Australia’s rigid body market
- From the February 2017 issue.
With urbanisation at a record high and e-commerce giant Amazon covertly gearing up for an Australian launch, 2017 could fundamentally change the way we view the transport equipment market.
If economic commentary in mainstream media is anything to go by, Australia will be facing a challenging 2017. “All things considered, 2017 could be a period of considerable uncertainty. Caution will be needed,” Daryl Dixon, the Executive Chairman of Dixon Advisory, recently told the Sydney Morning Herald in reaction to weak Q3 data; and in January, ABC business reporter Michael Janda provocatively asked, “What if our luck is about to run out?”
With big-picture issues like mining investment, property pricing and the now imminent car industry shutdown weighing heavily on the nation’s confidence, the question many an early forecast has posed is, what if ‘Murphy’s Law’ finally catches up with Australia? Will the country’s winning streak – Australia was able to avoid the full effects of the Asian financial crisis, the dot-com bust and even the global financial crisis – come to an end in 2017?
While a doomsday scenario combining the much talked-about risk of a property price fall with a commodity price snap back or a Chinese slowdown is widely considered unlikely, the consensus is that Australia will keep muddling through with below-par economic growth and weak employment in the year to come – and that systemic change will be inevitable to overcome the slump.
One such transformation is already taking place in the transport equipment market, according to the Australian Road Transport Suppliers’ Association (ARTSA). After three years of collating quarterly registration data, the Melbourne-based Association has been able to detect a fundamental change in market dynamics relating directly to the socio-economic winds of change currently sweeping through Australia.
“With 12 quarters worth of data available*, we can now identify longer-term trends that may have gone unnoticed by looking at quarterly information alone,” says ARTSA CEO, Robert Perkins, explaining that Australia has developed a distinct “two-speed market” where declines in the heavy trailer and prime mover segments occur at the same time as increases in the heavy and medium-duty rigid categories.
“Looking at the period between 2014 and 2016, what we see is a year-on-year reduction across the heavy trailer and heavy prime mover category, and a small, yet positive, improvement in both medium and heavy rigid truck new registrations,” he says. “That development has been noticeable in previous quarterly reports, too, but with three years of full data, both the trend and its magnitude are now becoming much clearer.”
Overall, Robert says total vehicle registrations have gone down around 9.5 per cent, a figure in line with slowing GDP growth in Australia, albeit at an exacerbated speed. According to ARTSA, the trailer segment has been leading the trend with a drop of 23 per cent between the start of 2014 and the end of 2016. Prime movers followed with a 15.5 per cent reduction across the same period.
“Meanwhile, both medium and heavy rigid vehicles recorded gains of seven and three per cent respectively across the same period,” says Robert – pointing out that the trend is “merely a historical observation” and that future growth may follow a different pattern. “However, it has become obvious that the market is shifting towards more versatile equipment for urban use – arguably because the urban freight task is growing faster than the line-haul equivalent. While we can’t predict the future, it seems obvious that new logistical challenges and urbanisation are changing the very fabric of the heavy vehicle market as we know it.”
According to Robert, the heavy vehicle market is especially sensitive to economic change and thus an important gauge to assess the state of the economy. “Regardless of what may or may not happen in 2017 – be it a property price fall or a slowdown in construction activity – we now know that the transport market is preparing for a new reality that will bring new challenges with it, but also provide new opportunities for those willing to adapt,” he says. “The real take away should be that there is a natural shift in market dynamics in reaction to a change in the way we live and consume. Transport businesses may be more hesitant to invest, but they also want to be more flexible in the way they handle resources – and the rigid and body-building segment is well suited to provide that flexibility.”
ARTSA’s observation is largely in line with sales data published by the Truck Industry Council (TIC), even though TIC’s most recent report summarising the whole of 2016 turned out more optimistic in tone than ARTSA’s three-year retrospective: Total Australian truck and heavy van sales for the 2016 calendar year came in at 32,964 units, TIC unveiled last month – the best result for new truck sales in almost a decade.
According to Robert, registrations historically lag behind sales, so the positive turnaround may take a while to manifest itself on the ARTSA balance sheet. The move away from heavy articulated equipment toward the medium- and light-duty segment, however, is also reflected in the TIC result: While the heavy-duty category plateaued in 2016 – it finished just 0.1 per cent behind the sales tally of 2015 – the medium-duty segment saw “small but solid” growth over the year, with December noting a 4.1 per cent year-on-year increase. Comparing the total tally of each year, the 2016 result eclipsed that of 2015 by a solid 4.5 per cent.
According to Robert, metropolitan construction has been driving “a large portion” of that development, with Melbourne and Sydney experiencing a historic multi-dwelling building boom. With 89 per cent of the Australian population now living in an urban setting**, he says additional growth potential could lie in the grocery delivery market as well as in waste management. “Four in every 10 Australians live in either Melbourne and Sydney – that’s an extraordinary case of urbanisation. But as people are flocking to the cities, we need new solutions to feed them, dress them, and handle the waste the produce. That’s where compact, more flexible and highly specialised transport equipment comes into play.”
Next to urbanisation, the ongoing strength of the segment is widely attributed to the growth of online shopping, a segment that is only just picking up pace in Australia. At seven per cent online penetration in retailing compared to 10 to 15 per cent in the US or Europe, experts like Greg Goodman, Chief Executive of global logistics giant, Goodman Group, say there is a lot of growth potential that will help drive investment.
“Plenty of commentators say that Australia is behind the rest of the world in e-commerce and I think that is absolutely right,” he recently told the Australian Financial Review (AFR). “There is a lot of catch-up going on and that will help drive our development … over the next couple of years.”
The looming arrival of US retail giant Amazon on Australian shores will only accelerate that process, according to business journalist, Steve Johnson. “Amazon appears to have big ambitions for Australia’s $222 billion retail sector, having lodged more than 250 local trademark applications ahead of an anticipated opening later this year,” he explains. “Undoubtedly, Amazon entering Australia will be met with much fanfare and its arrival should accelerate total growth in online retail. This would enable Australia to gradually catch up to global peers in terms of online penetration.”
The $US360 billion ($495 billion) company has not yet commented on whether it will launch its full range of services in 2017, as Watermark Funds Management Chief Investment Officer, Justin Braitling has claimed, or whether its arrival will be postponed until 2018 or 2019 after it has conquered more lucrative markets in India and China.
The impact on the local supply chain, however, is expected to be as disruptive as the advent of online retailing itself – and could further benefit the mid-range truck market, experts agree.
“The convergence of the two trends – the rise of e-commerce and urban population growth – is where growing pains will develop, and I think our analysis has shown that it’s already happening,” says Robert, adding the pressure will be on transport businesses, town planners and policymakers to manage rising demand for scarce road, curb and sidewalk space.
“The move to light- and medium-duty equipment is part of the answer, but the final solution has to be more holistic in nature and will arguably force us to rethink our supply chain as a whole. We have long been looking at the heavy truck segment to get an idea of how we did as an industry, and rightly so. But maybe it’s time now to place the same value on the rigid truck segment and explore how it can help us grow as a nation.”
*ARTSA registration data is based on information supplied by the National Exchange of Vehicle and Driver Information System (NEVDIS).
** World Bank data, 2015