Australia’s trucking industry in 2013

Historically, the Australian truck market has seen continuous growth as positive economic performance resulted in an increased freight task. The one glitch in the market’s overall progress was a far-reaching crash in orders that followed the 2007-08 GFC, which saw truck sales figures drop from record highs to all-time lows in the following years. Since then, sales numbers have seen a faltering climb back to the numbers seen around 10 years ago.

2013, however, could be the year to end that phase of hesitation. Driven by continuing economic stability here in Australia, we may even see the truck market return to a steady but strong growth again.

While economies in both Europe and America continue to struggle, Japan remains stagnant and even Chinese growth has come off a point or two; the resources boom helped Australia mitigate the worst of the economic crisis and provided a solid foundation for growth into the future, as recent data indicates.

The transport industry is one of the major indicators of an economy's health, as economic growth creates even faster growth in the freight task. Overall, last year saw the truck market in Australia grow by around 10 per cent, indicating a positive business sentiment across the county. 

One of the factors influencing this development was the high level of demand for new heavy-duty trucks after March 2012. The relatively high level of sales in this segment turned what was predicted to be a relatively slow growth year into one displaying a considerable increase in sales. The spike in heavy-duty truck sales is most likely due to transport operators finally making the call to buy new equipment after trying to get by with older trucks for a while.

In addition, most truck operators decided to keep their trucks for a longer period during the GFC to reduce their debt burden. The increase in truck life subsequently led to increased demand in workshop capacity for engine and gearbox rebuilds, as a lot of operators tried to wring another few thousand kilometres out of their trucks. And even when the economy picked up again, financial institutions continued to be wary of releasing too many funds and kept repayments high.

2012 saw the loosening of some of those purse strings, as equipment finance became easier to get hold of, and banks became more comfortable about lending money to the trucking industry again. At the same time, the Australian economy was also showing encouraging signs of steady and consistent growth. New transport contracts were coming around, more new trucks were needed, and finance was becoming less problematic. All of these factors combined to create a pull-through where pent-up orders created a considerable increase in demand for trucks in the heavy-duty sector.

While the heavy-duty market is expected to continue to grow relatively strongly in 2013, it is less likely to have a major impact on overall sales figures, which continue to increase across the market while the pent-up demand dissipates. Truck sales in the lighter segments, especially in the light-duty field, are less affected by what is going on in the transport industry, but more indicative of what is going on in the general economy. Many of the trucks are bought as part of businesses whose main area of activity is outside the transport industry, where the truck is just a tool to be used to support the commercial requirements of the company.

Looking back, Australia’s market leaders – Isuzu overall and Kenworth in the heavy-duty segment – have retained or strengthened their respective market share. At the end of 2012, Kenworth was holding 20.7 per cent of the heavy-duty market, exactly the same figure as they achieved by the end of 2007. Isuzu have consolidated their market strength, climbing from an overall market share of 22.1 per cent in 2007 to 23.4 per cent in 2012.

As a result, the smaller players in the Australian truck market have lost out as the market leaders have maintained or strengthened their lead. Hino and Fuso, for instance, have seen a decrease in market share as heavy-duty sales increased faster than medium and light duty sales, which is their usual area of specialisation. However, in the medium duty sector the Japanese brands continue to totally dominate with over 92 per cent of market share between the four brands. The picture remains similar in the light duty market with three Japanese brands holding over 75 per cent of the total market share.

Back to the heavu-duty front, the past five years have seen the disappearance of the Sterling brand and the introduction of the Cat range to Australia. Freightliner have been unable to convert all of the former Sterling customer base into Freightliner buyers and brands like Western Star and Cat appeared to have captured some of that North American orientated market. Among the European brands in the heavy-duty segment, market shares have remained stable; apart from the reinvigorated Scania brand which has managed to increase its share to a new high of 7.2 per cent in 2012.

“Scania sales have been growing steadily, and the increases are due to a focused approach to sales among national fleets, mining customers and delivering reliable after sales support,” says Scania spokesperson, Alexander Corne. “Scania now considers itself a total transport solution provider to its customers, which takes its interaction well beyond the simple delivery of a piece of hardware.”

One of the main factors which has influenced changes in the truck sales market over the past 10 or so years has been the constant need to upgrade engine technologies as exhaust gas emission regulations have tightened in three stages. The prospect of a major exhaust emission change can create anomalies in the market as orders are pulled forward to avoid more expensive equipment or major freight customers specify the best possible exhaust emission control equipment for vehicles in major distribution tenders.

One such emission regulation on its way again at the moment, but its proposed introduction at the end of 2016 is likely to be pushed back at least one year as this year's planned federal election will delay decisions on the part of the Department of Transport and Infrastructure. The Department was due to issue a Regulatory Impact Statement (RIS) this year as a precursor to the development of ADR 80/04 (Euro VI equivalent), but the caretaker period in the lead up to the election is likely to push this through to 2014 and, therefore, push the introduction of the new rules out to 2017 or 2018.

As seen over the past decade, such a delay is likely to cause confusion in the market as to which models will or will not be available in the future. The US truck market is already using lower emission technology, as is Japan, and Europe will follow later this year. This means the source of the vast majority of trucks on the Australian market will be one step ahead of Australia for the next five years. This is likely to put pressure on some manufacturers, especially the Europeans, where truck production is geared to fitting one type of engine on large, highly efficient production lines.

As a result, we are likely to see the early arrival of Euro VI models from Volvo and Mercedes-Benz as the new cabins they have introduced in Europe in the last year are designed to be fitted with only the latest exhaust emission regulation engines. The two companies will be in a situation where they have a choice between continuing to sell older legacy product with little chance of any new developments or the latest and greatest with Euro VI engines, but also at higher prices. This pressure is unlikely to affect the US or Japanese manufacturers as their production facilities are designed to deal with vendor engines in the USA and a wide range of exhaust emission regulations in Japan.

Another factor which may create some changes in the overall Australian truck market in the next few years is the changing global currency market. A recent article in the 'Economist' magazine quotes Jens Weidmann, head of the German Bundesbank, as fearing the, “increasing politicisation of exchange rates” as countries use competitive devaluations to boost exports and kickstart flagging economies. This is already happening in Japan as the new government try to reflate the economy. However, Japan's unstable political situation means this policy could change at any time.

Nonetheless, exchange rate effects have always been important factors in the way the Australian truck market develops. Currently, our strong and resilient economy means the Australian dollar is overvalued by over 12 per cent, according to the Big Mac index, published by the Economist. This creates a situation where imported trucks have a price advantage over those built here in Australia, compared to earlier times when the Australian dollar traded at a much lower rates. Luckily for the local manufacturers, this disadvantage is somewhat mitigated as most of the components used by truck makers manufacturing here in Australia are also imported and equally good value.

Although these factors will influence trade and sales figures, the general trend is for a gradual recovery with steady growth occurring across the market sectors but with special circumstances influencing small variations in certain segments. The Truck Industry Council, which represents the truck manufacturers in Australia, suggests further government help may aid a stronger growth in truck sales and an improved ability on the part of the transport industry to cope with the growing freight task.

“We must be aware, however, that for the road transport sector to manage the government's forecast road freight task in the coming years, further growth in truck sales is necessary, firstly recovering to the 2007 levels within the next couple of years, and beyond,” says TIC chairman Phil Taylor. “To stimulate the market to these levels we may require the introduction of suitable government incentives to buy new trucks, with their vastly improved productivity, safety and environmental performance.

“Otherwise, freight companies will be forced to keep their older trucks just to have enough vehicles on the road, and that presents Australia with a significant fleet average age problem which results in poor environmental and safety outcomes. I'm not saying we can expect to see this all happening in 2013, however TIC projections anticipate that truck sales need to increase to well beyond 40,000 units per annum within just a few years, just to keep up with demand for moving goods.”

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