Innovation and standardisation could help support growing markets, while manufacturers look to Russia, India, North America and hope for signs of life in Europe.
However, the strength of developing markets, including Russia and India, and the recovery in North America have helped such companies to survive. And just as the high average age of light vehicles has led to pent-up demand in some car markets, such as the US and the UK, so too is an aging fleet of car carriers leading to new orders – although not, as yet, in struggling southern European markets.
Manufacturers of equipment for moving finished vehicles have been hit devastatingly hard by the financial crisis and its subsequent recessions these past five years. A highly specialised and condensed sector with only two or three primary producers in each of North America and Europe, its orders generally react in exaggerated proportion to rises and falls in automotive production and sales. As vehicle logistics providers cut their fleets and delayed new purchases following the financial crisis, many European and North American manufacturers of car transporters saw demand for their products fall by as much as 90%. Even today, demand for such equipment remains about 60% below pre-crisis levels in Europe.
Stronger sales for equipment producers can be found in North America, where Delevan Industries, owned by France’s Lohr, and Georgia-based Cottrell are the main producers. Pat O’Brien, sales director at Delavan Industries, anticipates a 10-15% increase in demand from 2013 to 2014. “As auto sales increase, the industry needs more carriers. Every 1m units in additional sales should, or can, result in about another 1,000 carriers,” he says.
The US light vehicle market, which grew 13% to 14.5m units in 2012, is expected to surpass 15m this year for the first time since 2007. There are many signs now that the vehicle logistics industry has returned to relative health in the region following years of anaemic profits. “The auto transport industry has been in a 15-year slump, and as rates increase, carriers’ bottom lines will improve, allowing them to hire more drivers and purchase new equipment,” adds O’Brien.
Michael Smith, president of Convertible Trailer Manufacturing World Wide (CTM WW), which builds a trailer capable of carrying both vehicles and general freight, and his colleague, chief executive officer Bill Pawluk, agree that a steady increase in vehicle production in the US will leave auto carrier production with “no choice” but to follow suit. Pawluk argues that the upward trend will be even more exaggerated because of the backlog of demand built up over the past five years. “The only factor still keeping the true demand in check is finance availability,adds Pawluk, referring to the difficulties vehicle logistics providers still have in obtaining credit.
Another region that looks poised to enjoy a period of sustained growth for car carrier demand is India, which now has a flurry of trailer manufacturers in the country. Shivam Arren, chief executive officer at Indian car carrier manufacturer Kailash Rolfo, the Indian joint venture of Italy’s Rolfo, believes that 2013-14 should see a rise from the current levels of about 8-10% for the sector in India.
Although the Indian new vehicle market is currently stagnating, Arren points to recent favourable changes in government policies, due to come into force in the second half of this year, which should spur investment. He also expects higher levels of government spending on infrastructure to follow an “extremely poor” 2012.
Perhaps most important for Indian-based car carrier manufacturers is the move away from ‘jockey’ transport – the driving of new trucks to customers on their own wheels. More truck and bus manufacturers are now hauling them on specialist equipment to ensure that vehicles are delivered in what what the Indians call ‘factory fresh’ condition. “Most OEMs want to deliver a ‘zero-kilometre’ [commercial vehicle] to the customer, hence the likely demand for chassis carrier transport in India,” says Arren. (See Volvo Eicher feature on p58 for more on commercial vehicle logistics in India.)
Family ties in Europe
In Europe, the market is made up of three family-owned companies – Lohr, Rolfo and Austria-based Kässbohrer Tr a n sport Technik. Here, the best hope appears to be that demand for car carriers and transporters will either remain flat or start to rise over 2013-2014. Günther Percht, general manager at Kässbohrer, expects no growth in 2013 and a ‘slow rise’ in 2014. But since 2009, he says, demand has been only 40% of what would be needed to maintain the current European fleet.
Percht thinks the highest demand for renewing aging fleets should be from Italy, Spain and France, but admits increasing car carrier sales are unlikely this year given the declining car markets in these countries. “At the moment, Russia is the only vivid market [in Europe],” he says. Indeed, many European operators have pinned much of their hopes for long-term survival on the Russian market, which has grown well and attracted investment as logistics providers expand their fleets.
Car carrier manufacturing is a sector with limited room for diversification. CTM’s Pawluk says that used vehicles and tertiary auto markets can also rival new vehicles in terms of overall importance, although he acknowledges that car transporter orders are much more dependent on new car manufacturing.
However, even in a sector that has long been accused of lacking innovation, CTM’s Smith says technological advances in equipment can help to stir growth, arguing that the main drivers will be efficiency and profitability. “One does not operate without the other,” he says. “Pure profit at the cost of safety, the environment and long-term sustainability makes no sense, just as limiting spending in full disregard of growth does not make sense either.”
Delevan’s O’Brien agrees that technology should continue to drive the marketplace. He warns, for example, that the continued pinning of decks can result in additional damage and driver injury. But he believes that innovation will only truly come when there are healthier rates for the vehicle logistics sector. “The economics of this industry have been bad for years. With some increases in rates, I would think that the customer base will push for new technology,” he says.
But Kässbohrer’s Percht is largely pessimistic about the prospects for high levels of technological investment and innovation in the European market. “What level of investment in innovation would you expect from a sector whose market imploded by 90% and came back only to a level of 40% within five years?” he asks. “It is a pure wonder that all three [car carrier] producers are still there. This is only because Lohr, Rolfo and Kässbohrer are family companies who have sacrificed everything to survive.”
However, he adds that the need to replace existing aging fleets and the pursuit of better loading factors for modern equipment should encourage sales eventually.
CTM has made a big bet on the sector’s need for a new kind of equipment. The company’s H igh Fifth Wheel and Stinger models make use of a variety of hydraulic, folding and spring-loaded mechanisms to enable relatively easy switches from carrying vehicles to general freight or both, with the potential for vehicle logistics providers to reduce the amount of ‘empty miles’ they carry – generally considered to be around 40% of total mileage in North America.
“There is no other transportation sector in the world that can operate and stay solvent with these types of empty mile factors,” says Pawluk.
Pawluk and Smith’s vision is simple and yet has never really been done successfully before: road carriers could carry finished automobiles to their destinations and then return with inbound unfinished automobile parts to the factories, or indeed carry a combination of both.
“Whether freight has wheels on it or not, it needs to be moved from one point to another and we believe that the versatile equipment to perform this style of transportation has never existed in the history of this industry. The solution not only lies in the equipment but also in the methods presently employed by the manufacturers,” he says.
However, CTM currently faces a regulatory hurdle in the US, where containers or freight pallets cannot be carried on the front section of its trailers, although vehicles and, oddly, camper vans can be carried here. Until this regulation is overturned, the equipment cannot be used to its full-loading capacity in the US. The company is, however, aggressively pushing its product in global markets. Pawluk points out that it is not difficult to see that there will be “enormous future demands” in China, Eastern Europe, India and South America, particularly as road transport is used far more in these markets than in North American or Western Europe.
“Rail and sea require massive infrastructure investment of time and money, therefore ‘over-the-road carriers’ will still prevail as the frontline workhorses of the auto transportation segment. Improving these carriers’ efficiencies is key to improving auto logistics,” he adds.
Smith is optimistic enough to see room for carrier growth even in Europe for CTM. “Asia and the EU region could ultimately be the largest markets for our innovative products for different reasons than North America – one to effectively deliver a high demand for growth, the other to fully utilise technology to strengthen contracted margins,” he adds.
Meanwhile, the interest in flexible equipment is not limited to mixing vehicles and freight. In India, Arren reveals that the next technological shift for Kailash Rolfo is for a transporter that is able to carry full loads of four-wheelers and two-wheelers for separate journeys. “The requirement comes from the fact that transport companies need flexibility in terms of load to maximise the return on their vehicles,” he says.
Heavy loads to bear
Looking to the future, the car carrier market faces both challenges and opportunities as a result of regulatory and market developments. Arren sees difficulties ahead for road hauliers because of shorter automotive production cycles, low market confidence and an uncertain business environment, as well as continued pressures on pricing and margins.
In Europe, Percht says that economic development growth will be crucial, such as the continued shift of production eastwards, since it directly influences his customers’ investment decisions. “Kässbohrer will use the time to optimise the products and structures, as well as to find new interesting markets and cooperation [with potential customers and partners],” he says. On the downside, he adds that growth prospects could potentially suffer from a lack of trust and confidence in the company’s business models following years of poor economic results, as well as restrictions based on its liquidity or standing with banks.
CTMWW’s Smith argues that the key to success in most industries is to evolve in the proper direction, including “small or large shifts in the way things have been done in the past.” Meanwhile, Pawluk points to the benefits of standardising assets, from both the regulatory and operating points of view. “In Europe, for example, there are specific regulations for each country. If these regulations were standardised, there would be a cost improvement throughout,” he says. “In China, they are transporting automobiles on double-wide decks and double-length trailers and simply paying fines to continue operations. In India they are plagued with endless highway tolls along their routes of vehicle distribution.”
Pawluk believes that if the auto manufacturing community made a collective effort to drive standardisation throughout the industry worldwide – similar to how McDonalds and Wal-Mart have done in their own supply chains – then it could enjoy similar benefits. “We are fast approaching the 100m [vehicle] mark for world annual auto production. It is obvious that there are commonalities in the industry regardless of where vehicles are produced. Collective effort is the key to true optimisation and this includes auto logistics,” he says.