Are we going back to the future?
With warnings of another recession looming for South Africa, THATO TINTE asks some local trailer manufacturers what impact this could have on the trailer market
In Vic’s View in the September issue of FOCUS, some changes taking place in the local trailer market were noted. Does this mean we should be expecting a makeover of some sort for the local trailer industry?
Three top manufacturers allowed us to pick their brains and gave us their predictions. These were: Warren Marques, MD of Paramount Trailers; Tjaart van der Walt, branch manager at AFRIT; and Clinton Holcroft, MD of Serco.
As the economy continues to contract, and other industries experience falls in activity, we asked how the trailer industry is being affected.
Van der Walt notes: “There are a number of difficulties facing the trailer market; from cash-strapped customers opting for second-hand trailers, to potential new-vehicle buyers reducing the amount they are willing to spend, which further reduces demand.”
He adds: “China’s declining demand for minerals, such as chrome and manganese, has a major impact on the demand for trailers. The drought affecting the agricultural industry is also adding to the decreasing need for bulk-moving trailers.”
Holcroft and Marques share similar views on how sales and production levels have been impacted by the economic slowdown.
“Other industries such as mining, agriculture, trade and electricity are capital intensive, so the first cost-saving to be implemented in an economic downturn is capital expenditure. As suppliers of capital equipment, this negatively impacts on our sales and production levels,” says Marques.
All three agree that a decline in new trailer orders will intensify the competition between manufacturers, as many compete for the same orders.
If it is true that past behaviour is a predictor of future behaviour, learning from how the 2008/9 financial crisis affected the trailer manufacturing industry can help identify what we may need to look out for, if, indeed, we are heading in the same direction in which we found ourselves seven years ago.
Holcroft says: “Refrigerated trailer orders declined by nearly 60 percent as a result of fleet owners over-reacting to the last downturn”. He does, however, note that other markets, such as truck bodies, were fairly stable with growth seen in repairs, rebuilds and pre-owned sales.
Van der Walt adds: “Production numbers declined by close to 50 percent. This left us with the challenge of having to manage the financial implications of high stock levels of new trailers.”
The market was faced with supply outweighing demand, which, he says, forced companies to cut rates and halt operations. “The key here is to plan ahead when business is good, so that capital finance is available to keep staffing reductions to a minimum,” he advises.
From the trends that emerged in response to the past financial crisis, the manufacturers point out a few things that companies should focus on this time around.
“We need to relook at the manufacturing process in order to reduce overhead and fixed costs. We also need to build trailers in a more cost-effective way,” Marques advises. He also notes that reduction in staff levels will, unfortunately, be inevitable.
In a similar vein, Holcroft notes that Serco has invested heavily in new technology to improve production and control costs.
Van der Walt says: “Strict cost controls, along with improved management of cash flow, are essential.” He adds that overhead costs need to be cut and new business opportunities should be sought.
“Although the last recession was followed by a period of slow growth, with buyers having to regain confidence in the industry, we are is thankful that the demand for trailers has increased tremendously, and good momentum has been gained over the last six years,” Van der Walt adds.
We asked the three companies how they believe trailer manufacturers need to adapt in order to survive another possible economic slowdown.
Marques recommends going back to basics and focusing on producing core products. “Tough times like these provide an opportunity to clean house. In addition, reducing fixed costs it is critical to surviving in this environment, I also believe there will be fewer players in the market by the end of the cycle.”
Van der Walt is of the opinion that flexibility in product offering will help differentiate one company from another in times of low demand. “Being able to supply different products to a variety of market segments will help ensure companies stay productive,” he explains.
He adds that it is important to find ways of “doing things better”; from customer service and product innovation to understanding customers’ needs and wants.
“Other important business elements, such as an established name in the market and a wide product offering with complementary value-added services, will put a company in good standing over the competition,” Van der Walt notes.
“Ethical business principles and maintaining good relationships are key to sustainability,” he stresses.
From Holcroft’s perspective, it is important to continue helping customers “get the edge” despite pressures on the company to run a tight ship.
He explains: “Since the last recession, Serco has focused on reducing costs and improving efficiencies, but with global manufacturers looking to expand into new markets, it’s important for local manufacturers to become competitive, while offering world-class products in order to hold their own.”
All three manufacturers note the need for the industry to remain focused and motivated while weathering the storm. They also agree that there is an urgent need for the industry to find innovative ways of working while improving the products on offer.
This potential second makeover of the trailer manufacturing industry may help to make players more resilient, which can only mean improved offerings to their customers.