The UK’s trailer market

From the September 2016 issue.

Once hailed as a poster child for commercial vehicle sales, June’s controversial Brexit referendum has presented the British transport equipment market with an unexpected plot twist.

The narrative seemed almost to good to be true. Until the fateful decision to leave the European Union on 23 June, the United Kingdom’s commercial vehicle market had gone from strength to strength, with Twickenham-based research company, Clear International, boldly stating trailer demand would remain at an “exceptionally high level” until at least 2018.

That day, however, the plot dramatically changed. In a historic plebiscite, the people of Britain voted for a British exit, or Brexit, from the EU – prompting jubilant celebrations among the country’s anti-Europe faction and sending shockwaves through the global economy. 

While it may be too early to assess just how impactful the decision to leave the Union will be for the nation’s commercial vehicle market, local and international business analysts almost unanimously agree that it will have far-reaching consequences for both the British society and the economy at large.

Bloomberg, for instance, has already established that the pound will overtake the Argentinian Peso to become the world’s worst performing currency in 2016. After rising to US$1.50 in anticipation of a vote to remain in the EU, it plummeted to around $1.30 after the referendum and is still trading on a mid-1980s level compared to the world’s lead currency.

While that might make for a good headline, the true impact of such a development is not yet predictable, though. A lower pound may well make British exports more competitive, for example, and some analysts have already suggested that the Sterling was overvalued prior to the referendum anyway.

“Measuring what has happened will take time as a result of the complex nature of collecting and processing the data that will tell us what has happened,” The Guardian’s Martin Belam summarises diplomatically – pointing out that many a warning of the grieve economic consequences of the vote have had to be modified since it took place. “It hasn’t been the baptism of fire that many expected for the new Chancellor [Philip Hammond, ed.].”

Nevertheless, there is still concern from global financial institutions about the impact of Brexit on the world economy. The International Monetary Fund (IMF), for example, now predicts the UK economy will grow 1.7 per cent in 2017, almost a whole percentage point lower than it estimated in April. Then again, if the referendum campaign has taught us anything, it is that predictions about which econo-political direction Britain will take are guesswork at best, says Mark Cuskeran, CEO of Northern Ireland’s SDC Trailers, the best-selling trailer brand in the country.

Cuskeran is referring to official Q2 data published in late July, which revealed the economy grew a solid 0.6 per cent in the three months to the end of June – faster than expected and confounding warnings that uncertainty over Britain’s EU membership would harm growth. Although it can be difficult to “tell the future by looking in the rear-view mirror”, he says the positive GDP reading demonstrated the fundamentals of the UK economy are still strong in the lead-up to what will be a two-year Brexit negotiation marathon.

“For now, the economy has not changed, and I think Q2 data has reinforced that impression,” he explains. “At SDC Trailers, we can second that positive sentiment. We currently have six months worth of orders in our books that equate to around 5,000 units, and we haven’t lost a single one of them because of Brexit.”
Cuskeran, a strong ‘remain’ advocate, says the shock about the ‘leave’ vote may have led to exaggerated reactions across the world, but left the trailer manufacturing community widely unfazed. “I think most of us have accepted the new reality of it by now. Yes, there will be some issues around exchange rates and so on, but I am convinced it will be a smooth process and structured in a way so it won’t harm local businesses. Brexit light, if you will.”

According to Cuskeran, SDC Trailers – much in line with rivalling British manufacturing businesses – sources the majority of components from European suppliers that already have a base in the UK. As such, he says 95 per cent of the company’s purchases are already in Sterling. “I think the suppliers will have to handle a lot of the grunt work now and figure out how they connect the UK with mainland Europe post-Brexit, but of course we will try and support them as much as we can.”

Clear International CEO, Gary Beecroft, is equally sceptical toward the negative picture painted in mainstream media after the out vote. He says the UK trailer market has gone through a ‘right-sizing’ phase after the GFC and is therefore in a healthy enough state to remain steadfast in the face of political turmoil. While he is expecting market volume to reach an above-average 26,000 units in 2016, he says it will likely level off around the 20-22,000 mark once the Brexit procedure is underway. “In the medium term everything depends on the trade deal that is negotiated with the EU,” he explains. “Obviously a bad deal will mean lower GDP and a weak pound, which will increase the Sterling cost of imported trailer components and lead to less investment in new trailers within the UK. On the other hand, a weak pound will help UK exports and make imported trailers less price competitive.  Last year 5,000, trailers (more than 50 per cent from Germany, ed.) were imported to the UK – the highest figure ever – so it could go either way.”

Regardless of the outcome, both Beecroft and Cuskeran agree that the UK trailer market is unique in nature and therefore still more isolated than other European ones. “The UK market is very different to central Europe,” says Cuskeran. “The dimensions are different, the style is different, and the way we go about business is different as well. As such there is a degree of independence to it that will protect the industry for now.”

He adds, “In the UK, everything is custom-built, much like in Australia or Scandinavia. There is no mass manufacturing as we see in Germany – instead we’re trying to innovate on a case-by-case basis. As an industry, that has allowed us to pave the way in the field of aerodynamic vehicle design (see breakout box), and we’re now again taking the lead in bringing hybrid technology to the trailer market. SDC Trailers will make electric mobility a key aspect of our IAA presence, for example.”

Despite that track record of innovation, though, Cuskeran is aware that the UK’s EU exit will eventually put a strain on international transport businesses that could quickly affect key suppliers in the manufacturing space, too. “It would be naïve to assume we’re immune to whatever might come our way. We know that we can’t rest on our laurels now; we must remain proactive and continue what we do best – design transport equipment that will give our clientele a competitive edge.”

Agrees Aidan Kinsella, CEO of SDC rival, Dennison Trailers, which has recently embarked on an ambitious expansion plan in the UK and northern Europe: “One thing is certain – we are all in a very competitive market and the range of competitors is vast throughout the markets we are active in. That won’t change going forward and will keep all of us on our toes.”

Focusing strongly on the skeletal and general haulage trailer market, Dennison Trailers is one of the few British trailer businesses that has been actively pushing into mainland Europe, especially Germany, so the Brexit scenario could end up affecting the family company more than any other local OEM. “We’re in the same boat as everyone else. We just have to wait and see,” says Kinsella, who has been placing high hopes on a sliding bogie design for the German container haulage market. “I think the IAA Commercial Vehicle Show will give us a good indication of where the market is headed. For now the indicators are that 2016 will be as buoyant as the last three years and general business confidence is [still] good.”

Analyst Colin Whitbread of UK firm, Just Auto, is of the same opinion. With view to the performance of the high-value, three-axle “artic” segment – an important gauge for trailer sales – he says there is still every chance the Brexit storyline will see a happy ending. “Major industry participants [still] believe the heavy end of the UK truck market is now more robust that at any time since 1988,” he says. “2016 figures appear to back this up.”

While some economists warn that the robust pace of growth might not last into the second half of 2016, the trailer building community is still confident that Chancellor Philip Hammond will take the necessary action to support the economy during what could be the most challenging time the UK economy has had to face since the GFC.

“It is clear we enter our negotiations to leave the EU from a position of economic strength,” Hammond told The Guardian, echoing the prevalent sentiment among the domestic trailer building industry. “Those negotiations will signal the beginning of a period of adjustment, but I am confident we have the tools to manage the challenges ahead, and along with the Bank of England, this government will take whatever action is necessary to support our economy and maintain business and consumer confidence.”

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