Italy’s trailer market: Silver Lining Order Book

There are 113,285 registered transport businesses in Italy that operate a fleet of 461,517 vehicles* and counting; so it wouldn’t be much of a surprise to see the manufacturing world fight over every slice of the pie. But the socio-economic framework is currently all but accommodating.

The potential may seem infinite at a first glance, but selling trailing equipment in Italy is a hard way to earn a living. The average fleet size plateaued below the five-vehicle mark in the decade gone and created an extremely embattled marketplace. In fact, only half a dozen transport businesses run 500 vehicles or more, and the competition for that small portion of ‘big business’ is fierce. 

After the BBC reported in June that Italy's economy shrank for a seventh successive quarter between at the beginning of 2013, the local media even said that the manufacturing industry could be facing the harshest business environment since WWII.

But after an inconclusive election in late February and a long time of political deadlock, the country’s econo-political world reacted by showing a first sign of life again. Enrico Letta, the country’s new centre-left prime minister, announced a package of some 80 measures intended to boost the recession-hit economy – all while assuring José Manuel Barroso, President of the European Commission, that Italy would keep to the target of a 2.9 per cent budget deficit in 2013.

International economists, however, still doubt that Italy will be able to stick to that deficit target without further corrective measures, following a two-year recession that shows few signs of ending any time soon. Representing the Department of Policy Analysis and Public Management at Milan’s Bocconi University, Oliviero Baccelli is therefore urging Europe’s third-largest economy to implement a long-term strategy to improve on infrastructure development and update the country’s logistical framework. According to Baccelli, the status quo is not sustainable for a G8 economy.

“The combined effects of virtually zero growth over the last decade, a drop of more than 25 per cent in industrial production in the 2007-2012 period and a spike in oil prices have radically changed Italy’s transport flow by causing a general business contraction and a weakening of the country’s international competitive position,” he says.

“Looking at highway traffic, trucking in 2012 was at the same level it was in 2001 and has shrunk by 14 per cent with respect to 2007 peak levels. Looking at container traffic over the 2007-2011 period, the main three port hubs in Southern Italy have seen their container handling decreasing in volume from 4.76 to 3.52 million TEU.”

Considering that 95 per cent of Italian exports and 75 per cent of Italian imports are manufacturing products, where margins are tight and transportation costs can make all the difference between being competitive and out of business, Baccelli is demanding “an efficient system of infrastructure, norms, regulations and organisational models in the transport and logistics industry.”

After all, only a functioning transport industry will ensure the survival of Italian-built transport equipment going forward. At the moment, however, international statistics like the World Bank’s ‘Logistics Performance Index’ only rank Italy as 24th in the world, well behind the Eurozone average. And in the 2012 ‘Easy of Doing Business’ report, Italy only came 73rd among 185 countries; on civil justice, it even ranked an astonishing 160th.

Hence, the current economic framework for high quality, homemade transport equipment is meagre at best. The market itself is fragmented, and the international competition from Germany, France and Turkey is growing. According to Baccelli, only three companies with Italian capital are among the top ten companies for turnover operating in Italy, “showing how multinationals … have been able to take advantage of business opportunities in transport and logistics.”

“There is high competition between a lot of small companies which, combined with rising costs for fuel, highway usage and labour, has made for a shark tank only few will eventually survive,” says Ervino Harej, Vice General Manager of Trieste-based transport giant Autamarocchi – drawing a dark, yet realistic image of the economy.

The tenor in the industry is consistent: Italy’s system of transport will need a major overhaul to stay competitive in the long haul, but there also is room for improvement on a political level. Oil prices have grown by 20 per cent between August 2011 and August 2012, and the lethal combination of lacklustre productivity and continuing wage increases has pushed up unit labour cost, resulting in a loss of competitiveness against Germany in particular.

In fact, German trailer manufacturers have increased their share of the Italian market over the last half decade, much to the discomfiture of the local suppliers. According to UK consulting company Clear International, Schmitz Cargobull was the semi-trailer market leader in 2007, 2008, 2009 and 2010. “Semi-trailer imports had 36 per cent of the market in 2007, but this fell to 31 per cent in 2008 and 2009 before rising to 35 per cent in 2010 and 40 per cent in 2012,” says Clear International CEO, Gary Beecroft.

As Global Trailer reported in 2012, the key issue is the local market itself, the compartmentalism it has developed, and maybe even a lack of assertiveness on the top level. “Italy was once extolled for its clusters of little firms, but small is no longer beautiful now that competition from low-cost Asian producers has intensified. The country has too few global champions.”

“Italy and us, we need a market with less players, who have to be larger in size and more structured. On the political front, we need to look at the cost of labour and fuel, and continue to invest in infrastructure again – especially in rest areas around our main ports,” says Harej, who’s approach to doing business would suit many a trailer building company as well.

“We have worked hard in order to create a truly European company,” he says – pointing out that only a ‘big picture view’ will help businesses weather the current economic storm unscathed. Especially now that France has reported a cent surge in industrial production, pulling away from the south European neighbour.

One young manufacturing business upholding Italy’s good reputation as a hard working manufacturing nation is Merker, a subsidiary of the Margaritelli Group’s Compagnia Italiana Rimorchi (CIR), a conglomerate also responsible for Turin’s Viberti brand and specialty equipment expert Cardi.

Established in 2000 and acquired by the Margaritelli Group in 2005, Merker is the youngest brand under the CIR umbrella, utilising the accrued industry experience of both Viberti and Cardi to create a business that is able to compete with the top three in Europe’s trailing equipment industry. At the moment, Merker can boast a modern production plant of 170,000 m2 with a capacity of more than 15,000 units per year.

Interestingly, Merker has chosen the same strategy as Autamarocchi and is actively exploring growth potential in the EU, Russia, and Northern Africa – but with a local twist. “Building up a global brand is exciting, but first of all, we need to remind ourselves that we are and want to remain Italy’s leading brand. That means we need to make the CIR range more flexible in order to satisfy the requirements of local bodybuilders who supply those niche markets that can make or break commercial success. Secondly, we need to keep building a strong commercial network, says CEO Luca Margaritelli.

While it’s still hard to predict when economic malaise and political disarray in Italy will come to an end, Margaritelli is hoping for the recovery to kick in during the second half of 2013 or in early 2014.

And although business analysts around the world are still bearish about the Italian economy as a whole, PM Enrico Letta recently even found a reason to smile again. At the end of May, the European Commission recommended removing Italy from the excessive deficit procedure, or the “sin bin” for countries with “dodgy” public accounts, as the Economist labelled it in June.

“Release by the commission sends a positive signal to investors in public debt and should thus cut Italy’s already shrinking borrowing costs. That should help the economy since lower bond yields will enable banks to lend more cheaply,” the Economist wrote.

At the of the day, however, it is hard to tell how the situation will affect the trailer building community, as it is traditionally an asset-based industry that will ask for more than a faint silver lining to start borrowing again.

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