SAF-Holland raises the stakes

Competing in an increasingly globalised, yet often incoherent market like trucking is a challenge for any equipment business, but it has become especially tough since Europe’s leading OEMs started eyeing the lucrative aftermarket as a new revenue source. What’s more, M&A activity in the supplier scene has risen dramatically during the second half of 2014, indicating just how fiercely contested the segment is at the moment. Global Trailer met Steffen Schewerda, President of SAF-Holland’s Trailer Systems Business Unit, at the IAA Commercial Vehicle Show in Germany to find out how the global powerhouse is handling the heat.

Q: SAF-Holland let off a firework of innovation at the IAA Commercial Show in Germany. Do you see the 2014 showdown as some sort of watershed event strategy-wise or did you just happen to have a lot in the pipeline?
A: We’ve invested a lot into our R&D capabilities over the past few years and the presentation at the 2014 show was a logical result of those efforts. But we won’t stop here. While we still need to get many of the innovations you’ve seen in Germany on the road, we’re already working on the next generation of SAF-Holland technology – simply because we believe that continuous innovation is the key to success. From my perspective, the race to the bottom in terms of pricing does not always accommodate the fleets’ requirements for reduced overall cost. Intelligently engineered products can be more effective over the long run – and that applies to every market around the globe.

Q: You’ve presented an almost unparalleled variety of new products in Hanover, from a new carbon fibre axle through to a new brake drum. Which product will be most important for SAF-Holland as a business in 2015-16?
A: Next to those products that are already available since the IAA – such as UP, a very efficient system where the air bag disconnects from the suspension beam to transport trailers via rail – the INTRA S and the INTRA R are certainly two of the main focus areas. We found that the ‘one-fits-all’ approach does not work any longer. Today’s customers need tailored solutions for their specific transportation tasks. That’s why we’ve stripped the INTRA S off any function that’s not necessary for use in a curtain-sider or reefer application. Meantime, the INTRA R offers all the features and benefits that tanker and tipper customers require. We will introduce the INTRA S somewhere in the middle of 2015, with the INTRA R following later that year. In addition, the recent improvements on the drum brake front are essential. Although disc brakes dominate the European market, the drum brake still has its place. We’ve been working very hard over the past three years to increase the performance of our drum brake – from the measurements of different linings through to our manufacturing processes – which all comes at a significant cost, of course.

Q: Looking into the future, when will we see the carbon-fibre axle on the road?
A: Given the current stage of the project, I would say we will see the first commercially available version in 2019 or 2020. The carbon fibre axle is a different field for us and we have to learn a lot. We are facing different challenges than with conventional designs. For instance, we need to understand the impact of varying temperatures, ozone, chemicals and debris on the material. At the moment, we can’t even be sure we’ve provided for all contingencies just because the product is so new to everyone in our field. Of course we are looking at other industries to learn and understand, but we still need to apply all of this knowledge to the highly specific trailer axle environment. That’s why we will continue to perform extensive testing over the next few years to find out what works and what does not.

Q: Speaking of axles – one of SAF-Holland’s core businesses is the axle and suspension market, which has seen a lot of movement lately. Will the advent of a captive OEM offering by Krone and Kögel change the marketplace for good?
A: That is yet to be determined. It all comes down to the requirements of the fleet sector. Whoever is able to provide the best value will win the race – captive or independent.

Q: On the supplier side, the competition is becoming equally fierce. What’s the right strategy to come out on top?
A: That is an interesting development. Our strategy is to focus on what we are good at – which is componentry for trucks and trailers. We believe that whoever can prove the value of a product or a service to a fleet will eventually come out on top. In saying that, I do have a lot of respect for companies that march down the path of diversification in the sense of upwards integration. Adding all kinds of services to a system that you do not entirely control is a tricky challenge.
The recent acquisition of Daimler axles by Jost will bring more change to the market and affect its dynamics both in Europe and globally. Maybe there is more than just one ‘right’ strategy. I guess there is more than one way to be successful. However, it all comes down to – and I am repeating myself – who will be able to provide fleets with the best value proposition. From our perspective, continuous engineering efforts and innovations are the way to succeed in that regard. Naturally I don’t know what the future holds, but I am very optimistic about the global development of SAF-Holland over the coming years.

Q: SAF-Holland is a publicly listed business. Will that be an advantage or disadvantage in the race for the top?
A: A bit of both. Going public certainly had an impact on our people and the company culture over the last few years. Although I wasn’t the most enthusiastic person about the whole idea in the first place, I have to say that it changed the company for the better. Keeping commitments on a continuous base, developing sound strategies, being honest with ourselves, having the earnings perspective in mind and, most importantly, having robust discussions that focus on facts and figures and allow the best idea or concept to win, not the highest ranking gorilla in the room – these are all changes for the good.
People say there is always a certain tension between long-term and short-term goals in a publicly traded business, but I have to say that I’ve never experienced a desire to go for the ‘quick gain’ from any shareholder. We are developing the business with a long-term view, and I believe the IAA, with our long-term outlook, was a good example for that.
Another advantage is the access to the capital market you have as a public company, and we have made use of this over the last couple of years with various capital increases.
A disadvantage, from my point of view, is the fact that we have to publish a lot of information. We know that our customers, competitors and suppliers are very interested in every bit of information we publish.
I don’t have a problem with the information itself or providing third parties access to it, but I do have a problem reading incorrect interpretations of it. Many people are making assumptions based on their personal knowledge and think they have deep insight into SAF-Holland as a business without actually questioning their assumptions. Then they draw conclusions or engage in activities which make us wonder, ‘Where does that come from?’

Q: As a publicly listed company, you’ve openly shared your growth target with the market. By 2015, sales are supposed to grow by up to 15 per cent compared to 2012. Are you on track to reach that goal?
A: Yes, we are currently on track. Comparing the half-year result of 2014 to the one from 2012, the Trailer Business Unit increased sales by 16 per cent and grew the adjusted EBIT from 2.8 per cent to 4.1 per cent globally. So, at the moment, we seem to be on track. But the big question is what happens to our sales in 2015, with all the political and economical challenges out there? We will possibly experience a shift of sales from one region to another, but at this point in time I am confident that we can reach our growth target.

Q: Plant consolidation is one point that’s been repeatedly discussed in that context. How do we have to picture the process?
A: We are constantly thinking about how to get the structure of the organisation right. This also includes what we refer to as our ‘asset structure’ – locations, buildings and equipment. Just because something has been working for the past 20 years doesn’t mean it has to work for the next 20.
A good example is the plant consolidation process in Germany. Traditionally, SAF-Holland had three production sites in the Aschaffenburg area near Frankfurt, and all three locations were necessary. But when evaluating our long-term plans, it became clear that we wouldn’t need all three sites in the future, which is why we’ll consolidate them into two.
What that means is we will prepare the remaining two plants in terms of buildings and infrastructure before moving over all necessary equipment. It’s quite an undertaking to do so while production is in full swing, but the team is doing a fantastic job. If you visited our plant right now, you would be able to see how one site is being torn down and completely rebuilt just to accommodate the equipment and people from the plant we will close in late 2015.
Of course the same process is taking place globally too, so there will be more changes over the next few years. You will see SAF-Holland opening locations in some regions and maybe consolidating or closing them somewhere else.

Q: Western Europe is still in recovery mode, but the rest of the world is slowly gaining pace again. Which region is especially important for SAF-Holland to ensure you remain on target?
A: Considering the situation in the Ukraine and the Middle East, the current growth potential in Europe is limited. Of course this can change in an instant, but at this point in time, I’m not so confident that the Ukraine issue will be resolved any time soon. Meanwhile, North America is still a strong market and very important for us. We are well positioned in this market and work hard to continually gain additional ground. China is always interesting too, and I believe we can gain some market share over the next few years if we keep innovating. We also keep an eye on other regional markets such as South East Asia, Australia and Latin America.

Q: Let’s go into more detail: In how far does the complex political situation in Russia/ Ukraine affect SAF-Holland’s trailer division?
A: To fully grasp the impact of the situation, you need to know that Eastern Europe has traditionally been a good market for used trailers. Recently I’ve been hearing that the inventory of used trailers was increasing and prices were going down, which is concerning for a company like us. Trailer builders who rely on exports to Eastern Europe also seem to have problems keeping their numbers up. But that doesn’t only affect Western European companies – we also see manufacturers in Poland and Turkey struggling.
If the situation remains as tense as it is, I don’t see big growth opportunities for 2015 in Europe. Assuming the situation does not change, my best estimation is that the market will trend sideways.

Q: Will the Chinese market be able to compensate for the loss? After all, the International Monetary Fund has just confirmed that China is now the world’s biggest economy again, at least in purchasing-power-parity terms…
A: I don’t think so. I believe that China will have a stable market or a slightly increasing one, with some growth coming from North Americas intermodal business.
Don’t get me wrong – China’s development as a country is impressive, but I am still wondering when and how it will positively affect our business. At SAF-Holland, we still haven’t found a model to forecast when and by how much all that growth will translate into actual trailer sales.

Q: With that in mind, which lessons did you learn over the past 12 months? Or has the industry finally become so erratic that there is no single truth anymore?
A: You are right – there is no single truth anymore, especially when you look at the industry from a global perspective. Every world region has different requirements and that is unlikely to change. We appreciate this fact as it gives us the chance to prove that we are the right partner for industry and capable of creating individual solutions for each market.
But there is one universal lesson I’ve learned over the last few months: the world is changing and it will never stop changing. Whatever change comes your way – good or bad – you better be prepared for it, apply the best team work you have, react as fast as you can and choose the right people both inside and outside of the organisation.

Q: Finally, how would you characterise SAF-Holland as business now that the IAA pressure is gone and many new innovations are officially underway?
A: The immediate pressure from the IAA is gone, but the internal pressure has increased a lot –and the entire team is very aware of it. We have created certain expectations in the marketplace and, given what we’ve heard from our customers, these expectations are high. We know we now have to deliver on our promises on a global level. Although the IAA happened to be in Europe, many of the products we displayed during the show are not limited to the European market and are intended to have a global impact.
So, work is a lot of fun and very exciting at the moment, but also a bit stressful. But I’m confident that the team we have, consisting of excellent individual players, will be able to pull it off over the next few years.

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