Russia’s trailer market: Out of mind

From the September 2016 issue.

A key talking point of the 2014 IAA Commercial Vehicle Show, the bruised Russian economy has failed to turn itself around in time for the next edition of the iconic event. Will it still continue to own the conversation, though?

Muddling through the longest recession since the turn of the century, Russia has racked up a sizeable budget deficit and is on track for yet another year of negative growth. Meanwhile, the prospect of fiscal relief is growing distant, with oil in a bear market after closing below $40 a barrel in August – theoretically making for a highly dramatic narrative in the lead-up to this year's IAA Commercial Vehicle Show in Hanover, Germany – the largest transport industry gathering on the planet.

But if you ask Denis Krivtsov, head of Russian OEM, Tonar, the country’s fragile economic state doesn’t necessarily mean it will become as prominent a topic as it was in 2014, when the Ukraine conflict and the annexation of Crimea were still fresh in mind and the European Union (EU) put an abrupt hold on west-east trade.

According to Krivtsov, much of the western trailer community has since found new growth potential in the heart of Europe and the still-sprawling east of the continent, leaving Russian businesses alone in dealing with what could be the most severe market slowdown in a decade or two. As a result, he says it is now up to the domestic transport equipment community to consolidate ahead of the parliamentary election in mid-September, which is hoped to give the battered economy a much-needed boost.

“The Russian economy hasn’t really improved much since the last instalment of IAA. In fact, many local businesses have since folded as they simply refused to learn from the last crisis,” he explains – pointing to the EU’s recent decision to prolong economic sanctions against Russia until 31 January, 2017.

“The lesson learnt is that we have to rely on our own creativity to survive and focus on Russia itself to drive growth. Our country is still somewhat separated from the west and global trade, so we have no choice but look at what we can do locally.”

Krivtsov says while the economic pressure on local businesses is just as high as it was in 2014, it has become more and more of a Russian problem as the west is gradually decoupling itself from what’s happening in Moscow. “With the rouble devaluating so dramatically over the past two years, we have effectively been forced to develop our own local supply network to stay competitive,” he elaborates. “We’ve had good and bad experiences with that, but at the end of the day, we are now much more independent from the west.

“At Tonar, we continue to invest in our own axle and suspension production to remain competitive, for example. We’ve recently developed steering axles as well as heavy 25-tonne ones just to retain that flexibility you need in a market as volatile as modern-day Russia.”

In line with the collapse of the rouble, Krivtsov says the Russian construction industry has also given in, with sales of related  trasnsport equipment dropping as much as 80 per cent. With tipper sales making up some 60 per cent of the Tonar business, he says the situation forced him and his team to refocus: “It was painful to loose so much of our business, but we have since found new markets that are now looking up, such as agriculture, mining and even export to a certain degree.”

The key to future success, he says, must be “ruthless” innovation: “To move forward in a market that is working against you, you need to innovate drastically. In our production program today, 80 per cent of all models are completely new developments, and the remaining 20 per cent have been designed over the past three years or so. The majority of our competitors, meanwhile, continue to sell old models and are thus going down with the general market.”

With mining emerging as a new growth market – especially in Siberia and Mongolia – Krivtsov says the Tonar operation may well split into a mass production arm and a custom design entity should business remain slow, allowing it to diversify more stringently. He explains such a move would help the company react more directly to regulatory change, which is already well under way in the Federation. “Gross weight and axle load regulations have already changed and overloading is now widely enforced, so there is some movement in the market we can be part of. With new rules for the transport of refrigerated freight also coming and a new utilisation fee for older trailers, there are still opportunities for those nimble enough to seize them.”

In line with Krivtsov’s modest optimism, finance experts have recently seen signs of economic growth trickling through, too. According to Russia’s federal statistics service, Rosstat, the nation’s Gross Domestic Product (GDP) shrunk by only 0.6 per cent in Q2. While still in the negative, the result is widely regarded  an improvement over the 1.2 per cent net contraction seen in Q1 – following a 3.7 per cent plunge in 2015 – and is hoped to pave the way for a recovery that may well extend into the second half of the year should the new parliament agree on a growth-friendly budget. With the election close and a presidential ballot to follow in 2018, it is not unlikely that the body will indeed aim to ease the plight of households, which may in turn fire up consumption and with it, the economy at large.

Until then, the local trailer community will firmly focus on “making things happen” as much as possible, says Denis Krivtsov – even if the focus of the west ern world has long shifted elsewhere. “Russia is a giant country that still has so much to learn. Then again, we have a whole lot of well educated engineers and workers compared to other nations, so to me, that means there is a great opportunity for business to be made.”

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