APPLIED PROCESS’S POSTHAVEN

Austempered steel and iron components are critical to today’s Class 8 Trucks (over the road trucks with load capacity exceeding 33,000 lbs).  Austempered Gray Iron (AGI) cylinder liners make diesels more durable.  Austempered Ductile Iron (ADI) suspension, powertrain and engine components make those systems quieter, lighter, more durable and cost effective.  (In fact, heavy truck is the number one market segment for ADI worldwide).  Austempered and Carbo-Austempered^sm components in heavy duty powertrains push their performance envelopes.  Applied Process is proud to be a world-wide leader in Austempering technology and the significant role we play in the production of world-class heavy trucks.

Today’s Class 8 trucks are lighter, more powerful (yet more efficient) and more durable than ever.  Tiered, increasing Federal engine regulations in the last ten years have caused sales to lurch initially up, and then downward, from over 350,000 units per year at the peak to less than 150,000 units last year.  But those regulations (and the Great Recession) are now behind us and demand is stirring.  With TransCore’s North American Freight Index running 10-15% ahead of last year month-to-month and fuel prices moderating, trucking firms are in a buying mood.  Heavy Duty Tucking reported on research by ACT Research that orders in the first quarter of 2011 are the strongest since 2006.  In fact, the article reports that the backlog (as of June) of orders for new, Class 8 trucks is an eye-popping 126,000 units……a 55 month high.

In an interview with Heavy Duty Trucking, Navistar’s Senior VP of North American Sales was quoted as saying, “There are a lot of orders out there, but I’m going to tell you something: they aren’t going to get built because (there) just isn’t the supply base out there to handle the kinds of increases we’re seeing”.  Ditto comments by the President and CEO of Daimler Trucks North America, Martin Daum made at the Mid-America Trucking Show.  Hebe referred to supply chain problems with “tier two and three” suppliers in places like India, China and Korea failing to deliver and then, “the whole thing falls apart”.  In the interview Herbe verbalized what we already know, that “A lot of production has also moved to Mexico in the past few years.  There isn’t the capability to ramp up capacity in those other countries like we have here.  It’s just not going to happen”. 

Hmmm, that would seem to be an endorsement of US production capabilities.  If they went off shore for components and moved assembly to Mexico to save money and now cannot produce say, 50,000 additional trucks this year, I wonder how much money they actually saved?

So, this year in North America we’ll build 225,000 or up to 300,000 trucks depending on how well the Indian, Korean, Chinese and Mexican suppliers do?  Thank goodness for our Steady Eddy US manufacturing customers who are stretched to the limit, but supplying high quality components just-about-on-time. I’m all for sourcing parts in China for the Chinese market, or in India for the Indian market, or in Korea for the Korean market,  but do you think the Class 8 OEM’s might re-think sourcing parts in those countries bound for trucks built in North America?  I guess this year the answer to that question will depend on how much the “low-cost” outsourcing costs them in new truck sales.  Don’t mind me. I’m just the heat treater…..it must take a high-paid OEM bean counter to figure this stuff out.

Our Mission is to Grow the Pie for Austempering……and BOY is the pie growing!  Demand for Austempering remains at record levels.  Producers up and down the supply chain are straining their capacity, resulting in a flattening out of US manufacturing growth.  With certain parts of the economy still in recession, manufacturers have been slow to pull the trigger on capacity-expanding capital expenditures.  Orders in the capital equipment business have now increased, but the entire US manufacturing industry is the bottleneck right now……Applied Process Inc. included.  It will take several months to right-size capacities with demand but accelerating growth in US manufacturing is expected in 2012.

In a longer-term view, SAE Off-Highway Engineering magazine reported on recent comments by John Deere’s Chairman and CEO, Samuel Allen.  Mr. Allen stated that, “A steadily growing population will result in at least 30% more people to feed, shelter and clothe in the next 40 years.  This must be done with basically the same amount of land, water and other inputs such as fertilizer”.  Just think of that….a 30% increase in per-acre productivity.  Mr. Allen further stated that, “Largely as a result of productivity advances, the typical US farmer today feeds over 150 people; six times more than in 1960”.  In the 1930’s approximately 40% of the US population was directly employed in the production of our food.  Today, less than 2% of the US population is feeding the US and exporting food worldwide.  So dramatic productivity increases are not new to US farmers and ranchers.

John Deere is the leader in the US agricultural equipment industry.  The Agricultural equipment industry, worldwide, will play a central part in future productivity gains in food production.  But whether the equipment is green, red, yellow or blue; Austempered Steel, Carbo-Austempered^sm Steel, Austempered Ductile Iron (ADI), Carbidic Austempered Ductile Iron (CADI^sm), Austempered Gray Iron (AGI) and Locally Austempered Ductile Iron (LADI^sm) processed by the Applied Process companies and our affiliates will be getting the job done.