India’s trailer market: On the prowl

Ramping up the domestic economy with an upsurge in manufacturing and infrastructure development and diluting the reliance on imports is the aim of many emerging markets, and India is no exception. But India’s industry has long performed below its potential: Although the country’s manufacturing exports are growing, the sector itself only generates 16 per cent of India’s GDP – much less than the 55 per cent from the service industry1.

However, India’s rapidly expanding economy, which has grown by an average of seven per cent over the past decade, now gives the sector a huge opportunity to reverse the tide – if infrastructure development can keep pace with progress and thereby support the course correction. In the past, that has not always been the case.

But, a burst of activity to not only meet demand but to also insulate the domestic economy against a more widespread global slowdown is now making up for such omissions and is likely to boost demand for specialised transport equipment in a breath. Will the local transport equipment industry embrace that upsurge to realise its full potential or leave the field to multinational OEMs?

Considering the inherent growth potential of India’s infrastructure sector, the most urgent question for the Indian trailer fraternity is how to best exploit its own strength and existing market opportunities, weigh up the relevant risks and benefits, avoid potential pitfalls, and so turn the buoyant atmosphere to its own advantage. After all, the starting position is more advantageous than ever. Sales of commercial vehicles (CV) grew 22 per cent in 2011 year-on-year, exceeding India’s archrival China, which posted a 10 per cent dip for the same year. Yet the global competition is well aware of the fact that the domestic CV market will grow at an annual rate of 18 to 20 per cent until 20152 – and is just as impatient to secure a slice of the pie as the local industry.

Faced with rising fuel prices, strict environmental legislation and generally saturated markets, the international opposition has to contend with flat or shrinking demand at home since the GFC peaked in 2009. To compensate, they have turned their attention to emerging economies like India long ago. Ironically, India itself is now looking to expand on export volumes as well – mostly into the Next-11 region, but in some cases into Triad3 territory too.

As a result, a neck-and-neck competition is emerging that could either provide a valuable import opportunity for the global elite or favour India’s own Trailer Manufacturing Industry, enabling it to not only recapture market share, but place itself on a solid, sustainable and increasing base.

One battlefield in the current rat race is the car carrier segment. At present, there are around 17,000 pieces of specialised transport equipment in operation as every new car has to be transported on road from the factory to the point of sale, according to local journalist, R. Natarajan.

Fuelled by a burgeoning car industry that is expected to touch six million units by 2020 from a current level of 2.5 million, the production of dedicated car transport equipment is prone to double in size until 2020, says Natarajan.

“However, the car carrier segment is somewhat unorganised, comprising more than 100 registered manufacturers who can build anything between two to 50 units per month,” he adds, revealing that the market is both auspicious and contested at the same time. “In that sense, it’s quite comparable to the big picture.”

Bangalore-based business Tippers and Trailers Private (TTP) of is one of the few professional players in the segment. The company – capable of building 100 units per month – has weathered the first international onrush and still occupies a leading position in the market. But Managing Director Ashok Hissaria is well aware of the fact that TTP’s leadership is under threat again, as European brands LOHR and ROLFO are urging into the profitable niche. Due to a European asking price, however, they haven’t had much success as yet.

“We may not be good in aesthetics, but in terms of quality and performance, we are comparable to the best, if not better. Our products can last for 25 years if serviced and maintained properly,” says Hissaria, banking on the company’s intimate knowledge of the local scene to remain competitive.

On the other side, the scattered domestic manufacturing scene could eventually even lose local brands like TTP valuable business as rising demand is expected lead to severe supply shortages, often due to diseconomies of scale. Sensing that weak point, the truck manufacturing industry is now capitalising on its own experience in volume production and ventures into the field of trailer and bodybuilding, creating a new joint venture wave.

Automotive giant Tata, for instance is now able to source trailers in-house via joint venture partner Dutch Lanka and components via long-term affiliate, Hyva India. The Hardrock Group – traditionally specialised in the manufacture of construction and earthmoving equipment – acquired trailer specialist PL Haulwel4 to adjust the brand’s portfolio. Asia Motor Works (AMW) has opened a new subsidiary named Tranztar CV Applications to offer a complete transport package comprising of both truck and trailing equipment. Tranztar alone currently manufactures about 1800 Trailer units a year, according to AMW President, S. Ramasubramanian.

“The increasing rate of joint ventures may reflect the fact that the local truck industry and the international trailer elite are taking advantage of the favourable situation and try to secure access to the trailer industry’s existing infrastructure,” says S. Ramasubramanian. “But that’s only half the truth.”
According to Indian industry expert, S. Ramasubramanian, the current depreciation of the Indian rupee could as well benefit the supplier segment and thereby avoid a supply shortage in the first place. “As the cost competitiveness of Indian exports is increasing, the trailer industry has to step up localisation of components that are currently being imported. This presents a significant opportunity for the local trailer industry if the need to invest in improving operational efficiencies does not slip off the agenda,” he says – referring to a recent McKinsey study that analysed the competitiveness of India’s manufacturing sector.

“In our experience, throughput improvements from 40 to 100 per cent are possible when Indian companies apply traditional lean-management techniques to keep machines running longer and to reduce time wasted during retooling and production line changeovers,” says Rajat Dhawan, a director in McKinsey’s Delhi office who initiated the study.

One company that has embraced that idea is Gibraltar, the first Indian air spring brand to manufacture a locally designed product. The brand will soon commence production at a Greenfield facility near Kolkata as the local air spring market is set for exponential growth in the next few years.

The local competition, meanwhile, is forging alliances with global OEMs to access new technology to thereby compete for the same slice of the cake. “The atmosphere of departure does not go unnoticed in a globalised world,” says S. Ramasubramanian. “There is a lot to win if you make the right decision in the current climate, whether you’re an international investor or a local company.”

That two-fold push for more competiveness is likely to propel the country into the manufacturing big leagues of the world, S. Ramasubramanian concludes. The McKinsey analysis finds that rising demand, together with the multinationals’ desire to diversify their production to include low-cost plants in countries other than China, could together help India’s manufacturing sector to grow six fold by 2025, to US$ one trillion, while creating up to 90 million domestic jobs.

“Capturing this opportunity will require India’s manufacturers to improve their productivity dramatically – in some cases, by up to five times current levels. The country’s central and state governments can help by dismantling barriers in markets for land, labour, infrastructure, and some products. But the lion’s share of the improvement must come from India’s manufacturers themselves,” says Dhawan.

Recognising this, leading local companies are already upgrading their competitiveness by bolstering their operations to improve the productivity of both labour and capital. According to McKinsey, India could generate 25 to 30 per cent of GDP by 2025, joining juggernauts like China, Germany, Japan, and the United States – if the manufacturing sector will enhance its focus on moving up the technology ladder.

Current market data indicates that the process is already underway – at least in the transport market. In the financial year 2010-11, production volume rose significantly compared to the FY before, exceeding the pre-GFC record of 25,079 units by about 4,000 units. In the current financial year, build numbers are already up to 22,571 units – and counting.

AMW President S. Ramasubramanian is expecting a growth of 12 per cent by the end of the year 2013. “95 per cent of that volume will be classic flat beds, and about two per cent will be allocated to the tipper segment. The rest will go to LPG-tankers, liquid and dry bulk tankers and specialised gear for ODC (Over Dimensional Cargo) movement.”

In that context, one new trend is already coming to light: “There is a steady shift to articulate vehicles from rigids,” says S. Ramasubramanian. “However, the basic design seems to remain the same. Most companies use either rolled I-beams or fabricated ones main members in chassis construction. In addition, all trailers are made of steel only. Composite materials or aluminium are not used as yet. In addition, there is no standardised testing and no type approval process in place. Very basic standards are available under Indian Automotive Standards, but there are no Vehicle Identification Number plates even, only basic chassis name plates.”

Nonetheless, S. Ramasubramanian is optimistic that the current market situation will fuel the development process despite a certain degree of disorder. “There are about 20 manufacturers who are currently in the ‘evolving mode’ and have chosen to adopt modern manufacturing methods, but 80 per cent of the market is still unorganised,” he says.

In recent years, the natural response for international companies has been to intensify their focus on exploiting that market situation, and according to S.Ramasubramanian, they will continue to do so in 2012 – mostly by downsizing their existing offering to provide a more suitable, sturdy design at competitive rates. “This in turn is putting pressure on local truck manufacturers in India, who have to defend their turf against these incursions. The race is now on.”

1 Source: McKinsey Quarterly
2 Source: Crisil Research
3 The Triad territory traditionally includes North America, Europe and Japan
4 PL Haulwel has originally been established as a leading trailer brand by S. Ramasubramanian, now President Asia Motor Works.

Leave a Reply

JOIN OUR NEWSLETTER
Close