Russia’s trailer market: Loaded for bear

Connecting the pulsating continent of Asia and the EU’s colourful east, Russia is much like Turkey – that young, thriving state in the south that has managed to capitalise on a mixed heritage to form what is now seen as the most dynamic economy in Eurasia. Just like Turkey, Russia is now in a phase of consolidation; and it is experiencing a comparable economic development where GDP growth is going hand-in-hand with an increasing freight transport volume that could boost the demand for commercial road transport.

But despite that likeness, the Russian Federation is facing a whole different challenge: size. It is the largest country in the world, covering more than one-eighth of the Earth’s inhabited land area, which is almost twice the size of the US. That enormous size – and the remoteness of most of the land from the sea – result in an unpredictable climate, ranging from a humid continental feel in the west to a subarctic environment in Siberia. 

Hence, road transport equipment must be able to cope with the country’s massive size, the ever-changing climate, and a still-developing road network if it is to survive between the Gdańsk Bay in the west and Kuril Islands in the east – a combination that is unique in the world, and not easy to manage.

But, where some see an insurmountable challenge – not only in a geographic sense, but also politically – some recognise a major opportunity to establish a flourishing road transport equipment market. Firstly, Russia has a wide natural resource base, including major deposits of timber, petroleum, natural gas, coal, ores and other mineral resources that need to be transported to the coastal region. Secondly, the country’s commodity production is causing a wealth effect that is driving domestic consumption, creating a need for intra-Russian road transport on a just-in-time basis.

According to the IMF, GDP is expected to double from $1.6 trillion to $3.2 trillion by 2016 – making for a good entry point on any kind of medium-term investment. In fact, the formula is quite simple. GDP growth will cause increasing domestic consumption and in turn boost the transport industry, which will demand trailing equipment to cater to growing demand.

One gauge for future growth in the trailer segment is the development the domestic truck market. The Boston Consulting Group (BCG) has recently predicted that it will reach a volume of 230,000 vehicles in 2020. Considering the 2011 total of 112,000 vehicles, that would imply a duplication of market size in less than a decade. Even though the actual effect on the trailer industry is yet to be calculated, it is safe to say that the market potential is quite substantial. According to Gary Beecroft of UK consulting firm Clear, t is even possible that Russia will become the number two trailer market during the current decade, and eventually the largest in Europe.

Apart from the upsurge in heavy-duty truck sales – which indicates a rise articulated trailer usage – one key reason for that development is a modal shift comparable to the one Turkey has and still is experiencing. “Traditionally the Russian transport market has been dominated by rigid trucks, but articulated tractor units with a semi-trailer will become the preferred logistics solution in the long run, with this modal shift supporting trailer demand,” says Beecroft, pointing out that there is no doubt Russia is on the rise again after a solid half decade of negative economic news.

However, it took the Russian Bear a while to come back from the GFC-imposed hibernation between 2008 and 2010. One reason for that slow recovery is that only a year before US bank Lehman Brothers filed for bankruptcy in 2008, Russia’s trailer market first passed the record mark of 20,000 units (some sources speak of up to 26,000), hence the drop was exceptionally long and hard.

2009 started equally disastrously, according to Beecroft, and then got even worse. “2010 turned out to be another weak year for trailer sales, with the drawbar segment recovering slightly, while semi-trailer sales continued to fall,” he recalls.

It was not before 2011 that the market witnessed a significant recovery, “but weaker investment growth in the current financial year 2012 will see trailer market growth slow a little to take Russia to just over the 2006 levels of trailer demand before returning to a solid growth path and exceeding 20,000 units again in 2013,” says Beecroft.

Now, the question is how to tap the looming potential. Does the domestic manufacturing industry have the capacity to keep up the supply and handle the huge economic opportunity effectively, or will foreign investment step in? While some point out that the market structure could change in favour of those who have the technology and capacity to accommodate future growth, some argue that the majority of domestic players are able to present a competitive alternative.

According to BCG, it is safe to say that natural resource wealth alone is not enough to sufficiently fuel the domestic manufacturing sector, and analysts agree that Russia still has some way to go to put the institutions in place to make sure that the commodity boom is not frittered away. Some say the political framework could be the decisive factor in that respect, as Russia’s recent admission to the World Trade Organisation is causing the tariff rate on truck imports to be gradually reduced to 10 per cent – allowing Europe’s truck and trailer elite to urge into the local market place.

But, that’s only half the story. To avoid the high tariff rate, savvy companies like Kögel, Kaessbohrer or Fliegl have set up camp in Russia long ago, and can already benefit from a vivid information exchange between east and west, resulting in strong sales and growing repute. In 2011, for instance, Bavarian company Kögel won the local “Movement” award in the trailer category – indicating that Russia is not just a ‘side-project’ for the international trailer community anymore.

It is no surprise that the gossip factory was working overtime at the most recent IAA trade show in Hanover. While Schmitz Cargobull is looking at building a whole new plant in St. Petersburg – also because of a high ‘scraping charge’ that has been implemented as a substitute for a sinking tariff rate – German mid-tier Wecon is also looking at expanding in Russia, Managing Director Franz-Josef Hemker told German broadsheet, Westfälische Nachrichten. Interestingly, no trailer company is looking at setting up a Daimler-esque multi-brand strategy – in the trailer game, the name is obviously too much a sales point to be relinquished.

As a result of the German build-up, the local transport equipment industry is loaded for bear – and it is confident that local Russian production can match European quality. Take Tonar, a 21-year-old company based just outside the Russian capital of Moscow. By its own account, Tonar is Russia’s largest independent trailer manufacturing business, while a different source, ComTrans magazine, has estimated the brand’s share at about 12 per cent, which would throw it back to third place.

Regardless of the market position, Tonar does not only cover the entire portfolio from a simple skel design through to a sophisticated moving floor model, but can also boast its own axle and brake production. Even the sandwich panel used for the production of refrigerated transport equipment is made in-house to ensure a gapless quality control process. “The reality is that it’s not so easy to find the perfect ration of quality and price, but we believe that for the money people spend, they are entitled to get the best possible product,” says Tonar’s Technical Director, Yuri P. Weinstein. “That’s why we produce a lot of components in house.”

1500km to the south, Tonar’s local rival, Kamaz Avtopritsep, is just as assertive. Based in Stavropol, some 400km east of Sochi, the subsidiary of automotive giant Kamaz has built more than 750 trailers in the first quarter of 2012, making it the third largest player in the market with a share of around nine per cent.* ComTrans magazine, meanwhile, is estimating a share of around 15 per cent.

One of the oldest brands on the domestic market is Nefaz, part owned by the Kamaz Group (50.02 per cent) and the Republic of Bashkortostan, a federal subject of Russia (28.5 per cent)**. Established in 1977, it is focusing on the production of truck bodies, flat beds, tankers, and tipping-trailers, but recently also placed high value on the bus segment. According to ComTrans magazine, the brand’s market share is about 28 per cent. 

Next to the high-volume segment, some specialised companies have been successful by focusing on a certain region, such as heavy-duty expert, Siberia (2.7 per cent overall market share). The company is working closely with local engineering firm, SpetsAvto-East, marketing a range of trailers under the CAB trademark. Although it is focusing on the Far East region, Siberia is also exporting to Kazakhstan, Azerbaijan, Turkmenistan, Iraq, and Algeria.

In the past decade or so, the Establishment has been disturbed by a new generation of trailer manufacturing businesses that bank on high technology and customisation to compete for market share. One such company is Politrans, formed in 2000. Focusing on heavy-duty equipment, it has invested massively into modern European machinery and ISO auditing to catch up with the local elite. According to Politrans, the brand’s “cross-country capacity” has since become a true point of difference.

In 2005, a second all-new contestant has entered the stage, co-operating with renowned component suppliers from Europe and the US, such as BPW, Jost, or TSE. Based in the Republic of Tatarstan, 300-staff company, Kamsky Zavod Transmash, is also specialising in rugged off-road equipment, be it in flat bed, drop deck, skel, or van configuration.

Half local and half German, Kaliningrad-based brand, Grundwald, has established itself as hybrid – it is Russian-based and run, but using German engineering know-how and a German name. Established in 2007, the young company is priding itself on a reinforced frame design based on Swedish high-tensile steel that is supposed to keep up to the tough environment. At present, Grunwald’s local plant can produce more than fifteen models, ranging from curtain-sided semi-trailers to tipping trailers, which are made in co-operation with German company, Langendorf.

While it is safe to say that revenue growth in Russia is likely to be sustained for some time to come, it is hard to predict whether local or foreign technology will satisfy the growing demand for transport equipment between St. Petersburg and Vladivostok, as both can bring different benefits to the market.

In 2011, consulting firm Ernst & Young tried to explain that situation scientifically. Based on a decade worth of research, it identified six key competences that decide on efficiency in supply chain, logistics and distribution processes – collaboration, optimisation, connectivity, execution, speed and visibility. In Russia’s trailer market, different companies are relying on different factors to achieve what Ernst & Young call ‘supply chain excellence’.

While few seem to bank on collaboration, the local fraction is relying heavily on connectivity, speed and, most recently, optimisation, for example by implementing lean manufacturing. The international competition, meanwhile, is strongly focusing on brand image (visibility), and proven execution. The trend to localise production also indicates growing demand for speedy production and increased connectivity within Russia.

Considering the mere size of the market – and judging from Schmitz Cargobull’s persistence to build a whole new plant – investing in a local production or assembly facility can be just the right move to succeed in that context. However, setting up a local service and supply network spanning the entire country will be the yardstick – and local companies naturally have a head start in that regard.

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