainty surrounding customers who place orders and then cancel them when economic prospects change. OEMs historically have allowed this behavior before it orders materials.

Lafayette, Indiana-based Wabash wants to jointly plan demand with customers beyond the next 12 months, enabling strategic management of its backlog.

Stabilizing long-term pricing and capacity 

“By that long-term agreement, [customers] get a strong source for a premium product with known capacity for multiple years,” Wabash CEO Brent Yeagy told FreightWaves in November, hinting at a future deal without naming a company.

“We get deeper points of value in terms of parts and service and broader portfolio penetration, and we jointly work on ways that we add value to each other. We can do that now because we have a runway.”

J.B. Hunt said it can improve use of its equipment. Assets would be in the right place at the right time for available drivers. 

“The trailers provided by Wabash over the next few years will help us expand capacity available for services like private fleet outsourcing and drop-and-hook freight,” Nick Hobbs, J.B. Hunt chief operating officer and president of contract services, said in a news release.

The entire supply chain benefits from longer-term deals.

“The collaborative nature of multi-year demand planning builds upon our improved pricing construct to generate another important proof point of how we are structurally improving the foundation of our company by smoothing out demand cycles that drive unnecessary variability through the entire supply chain,” Yeagy said in the release.

The long-term J.B. Hunt agreement couples with Wabash’s 10-year aluminum supply agreement with Hydro, which provides certainty that Wabash can meet pent-up demand as its additional dry van capacity comes online in early 2023. 

A deal for big players

Few trailer manufacturers have the capacity to take on such a manufacturing commitment. And few customers have fleets large enough to make such an acquisition, Jeff Kauffman, principal, Transportation & Logistics Equity Research at Vertical Research Partners, told FreightWaves. 

“J.B. Hunt happens to be one of them because of the large intermodal and dedicated business they have,” Kauffman said. “For Hunt, it doesn’t have to worry about prices moving up and down dramatically in a given year. In Wabash’s case, it makes it easier to plan capacity.  

Wabash is finishing conversion of a refrigerated trailer production facility to make dry vans. It will increase capacity to 10,000 dry van units from 5,000 reefer units.

More long-term deals should be expected from Wabash because its customer base is weighted toward well-capitalized enterprise carriers, said FreightWaves analyst and equipment markets expert Mike Baudendistel.

“It’s easy to see why Wabash would want to move in the direction of multiyear agreements. Investor speculation on month-to-month trailer order volume and associated production levels has contributed to tremendous volatility in the share price over the year. Plus, the deeply cyclical nature of trailer manufacturing makes staffing difficult.”

Wabash (NYSE: WNC) shares have sold between $12.23 and $26.20 over the past year. They closed at $25.75 Tuesday, up 7.16%.

Wabash blows away Q3 earnings estimates, builds trailer backlog

Trailer maker Wabash pulls ahead despite cooling economy

Wabash CEO leverages military training in transforming trailer business

Click for more FreightWaves articles by Alan Adler.

The post Wabash cuts multiyear trailer supply deal with J.B. Hunt appeared first on FreightWaves.