Truckers Roll

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It reads like a story from the last decade -  China and India hardly feature and manufacturers are warning of problems caused by supply chain disruption due to demand outstripping supply. Shortages ensue as demand rapidly returns and vicious cost cutting last year hampers the ability of sub suppliers as they try to ramp up to meet that demand. What are we talking about? The truck market, as the FT warns -  truck makers were hard hit in 2009, when a withdrawal of credit and a sharp deterioration of business confidence led to a collapse in orders. Plant closures rippled down the supply chain causing rolling lines to be idled and inventory to be run down. But demand has recovered rapidly in 2010, resulting in soaring profits as truck makers reaped the benefits of steep cost cuts during the crisis. What a volatile environment global truck makers have been living in these last two years. Global truck sales collapsed by 50% in 2009 and truck makers plunged into loss. Even now sales in 2010 will only be two thirds of what they were in 2006 in spite of dramatic recoveries by many of the majors. Volvo reported a 62% increase in sales in August compared to 2009 according to the Economist. Daimler, the world’s biggest lorry maker, reported sales from January to August up by 33% over the previous year and orders up by 65%. It expects to make a profit of €1 billion ($1.4 billion) compared with a similar loss in 2009. MAN, another German firm, reckons that it will sell some 120,000 vehicles in 2010, three times what it sold in 2009.

Nor are these firms relying on growth in China and India, both markets have sizable truck manufacturers of their own. In India, Tata has some 60% of the market but designs are dated. Similarly, China is churning out trucks by the thousand but designs are said to be 40 years behind the highly efficient models being produced in Europe. Truck makers are looking to 30% growth next year in Europe, the Middle East and Russia and in particular to South America where Brazil will import 140,000 trucks this year helped by cheap government loans to buy more fuel efficient environmentally friendly vehicles – you guessed it, as made in Europe. Without the benefit of a cash for clunkers program, trucks have lagged auto recovery but now they will have to vie for supplies with car-makers such as VW who just reported record third quarter profits of $2.76bn but cautioned the end of the year could see sales soften both in Europe and China. Scania a major Swedish truck maker says it is facing restrictions in accessing high quality steel due to bottlenecks in the supply chain caused by the rapid recovery of the truck and autos markets raising demands on a depleted supply chain.

It was inevitable after cut backs in steel and non ferrous metal production, not to mention the rest of the supply chain following the crisis that when recovery did happen shortages were going to occur. While we expect suppliers will respond with returning idled capacity over coming months it does make encouraging reading to hear of demand outstripping supply, if only temporarily, after so much of the reverse these last two years.

–Stuart Burns

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