Germany’s trailer market: The eye of the storm

While the German public is still gloomy about the concept itself, the industry is capitalising on a strong domestic market to grow in Asia.

At the end of the day, trailer specialist Kögel, ranked third in the German market, simply had to react. Only a year after Europe’s juggernaut, Schmitz Cargobull, signed a Letter of Intent to co-operate with Chinese company Dongfeng, the Burtenbach-based business followed suit last month and signed an agreement to collaborate with China’s Weichai Holding, one of the largest commercial vehicle and automotive manufacturers in the Middle Kingdom.

“Today is an important milestone for Kögel. The cooperation with Weichai is an essential part of our global growth strategy,” commented Ulrich Humbaur, owner of Kögel, and Weichai CEO, Tan Xuguang, added: “China can offer a huge cost advantage in the production of trailers. Both companies will be strengthened and can expect strong sales growth.“

Albeit off-topic at first sight, understanding the German expansion to China is key to understanding the country’s domestic market, which has become the eye of the financial storm brewing over Europe. While recent global freight data collected by the International Transport Forum has confirmed on-going economic uncertainty and stagnating trade, Germany’s global activity is a sign for a healthy domestic economy. At the 2012 IAA trade show in Hanover, for instance, Germany’s top three – Schmitz Cargobull, Krone and Kögel – not only showed a fireworks of technology, but also a wealth of optimism.

Now, the question is how to interpret the industry’s collective move to Asia. Does the local trailer elite conceive the Far East as a promising export market, or is the link to Asia the first step to outsourcing production and re-importing equipment to Germany? And, how will the Asian involvement change the local marketplace, a traditional stronghold of quality engineering? In short: Is globalisation good, bad, or simply unavoidable for Germany?

Considering that two of the three leading forces in trailer building can’t wait to move to China, it is hard to imagine that the term globalisation – a buzzword that has captivated the commercial world in the past decade or two – has a tough stand in Germany, which has been voted ‘world export champion’ ever since the economic miracle took off in the wake of WWII.

But the collapse of the global financial system in 2008/2009 and the more recent Eurozone debt crisis caused a deep breach of confidence that left Germany’s population startled – despite a relatively strong recovery and on-going success on the global stage. People worry that a job gained abroad will automatically mean a job lost at home, and that the country’s hard-won prosperity could simply slip away. They are concerned that the future winners of globalisation could live in Mumbai, Shanghai and Rio de Janeiro, and not in Horstmar, Werlte, or Burtenbach.

Amidst that general scepticism, the trailer and body building industry now has to face a decision Germany’s automotive industry made long ago. Does it welcome cross-continental co-operation as everyday business?

Looking at the industry’s export ratio, the last question may seem obsolete. 69 per cent of all Kögel trailers are already destined for the export market, for instance, but on the executive level, people are still cautious to use the term globalisation. Not only because the German people are still proud of homemade equipment, but also because they wonder whether Asian-made equipment could become a threat to the local trailer market while everyone is busy gaining a foothold in China.

At a first glance, it may be an advantage that the automotive segment has embraced globalisation long ago so the public debate on the job drain had some time to cool off, but the trailer industry has no interest in boiling it up again. They are committed to Germany as a key location and have no intention to leave any time soon, but frankly, they also want to grow.

While they keep working hard to retain capacity in Germany to silence those who believe that globalisation’s gains and pains have not been fairly shared within German society, they know that German prosperity is tied to an open, vibrant global economy.

They know that even the most grounded industry has to respond to globalisation at one point, and that time is rapidly running out. Since the re-unification in 1989/1990, the total amount of trailer manufacturers in Germany has been declining, while the average business size is going up. That development is mainly due to a changing transport market. Up to the early 1990s, specialised bodies played an important role alongside the classic curtain-sider design, but the transport companies in 21st century Europe demand more standardised equipment that can be used anywhere at an affordable price.

While swift market consolidation and the resulting need to create economies of scale force the industry to take a big picture view, there is a range of problems that exacerbate the situation on the home front. First, Germany’s population is shrinking and aging, and the country’s education system, once world-class, has become somewhat of an Achilles Heel to internal growth. To top it off, unemployment still is a problem, especially in the East.

Albeit industry experts say globalisation did not create those problems, but just exposed them, Germany’s top three  are now walking a tightrope. They invest both locally and abroad to expand their international footstep and tap new markets outside Europe, while nurturing the local engineering scene at the same time. Some experts claim they risk being squeezed between the high technology challenge posed within the EU and the catch-up innovation challenge posed by rapidly developing countries.

Judging from recent market data, the combination of fostering the home market and tapping new resources abroad could be a smart move. “In 2011, the market recovered to the 2005/2006 level of trailer demand.  The speed of the recovery has been astonishing,” says Gary Beecroft, CEO of UK consulting firm, Clear. “But the demand level of 2007 or 2008 may not be repeated in the next half decade or perhaps at any time in the future.”

Despite Clear’s cautious outlook, the overall sentiment is back to ‘positive’. Schmitz Cargobull alone has increased its vehicle production by more than 19 per cent to 43,169 vehicles between 1 April 2011 and 31 March 2012. Turnover increased by 29 per cent to €1,64 billion and industry analysts agree that the market is halfway under control again, although no leading brand is back to producing at full speed.

In 2011, the combined drawbar and semi-trailer market was back to 51,497 units in total, compared to 34,126 in 2009 and 63,579 in 2008*. “As usual in a slowdown, semi-trailer demand fell faster than the drawbar segment, but they also grow more quickly in the recovery phase,” says Beecroft, indicating on-going volatility in heartland Europe.

Industry leaders in Germany are aware of that, but they trust in the Asian market to balance out Europe’s post-crisis instability. “Due to the continuing economic volatility of the European market, we are expecting to take a small sideways step to about 41,000 vehicles for the current business year”, says Ulrich Schümer, Chairman of the Board, Schmitz Cargobull, revealing that Schmitz Cargobull will start producing vehicles for the Chinese market in 2014, co-operating with Dongfeng. As a result, “Schmitz Cargobull will be focusing more strongly on the growth market of Asia in the future.”

Then again, the Schmitz Board also sees “great opportunities” in expanding the production of rigid truck bodies in the European market, reinforcing those who say there is no German expansion without a viable back strategy up at home.

Meanwhile, Germany’s runner-up, Krone (market share around 20 per cent**), has commenced production of Krone Doğuş trailers in Tire, Turkey. The factory near Izmir was ready to start manufacturing in 2009, but then the financial crisis threw a spanner in the works and the €35 million facility remained unused until 2012. Now production is slowly ramping up again, initially putting out 50 trailers per week.

According to Managing Director, Bernard Krone, some 45 employees have been active at the Tire site since June, including some specialists from the parent factory in Werlte to support the local team. Krone plans to double the number of employees in 2013 and reach an annual production of around 2000 vehicles. The plant will officially be opened in early 2013 and is able to produce 10,000 units per annum. Krone’s main target markets are Turkey, Iran, Iraq and Northern Africa.

To Krone, adding that international edge to the portfolio is crucial. “A lot of European trailer manufacturers that have been focusing on their home markets only have been overwhelmed by the GFC,” says Krone. “This, in turn, has lead to a consolidation phase that was dominated by two German companies which now control the European market – one of them is Krone.” The other one is Europe’s undisputed powerhouse, Schmitz Cargobull.

Although Krone is not looking at a joint venture in China as yet, Bernard Krone’s conclusion may reflect the general sentiment in Germany: “We should expect – and desire – that as prosperity spreads, more places will contribute to the development of modern transport technology and help improve technological knowledge.”

On the volume side, the question thus becomes whether Germany can remain its position as a strong manufacturing location in the face of high labour costs and complex legislation, or whether foreign companies will increase their ‘contribution’ to the German market.

“You can only achieve a certain level of 
profitability, sustainability and
cost optimisation – by means of standardisation, rationalisation, high productivity and purchasing identical parts in bulk – if you act globally,” says Volker Seitz, Director of Communication and Business Development at Kögel. To him, successful business is also a question of localisation and being close to the client. “That’s why Kögel follows a global growth strategy that is based on two pillars – its long-time home markets, Europe and Russia, and now Asia as a second pillar. “These days, you need to act globally in order to be able to balance out regional market volatility,” says Seitz.

One prime example of that strategy is Germany’s aspiring number four, Kässbohrer. The German brand is owned by Turkish trailer giant Tirsan Treyler – a young, go-getting corporation with a strong drive to innovate. By 2014, the company is expecting to sell 15,000 trailers a year, generating sales of €375 million in Europe alone. Under Turkish leadership, the 120-year-old brand is fervent to overtake Kögel in the German market.

While the country’s trailer elite is aiming to stabilise growth through consolidation and moving abroad, new opportunities for niche manufacturers open up inside Germany. According to Seitz, small, traditional manufacture could soon celebrate a sensational comeback as big brands focus on volume producing a small selection of trailer types that are increasingly standardised for a global audience. “There is a new niche for specialists, as individual solutions and technically elaborate constructions can no longer be economically produced using the optimized production processes of the large, international companies.”

As a result, there is a lot of potential for the manufacturers of specialty equipment like tippers, tankers and moving-floor trailers, especially those who think outside the (EU-)box, as accessing new and more distant markets is now possible without overly large investments. The underlying formula is simple: The more specialised the vehicle, the les you pay to ship in relation to the purchasing price. Sending a trailer made in Germany, Holland or Belgium to Lisbon, Moscow, or Ankara, for example, would cost you around €2,500, making a standard curtain-sider some 10 per cent more expensive. For a refuse collection vehicle, however, you have to add less than five per cent – and that’s where savvy executives start calculating.
Despite the global angle, this development could be read as a statement pro German engineering. The more specialised a trailer, the less important it is where it’s made.

Companies like Rohr, Scheuerle or Goldhofer, to name a few, have successfully capitalised on that development. Primarily focusing on innovation instead of quantity, they offer highly specialised equipment and enjoy an excellent reputation the world over.

Refrigeration expert Rohr, for instance, recently presented a refrigerated rigid and centre-axle trailer combination that can be joined to form one even loading platform, using a hydraulic drawbar that pulls the truck's refrigerated superstructure onto the centre-axle trailer at the push of a button.

Or take Scheuerle, parent company of French brand, Nicolas. Focusing on the design of heavy transport vehicles, the brand has gained renown as an expert in payload maximization. Bavaria’s Goldhofer, a direct opponent, is aiming at the same niche and recently presented a new semi low loader concept with pendulum axles and a payload of 140 tonnes, making for a fascinating dynamic that is likely to cause global attention.

As a result, avoiding the term ‘globalisation’ is becoming increasingly hard when talking about Germany. Take German body manufacturer, Sommer, which has outsourced most of its production to Poland and Russia. Krone is producing in Turkey again, and Kögel’s central frame manufacture is based in Chocen in the Czech Republic. The brand also has a second plant based in the north of Poland, and is currently working on putting the Weichai deal into action. Schmitz Cargobull, meanwhile, has assembly plants in Spain, the United Kingdom and Lithuania – plus a joint venture in China – and Kässbohrer can draw on the Tirsan plant just outside Istanbul to supplement the old Goch site.

As a marketplace, however, Germany is still a buzzing environment. In fact, it is as embattled as ever. At the recent IAA exhibition in Hanover, an entirely new trailer brand emerged that will challenge the established companies on their home turf – Burg-Silvergreen. The new business was formed following the acquisition of Burg Industries, a Dutch family company, by Chinese trailer giant, CIMC. Set up as a German company, Burg-Silvergeen is located a stone’s throw away from the Kögel head office. In fact, the Sino-Dutch brand will build an entirely new trailer plant with a capacity of 10,000 units per year, and employ some old Kögel staff to do so.

According to CIMC CEO, David Li, the $10 billion corporation is currently working on a modular design concept similar to the automotive industry, and Burg-Silvergreen is supposed to become the central engineering hub. In the future, trailer production will be de-centralised with China producing components only, which will then be assembled in the German city of Günzburg, using local equipment to make sure the product is suitable for the destination market.

“The modular approach allows us to offer a high quality standard at a competitive price,” says Li, emphasizing that the Burg-Silvergreen concept is not all about pricing, but sustainability. Burg’s refrigerated model, for instance, first shown at the IAA in Hanover and produced at the old Burg facility in Pijnacker, is supposed to be CO2 neutral. “We believe it’s not all about growth in this business,” says Li. “We want to provide real value and help people improve efficiency and productivity so they can do a better job and grow their businesses in a sustainable way.”

Production is set to begin in late 2013, just before Schmitz Cargobull and maybe even Kögel get started in China. While it is hard to predict how the market will react, the situation is likely to lead to a dramatic face-off, as the big three did not loose sight of the home market while looking at opportunities to expand. They are confident that the European industry will be able to offer a competitive alternative when the Chinese arrive with a product for the European market.

For now, it is unsure if the German engagement in Asia will see Asian-made equipment or components return to German for the local market, while it is very likely that German technology will be available in China in the near future. But if you ask David Li, the German trailer industry is facing a two-way street. The only question is which you’re on.

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