Truck industry continues to add huge value

WELCOME TO the seventh edition of TruckWatch. As with previous editions the primary objective of this publication is to is keep the transport industry up to date with model changes and updates to existing commercial vehicle specifications - as well as other important information such as contact numbers for the manufacturers' dealer networks, key personnel and emergency service hotlines. 

At seven years of age, TruckWatch remains a hands-on source of information and the definitive source of readily available commercial vehicle specifications in South Africa.

As we move into 2003 we are pleased to report that for the second year in a row, the commercial vehicle market remains reasonably buoyant in spite of steep increases in the cost of new commercial vehicles and hikes in interest rates.

Indeed, while sales of new LCVs during 2002 were off by 9.0% compared to 2001 figures, sales of new medium and heavy commercial vehicles were respectively 5,2% and 10.0% higher according to Naamsa figures.

It is interesting to note that since the mid-eighties, the southern African road transport industry has grown considerably with approximately 80% of all freight carried in South Africa now being conveyed by road.

As we approached the end of 2002, the Rand was heading towards what we are hoping will be more stable economic waters. As we mentioned last year, the stability of the local currency and overall state of the economy are to a large extent reliant on the South African government's oft-erratic reaction to world and regional events. In short, the government's approach to socio-political circumstance and statements emanating from members of the ruling party are the ultimate equaliser and underpin the level of local and international business confidence. We maintain these sentiments.

On a financial front, as we were putting the finishing touches to this publication, the local currency had breached the psychological R9.00/US$1.00 barrier and was predicted to continue its upward spiral perhaps even broaching R8.00/US$1.00.

Heartening news
In the meantime the approximate 26% recovery of the South African currency's strength against the US dollar over the past year is heartening news indeed. It was in January 2001 that the Rand broke through the R11.00/$1.00 and was headed firmly in the opposite direction. At that time we were advised by leading suppliers that truck price increases in the region of 20 - 30% over the year would not be unreasonable. As it turned out, these predictions were pretty close to the eventual reality.

Now that the local currency is regaining some of its former strength, is any there any chance that truck prices will come down? The answer is short, sharp and very obvious: No there is - certainly in the short term at least!

Product manager, heavy commercial vehicles for Mercedes-Benz, Peter Wraight, explains that reducing the selling price of a truck is not as straightforward as it may seem. He elucidates that banks and finance houses would be horribly exposed if prices were raised and lowered in line with fluctuations in the currency markets. Residual values and guaranteed buy-backs would be adversely affected while some truck buyers could be tempted to renege on purchase agreements in order to pursue more favourable deals. 

Further to this, in addition to coping with the diminishing value of the local currency and higher interest rates, truck suppliers have to deal with the cost increments imposed by foreign and local suppliers as well as the increased costs of running their own local operations. In the same way fleet operators cannot simply hike haulage rates every time the fuel price goes up, truck suppliers are not able to pass all cost increases onto their customers. It would result in a very unstable market. There is also the point of delivery lead times to take into consideration.

On a positive note, what we can expect this year is for truck suppliers to be more circumspect when determining price increases during the current financial year. A more stable currency and positive business confidence will undoubtedly moderate any future commercial vehicle price increases. In line with this, after four consecutive hikes during 2002, economists are now predicting a drop in current interest rates.

The bottom line for the road freight industry is that numerous factors dictate that the outlook for the regional and global economies remain somewhat fragile and affordability will remain an implacable business partner for all players.

Growth to continue
However, the growth experienced in the medium and heavy commercial vehicle markets during 2002 is expected, by some suppliers, to continue - at least in the short term and then level off towards the end of the current year. Isuzu has stuck its neck out and is predicting total 2003 sales of new medium and heavy trucks to reach around 12 600 units which is almost 9% less than the 13 713 units sold last year.

Incidentally, the medium truck sector continues as a major contender in overall commercial vehicles sales with 5 665 units sold during 2002 against 8 048 heavies. The truck rental sector played no small part in the boosting truck sales figures. According to McCarthy Holdings chairman Brand Pretorius, MCVs accounted for 114 unit sales into the truck rental sector during 2002 compared to 14 units in 2001 while sales of HCVs accounted for 62 sales compared to 16 in 2001.

Intense competition
It is well documented that the role of vehicle suppliers has changed dramatically over the last few years. In TruckWatch 2002, we stated that the days when a dealer sold a truck and walked are over. This trend continues and is an area where intense competition rages between the various suppliers.

Truck suppliers are in a process of fine-tuning their respective customer service packages and most of them are able to offer a comprehensive bag of goodies for their respective customers. These include finance and insurance, fixed maintenance plans, attractive residual values and, to a smaller or greater degree, guaranteed buy backs. 

Training for drivers and technical personnel are also par for the course. In fact, some of the leading truck suppliers are investing very heavily in driver training - a sign that road transport industry is at last recognising the most important role player in the entire distribution chain - the man behind the steering wheel.

Taking MAN Truck & Bus (SA) as just one example, the company recently upgraded its existing R8-million training academy with a further R1-million. The new facility will offer a comprehensive range of technical training courses, which are of huge benefit to the transport industry in general. Another company which has done sterling work in this area is DaimlerChrysler with its Driver Training Academy. Scania and Volvo also run training centres. Note the trend.

Vehicle replacement
Getting back to the operators, one of the more difficult aspects of commercial vehicle fleet operations is establishing a sound and effective vehicle replacement policy. Quite simply, local transport operators continue keep their vehicles too long. A leading transportation consultant told FleetWatch that there are truck owners who believe that as the truck fleet becomes fully paid up, the vehicles then come 'free of charge'. Closer inspection reveals the cost of maintaining and running such a fleet is often extreme.

Adding to this, there is a distinct failure by fleet managers to examine potential cost savings realised through taking advantage of technological development inherent in modern vehicles. These may significantly reduce an operator's fuel consumption or extend service intervals. It's all about lifetime costs and it seems that some fleet operators are still buying trucks without thinking about the long-term operational cost. It does not take a rocket scientist to understand that vehicle fleet operators stand to gain financial, operational and marketing benefits by adopting a more pro-active stance in this area of their business.

During 2002, Nissan Diesel (SA) vice president Frans Cloete stated that truck operators running their vehicles for a protracted period compromise themselves in the vital areas of operating costs, efficiency, safety as well as corporate image. 

There is more to it than this. Operators should re-examine their vehicle configuration. Over an extended period in an evolving work environment, configurations that were appropriate at the start of a specific contact may no longer be right for the current job at hand. 

The current replacement rate of South Africa's national truck fleet is reportedly less than 5% per annum compared to over 10% in most First World countries. This has resulted in the average age of the national truck fleet to be well over ten years of age. Couple this to the fact that many trucks in southern Africa are subject to overloading as well as operational abuse, it follows that older trucks are not only more expensive to run and maintain but are more prone to failure than new trucks even if they are subject to annual roadworthy inspections.

Further down the road, when old trucks are eventually replaced they are generally in such a poor condition that the used truck market is left to handle and dispose of a heap of junk. Little wonder the South African used truck market has garnered such a bad reputation. 

Over and above the technical and financial aspects, further challenges facing truck operations in South and southern Africa are turbulent regional issues such as the social, economic and political instability in Zimbabwe, the on-off-on-again peace process in the Great Lakes region, including the DRC - and fuel hikes. Then there is the relentless drought and associated famine currently blighting the region.

To this we can add the high incidence of HIV/AIDS among truck drivers right across the face of the African continent. In this latter respect, we expect this till now 'silent killer' is about to raise its voice above those of the clamouring masses. Not only is HIV/AIDS rampant among truck drivers but it is adversely affecting productivity and sustainability across all sectors of business and commerce. The overall impact not only on the road freight industry but on the very need for road freight is going to be serious and far reaching. There is not time left to glibly write 'watch this space' the time for action is upon us right now!

As we head off into another year of exciting challenge, we once again unequivocally thank the participating manufacturers and advertisers for their ongoing commitment and support for TruckWatch. We have said it in previous editions and will repeat it here: Without you, it would simple not happen. Thank you for your participation in giving the market a product that truly adds value to this vital industry.

Andrew Parker
Senior Journalist
FleetWatch/TruckWatch 

Foot Note: As always, the FleetWatch staff involved in the compilation of TruckWatch 2003 were both vigorous and unstinting in their efforts to get this publication ready for the printers. Once again, teamwork made the day and each and every person involved deserves a medal for his or her efforts at getting this product into the market place. There's Lorinda Stoltz and Angelique Hörmann, our advertising stars who always keep the best interests of our valuable advertising customers in mind. Then there's Michelle O'Leary who never stops adding value via her superb co-ordination and design of the project. And let's not forget Helga Spring who gets in to help wherever help is needed. Then there's Margo Du Preez and Mariëtte Cloete, our repro stars who spent hours behind the computer making it all come to life. There are others and a big thanks to each and every one of you for team effort. A particular word of thanks must go to Paula Rule and Jack Webster who were the stalwarts behind the huge task of checking and rechecking all the information to ensure that what you see here is what you get in the product. You are stars one and all.
Patrick O'Leary
Managing Editor