Focused R&D, digitalisation and stronger channel networks to help stakeholders remain resilient
Frost & Sullivan and Automechanika Webinar Highlights
To understand the ramifications of the COVID-19 crisis on the commercial vehicle (CV) industry and ongoing stakeholder responses, a webinar on “Commercial Vehicle Industry – Overcoming the COVID-19 Crisis” – was conducted recently by the Automechanika team, along with Frost & Sullivan as Knowledge Partner. The webinar focused on the wide-ranging challenges and disruptions created by the crisis at both regional and global levels and, importantly, the unprecedented new business opportunities opening up due to the current churn. While stakeholders concurred that the industry had been temporarily derailed, the overall narrative was that it would successfully navigate the ‘new normal’ to emerge more resilient and robust.
I kick-started by sharing my views on how the CV industry can refine its strategic responses and long-term roadmaps to accelerate the pace of recovery. Key highlights included:
Governments step in to spur economic recovery
Setting the context, I traced the macro- and micro-economic impacts of the pandemic. Frost & Sullivan’s latest analysis projects an average decline of 3% to 4% in quarterly global GDP with a 9 to 12 month recovery period as a result of the first wave of the pandemic. However, recovery time is anticipated to be prolonged in the aftermath of a second or third wave. The first set of government stimulus packages has amounted to more than $5 trillion, globally. A second phase of stimulus packages is expected by the end of Q3 2020, with the third set of stimulus measures likely to be implemented by Q1 of 2021. Such government interventions will provide impetus to the revival of the global economy and GDP generation.
In regional terms, the US and the EU have already witnessed a steep economic slowdown, whereas the downturn in China and APAC’s economy has been more muted at between 2% to 4%. South Asia is anticipated to be the hardest hit and experience longer recovery times. The economy in the Middle East has been dealt a double blow: first, because of the 45% to 50% decline in oil prices on account of the OPEC agreement and, second, because of the additional 3% to 3.5% decline in economic performance as a result of COVID-19. Nevertheless, Frost & Sullivan expects the economy across the GCC to return to normalcy by 2022 on account of government initiatives, economic diversification measures, and infrastructure investments.
GCC’s CV industry set for comeback
While the COVID-19 crisis has affected the entire CV industry, Frost & Sullivan believes that the quantum of impact will be higher in the medium-duty (MD) and heavy-duty (HD) CV segments than in the light commercial vehicle (LCV) segment. Surging e-commerce business and the demand for last-mile delivery of essential services, especially during lockdown periods, will buffer the LCV segment even as it registers an estimated average decline of 19% in sales during 2020. In contrast, we at Frost & Sullivan, forecast a much steeper decline of 32% in average sales in the global MD and HD CV segments in 2020.
Meanwhile, the CV market in the GCC is set to contract by 18% in the first half of 2020, before shrinking by a further 22% to 25% by the end of the year. Echoing global trends, sales of MD and HD CVs in the GCC are poised to decline – by an estimated 28% in this case – in 2020. With most of its cities still in lockdown, CV sales in Kuwait are set to be the hardest hit among GCC countries.
Frost and Sullivan is confident that the GCC CV industry will get back on track from Q2 or Q3, 2021. The resumption of public infrastructure projects and tourism activities, together with economic diversification initiatives, will herald a revival in GCC’s CV industry. Accordingly, sales are poised to reach 70,000 by 2025 at a CAGR of 3.5%, with MD and HD segments accounting for 60% of overall sales.
New business models and growth areas emerge
As a growth and innovation-focused company, Frost & Sullivan has always looked at how companies can convert disruption into growth opportunities. I touched upon two emerging business models – Trucks-as-a-Service and blockchain – which have long-term disruptive growth potential for the CV industry.
Trucks-as-a-Service or the Servitization of Trucks is a business model where OEMs transition their focus from product sales to service experience, thereby engaging more meaningfully with customers and creating multiple revenue generating touch points across the journey. Leveraging advanced telematics, connected technologies and predictive analytics, the model offers benefits like reduced fuel and maintenance costs, thus increasing truck utilisation and the business profitability of fleet operators. The success of this model has been borne out by MAN Trucks and Bus. Since launching the servitisation model backed by its 15,000 truck fleet in the UK, the company has not only gained significant market share in the UK, it has also been able to support fleet operators in achieving a 10% reduction in fuel consumption and a 15% reduction in CO2 emissions.
Frost & Sullivan has been bullish on blockchain, identifying it as a technology that has the potential to completely revolutionise the CV industry across the entire value chain, from manufacturers to fleets, brokers to shippers. Accordingly, its use in the CV industry is set to increase. Its primary benefits include enabling greater transparency in freight pricing by basing pricing on the movement of the freight/shipment of goods and streamlining operations by eliminating multiple brokers involved as intermediaries in the delivery of consignments.
Looking ahead, Frost & Sullivan has identified digital retailing and used vehicle leasing as areas of emergent growth for GCC’s CV industry. The emphasis on contactless transactions, the rise of e-commerce activities, the need for last-mile delivery solutions, and the focus on affordable mobility options at the time of general economic uncertainty will be key factors driving growth in these two areas.
Such trends, allied with the GCC’s focused strategy of expanding the use of autonomous and electric vehicles in public transportation fleets, together with related infrastructure development, will enable the region’s CV industry to bounce back and overtake pre-COVID-19 growth levels by 2025.
For more information, or to schedule a growth strategy dialogue with our experts, please write to Nimisha Iyer at firstname.lastname@example.org