Global study reveals the future of trucking

The trucking segment has long been the poster child of the global automotive industry, generating record revenue and creating an aura of infinite growth. But, after an era of positive market development since 2009, the sector is now entering a state of flux.

As the world economy is still struggling to bounce back from a draining five-year slump, even established brands in the trailing equipment industry are facing increasing pressure – and rising fuel prices and strict regulations are only compounding the gloom.

Drawing on in-depth research and personal interviews with the industry’s management elite, international consulting firm Roland Berger Strategy Consultants has therefore examined where the global commercial vehicle sector is heading – and which way to chose to continue to thrive.

“The question we all want to ask is simple and yet so complex – are the sector’s key players ready for the change ahead? And if not, how can they prepare for a future that, in many ways, has never seemed so uncertain?” says Norbert Dressler, a Partner at Roland Berger in Germany and lead author of the report labelled ‘Truck industry 2020: The future is global’.

The global study examines the change currently occurring in the industry, exploring the influences that are driving it and looking at where the industry is likely to be in 2020.

“Having motored ahead with forceful growth for many years, the commercial vehicle industry was visibly slackening the pace before the world's financial markets hit the skids,” says Dressler, stating that the dramatic 2007 slowdown is still palpable today. “I think we are experiencing a fundamental change right now. The commercial vehicle market as a whole is globalising – not only on the OEM level, but also on the fleet level. As a result, the key criteria that influence purchasing decisions are becoming more and more alike around the globe.”

To compensate the slacking pace, the industry is now turning its attention to emerging markets – especially the BRIC group (although Russia is lacking a little bit) – that are still experiencing buoyant growth. But, according to Dressler, the change is not all about geographical re-orientation. “Due to on-going globalisation, a company can now develop a single, global design concept to serve the different regions of the world,” he says. “That’s a whole new approach.”

To standardise the research process, Dressler’s team has split the market into three categories – premium, budget and low-cost – analysing which concept would suit which market and why. Reportedly, premium triad* companies tend to downgrade their portfolio to penetrate the budget segment in developing countries, while emerging market brands are seeking the knowledge and technology they need to move into the budget and premium segment.

In consequence, the report recommends a modular design approach, as it is already standard in the automotive sector. “In an increasingly globalised world, platform architectures and local sourcing must be leveraged to develop global concepts, and the process of admitting necessary regional differences must be streamlined. We need to address global networking and organisational issues and understand the importance of a carefully considered branding strategy, possibly involving multiple sub-brands under a strong global parent brand,” says Dressler

Does that mean the end of the famous ‘thin global, act local’ mantra? According to Dressler, it all depends on whether the right strategy is in place. “A global brand has to have a global organisational model and a global brand management, but also a strong local sourcing system.”

“What we need now is a 360-degree view of how we can best prepare businesses for sustained, long-term profitable growth,” he adds. “‘In that context, regional sourcing and adaptation to local requirements can generate significant savings when coordinated globally to ensure systematic exploitation of all benefits.”

Naturally, regional differences will still be necessary to accommodate varying legal requirements, differences in infrastructure and customer preferences. The Roland Berger study says that these differences should be catered to by an intelligent, modular kit and “must be kept as small as possible” to reduce costs in an instable economic environment.

The report’s most important finding, however, is that although the bleak economic outlook is clearly placing a heavy burden on the truck industry, it is not solely responsible for the changes taking place in the market. “Structural shifts were already in evidence before the recent downturn,” says Dressler.

A steady stream of strict new legislation is gradually coming into force all around the world, causing building cost to rise constantly. In addition, material costs and fuel prices have been on the rise, too. “While the economy was still buoyant, these added burdens could be absorbed to some extent. As economic growth slows, however, OEM customers are postponing further investment and trying to extend the lifecycle of their fleets,” says Dressler. “At the same time, customers in established markets, but also more and more customer in emerging markets, are becoming increasingly sensitive to the total cost of ownership (TCO), which simply means all the costs of an investment over its entire lifecycle.”

A new factor driving change is that products are becoming more and more interchangeable and, hence, commoditised. “When this happens, product differentiation becomes increasingly difficult.”

In India, for instance, local manufacturers are now upgrading their products, moving away from the traditional wooden cabins and high emissions to more professional, more efficient vehicles. Conversely, OEMs from the triad regions are effectively downgrading their portfolio to provide simpler and more robust vehicles or more often adapt vehicles strongly to the local requirement using global modular kits. “As a result, OEMs find themselves forced to place more emphasis on developing solutions (vehicle sales plus service etc.) rather than focusing purely on sales,” says Dressler – a challenge if using a modular platform strategy to keep cost low.

Hence, one trend the industry will have to focus on when creating a global brand strategy is sustainability, according to the German-based consulting firm. As the transport sector accounts for more than 20 per cent of the world’s total CO2 emissions, the global management elite will have to embrace new technology to reduce the industry’s carbon footprint. “I think a reduction in CO2 emissions of up to 30 per cent by 2020 seems to be realistic,” says Dressler. “But it can only be achieved by an effective mix of new technologies. In that sense, not much attention has been paid to the trailer segment yet. The industry has to consider more than just the power train but also take a close look at friction losses, vehicle weight, rolling resistance and aerodynamic improvement.”

For instance, research has shown that 38 per cent of a truck’s overall fuel consumption is influenced by air drag and rolling resistance – shifting the focus to components that often remain unnoticed – including tyres and aerodynamic equipment, as well as new, lightweight building materials such as high-tensile steel and aluminium.

“Applied to a standard long-haul combination as used in Canada, equipment such as aerodynamic side skirts and low-resistance dual tyres could decrease the vehicle’s overall C02 emission by three to eight per cent and save up to 12 per cent in fuel consumption; plus they pay off in less than two years.”

As a result, even emerging market OEMs are now picking up on such technology, challenging the established triad elite. However, the reshaping of the global landscape is still at an early stage. “For the time being, leading global OEMs remain in the driver's seat. But the competition emerging in Asia and South America is very real and growing. Triad OEMs must move swiftly to find a path through the maze of globalization,” says Dressler.

Now, the final question is what exactly does the future hold for the different market segments? “At present, the low-cost segment predominates in emerging markets and will continue to do so at least in the medium term. However, we expect to see shifts in the development of market segments as markets gradually mature between now and 2020. In response to these changes, OEMs from triad markets will enter emerging markets or ramp up their local presence, first with budget models and later also with more and more upgraded vehicles at a significant volume (today established OEMs already sell high-end vehicles for specific applications at a small volume). At the same time, OEMs from emerging markets – such as Tata – will start producing higher-quality products as well. A gradual progression toward higher-end vehicles will ensue,” the report states. “By 2020, the relative importance – and geographical coverage – of these three segments will be very different to what we know today.”

Interestingly, Roland Berger found that the transition will not be identical everywhere. Partly due to their close proximity to Western Europe, the markets of Eastern Europe and Russia will develop a more significant share of high-tech equipment quite soon, and China is also already moving upscale. Most likely, India will follow suit, albeit with a certain time lag. In the medium term, the low-cost segment will therefore experience slow growth only, and in the long term, Dressler even expects that segment to shrink.

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