MCV sales affected by rails

While the sales figures for Medium Commercial Vehicles (MCVs) in South Africa are not exactly low, with nearly a thousand vehicles sold in April this year, the introduction of increased rail freight may increase sales considerably. SEAN NURSE reports.

Available figures suggest that there has been a good increase in sales within the commercial vehicle segment in 2013. This is a positive sign, but other factors such as Mercedes-Benz South Africa (MBSA) only recently starting to report full sales figures, need to be taken into account. This is not to suggest that the industry has not grown, but that the growth may not be as high as the figures suggest.

One factor that could see increased growth in certain sectors is the massive R300 billion cash injection from government to Transnet SOC. This was announced last year and is set to expand the South African rail network. The funding should contribute to increased mineral exports, job creation and more economic activity throughout the country.

Some R205 billion of this funding will go towards Transnet Freight Rail’s railway infrastructure expansion project and, of that, some R151 billion will go towards general freight business which transports Eskom’s coal, iron ore and automotive deliveries. The export of coal is set to rise from 68 million tonnes per annum (mtpa) to 97,5 mtpa and iron ore exports from 53 mtpa to 82,5 mtpa.

Transnet Freight Rail has developed, and is implementing, a major new strategy which is part of Transnet’s greater “Market Demand Strategy’’ (MDS). “The key element of this strategy is a shift of traffic from road to rail. Rail-friendly traffic may be defined as freight that typically includes heavy minerals and mining commodities being conveyed over long distances (coal, manganese, iron ore, magnetite, chrome and rock phosphate), but also includes agricultural products and containerised commodities and goods,” says Transnet GCE,  Brian Molefe, in his “Seven Year Strategy” address.

The future looks bright for the rail industry as Transnet looks at creating some 588 000 new job opportunities over a seven-year period through its MDS. These job opportunities are said to be both direct and indirect, as some may come from the supply chain and are, therefore, indirect.

The MDS forms part of government’s growth strategy through investment in infrastructure, and will see Transnet’s revenue almost triple from R46 billion to R128 billion over the next seven years. The question then, is how will increased transport by rail affect the road freight industry?

Overall, Transnet will increase its carrying capacity from 200 million tonnes to 350 million tonnes by 2019 and its share of the freight-carrying market will jump from 79 percent to 92 percent. The effect that this may have on road freight companies is obvious, with the rail freight companies predicting a virtual monopolisation of the freight carrying industry within the next six years.

MBSA says that it welcomes the initiative to focus on the improvement of rail infrastructure, as a first step. “We currently have islands of infrastructure – like the various Industrial Development Zones (IDZs) and ports – rather than well connected and functioning infrastructure networks,” says vice president of commercial vehicles at MBSA, Kobus van Zyl.

In addition to rail infrastructure improvements, MBSA believes that a comprehensive and all-encompassing plan is needed that will benefit the sustained growth of the formal and informal business sector. “There is definitely a place in the country for integrated transport solutions, inclusive of both rail and road freight,” Van Zyl adds.

An initial prediction of the market, after the new rail infrastructure has been implemented, makes it easy to assume that the increase in rail freight will automatically lead to a decrease in road freight. This may not be the case, however, as another argument suggests that an increase in rail freight will take place in combination with a road freight network. This argument also supports the idea that the rail freight system will satisfy a specific need rather than replacing an existing logistical structure such as road freight.

MD of Peugeot South Africa, Francis Harnie says that he does not believe that rail freight transport will have a negative effect on road transport. “It will increase the capacity for transport and will positively influence the global activity,” he adds. Harnie also believes that a better, more efficient rail network will attract more investors to the country.

Jacques Carelse, managing director of UD Trucks Southern Africa, agrees with this side of the argument: “If the new rail network becomes fully operational, we actually expect more growth in the Heavy Commercial Vehicle (HCV) segment, but don’t foresee a great change in the dynamics between the MCV and HCV segments.

However, should this prove to not be the case, some segments such as the extra-heavy commercial vehicles, that are used to transport goods over long distances, may see a decrease in sales due to rail having the potential to be more a more efficient means of long-distance transport. Other commercial vehicle segments, however, may see an increase in sales.

This increase could come as a result of the limited mobility of rail networks. Vehicles will be required to transport goods from the railway depot to the final destination. This means that vehicles that are intended for shorter journeys and which are more manoeuvrable, like MCVs, will be required in greater numbers – thereby increasing sales.

Carelse does not agree with this assessment. “When it comes to a shift in the market dynamics, we estimate that some big volume loads will migrate to 4×2 truck-tractors with semi-trailers instead of interlinks. We believe operators will stick to truck-tractor configurations from rail depots to their own distribution houses, where they will break the loads down and use their HCVs to deliver to their customers”.

Should there be a shift in freight logistics, the implications for the manufacturers of commercial vehicles may be massive. For a manufacturer like Mercedes-Benz, that sells more extra-heavy trucks than MCVs, it could mean a total shift in marketing strategy with its Sprinter sprinting up to its other top sellers (pardon the pun).

For manufacturers such as Tata and UD Trucks, a change in the logistics of the freight industry would present a fantastic opportunity, as both of these companies have several vehicles within the MCV segment.

On the other side of the coin, the manufacturers selling high volumes are also susceptible to a potential decrease in sales, while the smaller manufactures are also faced with the reality of uncertain sales.

Either way, the implementation of an improved rail freight network will ensure that the transport and logistics industry is definitely one to keep an eye on in the future.

*Sean Nurse is the 2013 South African Guild of Motoring Journalists’ Bursar student