Argentine trailer market: Don’t cry for Argentina

The festive fatigue was only just receding in February when the IMF’s executive board took the unprecedented measure of issuing a declaration of censure against Argentina. That ‘yellow card’ could open the way for Argentina to be ousted from the IMF.

But despite massive media attention, the move did not come unexpected. In fact, the IMF and Argentina have quite a history of controversy, leading to the Argentine government cutting links with the Fund in 2006 after paying off the country’s debt of .5 billion. In 2010, the IMF was invited back to assist with collection and formulation of economic data, opening the way to the current impasse.

While Argentina’s government has already announced it will take the initiative and start providing new data by the fourth quarter of 2013, the incident also uncovered that official Argentine data can be sharply different from those private sector analysts issue – creating somewhat of a parallel economy. The question now is which data to believe in – and how to interpret that new political framework in a trucking context.

After all, the local government has restricted imports, forced some industries to repatriate export earnings and almost halted the sale of foreign currency at the official rate since October 2011, The Economist reported in April.

The article also said that Brazil’s Vale last month suspended a $6 billion potash project in which it had already sunk $2.2 billion. And it also stated that soy farmers, the country’s biggest source of export revenue, now talk of halting the sale of this year’s soya harvest in May in protest. Both examples could directly affect the local transport industry and, in turn, the trailer manufacturing market.

On the flipside, Argentina has huge growth potential in regard to road transportation. It is not only the eighth-largest country in the world by land area and one the largest economies on the continent, but also lacking a feasible alternative to road transport. As a result, the old truck and trailer combination is key to keep the economy moving.

But while multi-lane ‘expressways’ are slowly spreading out from Buenos Aires to connect the country, only a third of Argentina’s overall road network is currently paved. According to the CIA Factbook, less than 10 per cent of that portion actually account for modern-day highways – turning the manufacture of modern, yet durable transport equipment into a technical challenge.

And due to the sizable agriculture sector, a diversified industrial base and an abundance of natural resources, the range of cargo is extremely diversified too. According to local transport business América Latina Logística (ALL), the main products transported include agricultural commodities like corn, soy and wheat, as well as crude oil, gasoline and meat. The up-and-coming wine industry in Mendoza and San Juan is also actively contributing to the freight task.

The result is a growing need for specialised transport equipment, which has been attracting a range of competing manufacturing companies over the last 20 years or so. Brazil’s Randon, for instance, has set up a production plant in Rosario, some 300km northeast of Buenos Aires, in 1994. Latin America’s largest trailer brand originally moved to Argentina to be closer to the growing domestic market and service the local grain sector more efficiently, but in 2005, Randon Argentina also intensified the production of vehicles for the general freight segment.

In the following year, the company began to assemble basic semi-trailers from completely knocked down (CKD) kits, which were imported from Randon’s Brazil facility. However, the process was soon localised, alongside the implementation of a more market-specific marketing strategy.
Today, Randon is also offering liquid tankers, dry vans and refrigerated transport equipment in Argentina, as well as specialty equipment for the waste, sugar cane and forestry industry.

Since 1998, aluminium tanker specialist Heil Trailer International can also boast a local production site to service the Argentine market directly. The plant, located in some 70km south of Buenos Aires, is not only DOT approved – the US standard most common in South America – but also certified to Europe’s ADR legislation. Heil focuses on providing equipment for the transportation of fuel, chemicals, and bitumen, as well bulk freight and food.

Heil is also one of the companies involved in a recent foray in the high-productivity vehicle segment. “In a region where more than 90 per cent of all goods are transported on the road, professional truck and trailer design is becoming more important than ever before – especially in the high-productivity segment. That’s where creative truck and trailer manufacturers and risk taking businessmen come into the equation,” market expert Dr Alejandra Efrón told Global Trailer.

The Argentine province of San Luis has become a pioneer in the implementation of Heavy Combined Vehicles (HCV) in the Mercosur region. First trials with B-doubles – a configuration already running in Australia, South Africa and Sweden – started in 2008, with the support of Heil, Swedish truck brand Scania, and local business, Avellaneda Cements.

Today, there are three trailer manufacturers in Argentina who have joined the trial and invested in the B-double project – Heil, Vulcano, and Hermann. While Heil is acting internationally as well, Vulcano and Hermann are still family-owned, with Hermann leading the way in Argentina.

Last December, a dedicated B-double event was held in the province of Entre Rios, promoted by the local university and sponsored by many companies in the area. “Politicians, associations, shippers and transport companies came to hear about B-doubles and to drive one manufactured by Hermann,” Efrón reports. “For this model in particular, the company developed a highly resistant steel alloy together with a large steel Argentine steel company.”

In the wake of the B-double debate, which is also simmering in Brazil and Uruguay, current brake standards have also been questioned in South America.  But while ABS is now mandatory in Brazil, Argentina would only recommend the use of ABS and EBS. On the other hand, modern technology such as on-board weight gauges is now also available in Argentina. “Given the current import restrictions, this is a good sign that the industry is coming of age in Argentina,” says Efrón.

The political framework, however, is still adverse. Next to the IMF’s most recent rebuke, it is hard to ignore the severe economic crisis in 2001-02 when analysing the Argentine market. It marked a watershed that also affected the country’s commercial road transport industry.

During the 1990s, the commercial road industry in Argentina experienced significant growth due to the slow deterioration of the rail network, which was mainly caused by a lack of public funding. According to ALL, the fixed one-to-one exchange rate between the Argentine peso and the US dollar and a reasonable fuel price encouraged the acquisition of new transport equipment during that time. “As a result, the market share of trucking over other modes of transportation experienced substantial growth, reaching approximately 80 per cent of the total freight hauled in Argentina in 2001.”

Since the crisis struck, however, the Argentine trucking industry has been negatively affected by the on-going devaluation of the peso. According to ALL, 9,986 new trucks were acquired in 1997, compared to 1,392 in 2003, when GDP growth finally returned. Between 2001 and 2002 alone, truck sales fell by about 61 per cent.

Naturally, that decline contributed to the aging of the Argentine truck and trailer fleet, and the industry has not been able to compensate for it as yet. Although Latin America as a whole has weathered the recent turbulence in the global economy with relative strength, Business Monitor International (BMI) only has “cautiously optimistic” view on the Argentine freight transport. “The country enjoys a good commodities mix, but it continues to struggle with external headwinds as well as internal difficulties in the form of rising inflation and labour unrest,” the consulting firm said in February.

“We forecast Argentine real GDP growth will slow to 0.9 per cent in 2013 on the back of a poor business environment, weakening domestic demand, and high inflation – the result of a large currency devaluation.” However, BMI can see the potential for a more sound policy course and base effects to result in growth trending upward from 2014-2017.

The World Bank’s outlook is less bearish. While it does acknowledge that Argentina's economy went through a tough time in 2012, resulting in a moderate growth of 1.9 per cent, it can also see somewhat of a silver lining. “The slowdown was felt strongly in the first half of the year, then the trend slowly reversed,” it stated last month.

Reportedly, Latin America and the Caribbean can now even eye the four per cent mark again – despite the still-simmering Eurozone crisis and a notable slowdown of the Chinese economy. One reason for that optimism may be the recent opening up of China's markets, which has been a boost to support exports and, therefore, road transport.

For Argentina, the key challenge to benefit from that regional momentum will be to upgrade the country’s infrastructure and find a way to simplify doing cross-border business. A third urgent problem to address is creating a public debate between the political class, civil society representatives and the scientific community about the future of the country and the development strategy necessary to begin moving the country toward competitive and sustainable development, as Germany’s renowned Bertelsmann Stiftung pointed out in a recent report. In the World Bank’s most recent ‘Ease of Doing Business’ report, Argentina ranked 124th out of 185 economies – eight ranks below the 2012 result.

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