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Home > News Center > Industry News
2017 outlook: Into the unknown Release Time: 2017-04-07 45:14:07 Publisher: Global trailer

US President Donald Trump isn’t the only unknown obscuring the transport equipment industry’s outlook on 2017. With a hard Brexit scenario now imminent and legislation tightening in China, anything is possible.

Friedrich Nietzsche’s philosophy is currently seeing an unlikely renaissance in international trailer building circles – at least when it comes to predicting how the market will develop in the year ahead. “There are no facts, only interpretations,” the German eccentric once famously noted, and according to many an industry executive, that’s about as much as they feel comfortable saying.

One reason for the collective restraint is the boisterous new US administration: President Donald Trump’sdivisive first month in office has absorbed much of the attention that would have typically gone toward forecasting the industry’s growth potential for 2017, and left behind a feeling of unease that settled on an otherwise optimistic industry like a veil of fog – discomforting, but not necessarily disruptive.  

By way of example, Matthias Wissmann, President of German industry association VDA, seemed surprisingly reserved when announcing a 25-year-high in commercial vehicle sales at the start of the year, andSchwarzmüller CEO Roland Hartwig’s prognosis on the back of announcing record sales last month was a mere “cautiously positive”. In fact, Hartwig added a brief but insightful sidenote, saying “international political risks cannot be overlooked” in 2017.

Even the International Monetary Forum (IMF) avoided taking a distinct position last month, saying that while economic activity is projected to pick up pace in 2017 and 2018, especially in emerging markets, “there is a wide dispersion of possible outcomes around the projections, given uncertainty surrounding the policy stance of the … US administration and its global ramifications.”

The reason for the collective unrest is not just Trump’s precipitant policymaking, though. Both in Europe and the US, OEMs are preparing for the end of the business cycle that began after the global financial crisis (GFC) and saw a surge of pent-up demand that not just reinvigorated trailer building, but spurred a level of innovation and new thinking unlike any other time in the history of the trade.

Today’s trailer design is arguably the most advanced it has ever been, with telematics technology providing real-time connectivity, refined and tested aerodynamic shielding actively adding to fuel economy, and new building materials managing the balancing act between tare weight and strength in ways unimaginable even a decade or two ago. 

Historically, however, every peak has eventually led to a contraction, so businesses are increasingly anxious that the current cycle is about to come to an end, with the new political framework in the US merely serving as a catalyst for what is a ‘natural’ economic development.
UK consultant Gary Beecroft, for example, has been foretelling the next market readjustment since December 2016: “We are now approaching the tenth anniversary of the GFC, which decimated the trailer market in 2009,” he says. “A cyclical slowdown in 2018 or 2019 is now almost inevitable and the only real questions are how far the market will fall and how long this slowdown will last.”

For the UK, which opted for a ‘hard’ Brexit scenario after a historic plebiscite in mid-2016, the impact could be more severe than for mainland Europe, with slow investment growth meaning trailer sales are “set to fall” in 2017, according to Beecroft, whose concerns have been affirmed by a February survey of more than 100 of the UK’s top 500 businesses.

According to The Daily Telegraph, 58 per cent feel the vote to leave has already taken a toll, and more than two thirds worry about the impact Britain’s renegotiations with the European Union could have on their businesses, at least for the immediate future.

Overall, though, Beecroft says a trailer market fall of more than 15 per cent is unlikely and a slowdown lasting only 12 to 18 months – and with it a soft landing for the transport equipment community – is still probable. “Clear believes there is a 60 per cent probability of this happening in 2018, a 30 per cent probability in 2019 and 10 per cent in 2020.”

In the US, the readjustment process has already begun. July 2016 marked the first contraction in capacity in almost half a decade, as less favourable freight rates and volumes led to a new reticence for transport businesses to invest, which manifested itself in reduced order activity.

Paired with additional manufacturing capacity that is meant to come on stream in 2017, that development could continue in the year ahead and ultimately lead to a readjustment of the US market, according to ACT Research expert, Frank Maly. “Transport equipment will become more efficient and capacity bottlenecks will resolve, [so] we believe the market may not be setting new records beyond 2016,” he says.

Refrigerated equipment expert, Utility Trailers, is expecting the decrease in volume to be around 10 to 15 per cent, according to Heavy Duty Trucking – with management confident the organisation will be flexible enough to absorb the drop organically.

What’s more concerning for the Californian juggernaut is what’s happening next: a new set of Green House Gas regulations is likely to fundamentally reshape the market right when it is expected to go through the first downward-adjustment in half a decade.

“For the first time, trailers [now] come under efficiency and environmental impact consideration with the new regulations,” says Frank Maly. “While a trailer obviously has no engine – reefer trailers excepted – they are an integral part of the full truck/trailer combination, and therefore the [lawmakers] state that as part of that vehicle, trailers can meaningfully impact both fuel efficiency and greenhouse gas generation.”

As a result, OEMs in both Europe and the US are bracing themselves for an uncomfortable 2017, hoping the lessons learnt throughout the GFC will help them brave out the next drought and allow for a rapid recovery come 2018-19. 

Throughout the developing world, meanwhile, business sentiment is still predominantly positive – even though research by Switzerland-based Agility Logistics found that transport businesses and their clientele are concerned that anti-globalisation feelings and populist policies in the UK and North America will ultimately cause a harmful chain reaction around the globe.

For now, however, the veil of unease engulfing Europe and the US hasn’t quite spread across the emerging world, with China still the most important growth market for many in the global logistics community. Despite the Middle Kingdom having shown signs of a slowdown recently, Agility CEO, Essa Al-Saleh, says only 17 per cent of logistics executives think the country’s transport and logistics market will take a hit in 2017.

“Sixty-six per cent say lower growth will not alter their plans in China,” he summarises – a vote of confidence that has been welcomed by the local Chinese trailer manufacturing industry, which is currently going through a historic transition phase as a set of new dimensional standards is being enforced that will limit the size, axle load and weight of on-highway vehicles.

“Technically, such standards have existed for decades, but now is the first time that they [are] written in a truly meaningful way,” explains Mats Harborn, Vice President Asia & Pacific at the International Forum for Road Transport Technology. “And finally, the Government will ensure strict enforcement as well.”

Al-Saleh adds that while China is grappling with new legislation, robust growth and long-anticipated tax and economic reform have pushed India back into the limelight for 2017 – even though the country’s surprise decision to remove high-denomination bank notes from circulation and encourage cashless payments could be jarring for the economy.

Nearby Iran is also considered ‘hot’ at the moment, Al-Saleh found, reinforcing a statement by the country’s Minister of Economic Affairs and Finance, Ali Tayyebnia, saying that an eight per cent growth rate for the economy is within reach, “if the political wrangling during presidential campaigns does not undermine national interests”. With Donald Trump pledging to “get tough” with Iran, though, the market will likely remain a wild card for the transport equipment industry in the year to come, experts like Al-Saleh conclude.

Despite a painful recession and the impeachment of President Dilma Rousseff, BRIC powerhouse Brazil, meanwhile, is on the rise again: According to Al-Saleh, logistics professionals picked it as the market with the most growth potential after India and China. One reason for their optimism: nearly 57 per cent expect commodity prices to rebound in 2017, although most do not expect significant increases just yet.

With business sentiment largely positive throughout the developing world, 2017 could therefore see the emergence of a two-speed transport equipment market where Europe and the US exercise GFC-instilled restraint while developing nations continue to grow and evolve – at least statistically. After all, weakness in established and still comparatively prosperous regions such as North America and Europe is relative, as ACT Research’s Frank Maly points out – indicating that Nietzsche’s 140-year-old observation about the nature of facts may now be more relevant than ever.

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