Booming market

Truck manufacturers in the GCC are profiting from the growth of road haulage, as more logistics companies buy new instead of second hand trucks.

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By  Laura Barnes Published  December 6, 2004

|~||~||~|The market for trucks in the Middle East is booming, with haulage companies buying up an increasing number of both new and used vehicles to support road haulage operations in the GCC and into Iraq especially. The boom in the truck market is due is being driven by growth in the local construction industry, as well as by logistics firms turning to road haulage as a serious way of moving goods across the GCC. For large manufacturers, the growing demand is reflected in increasing sales. For instance, DaimlerChrysler, which manufactures Mercedes-Benz trucks, sold around 5500 articulated lorries in the GCC this year, with Scania sold over 600 in Saudi Arabia and the UAE. “This year has been very promising and profitable,” says Roland Schneider, sales & marketing director, Mercedes-Benz commercial vehicles, DaimlerChrysler. “Although, it is impossible for sales to continually increase as they have, we believe the market will develop and ultimately remain on a high plateau.” Traditionally, haulers in the Middle East would buy second-hand trucks and use them for just one project. However, the local second-hand truck market now faces serious competition from the new truck sector, as haulage companies begin to look beyond just the initial purchase price. “The industry has changed a lot over the past 15 years. One of the main reasons is that they [buyers] don’t just buy a truck, they buy into the service network,” says Anders Schultz, area sales manager, Scania. “We thought second hand trucks from Europe would be a threat, but what our customers are buying is the piece of mind that comes with a new truck, they have a support network and service that does not come with second hand trucks,” adds Schultz. As the market matures, it is taking a more sophisticated approach with haulers becoming more savvy and aware of what they want — long lasting, sturdy trucks that can handle day to day running in the Middle East. They also want trucks with a long lifecycle, as they begin to look at the total cost of ownership (TCO) of a new truck versus a second hand one. “People here do not look for quick investment, they calculate quite sharply what they want to buy, projecting the long-term calculations on trucks and their commercial range,” comments Schneider. “Technical lifetime is very important in the Middle East, perhaps more so than in Europe. When they buy a truck they want to see it on the road for five to seven years, in the past it was commodity and just used for one project and after two years it would be thrown out. Now it is long term,” adds Schultz. ||**|||~||~||~|Fuel consumption is also a consideration when looking at the TCO. In the Gulf area this would not have been an issue a few years ago, but now, even though petrol prices are the among cheapest in the world, the rising cost of oil and the fierce competion in the local haulage market means that operators are looking at this much more closely. “It is something that has changed,” says Schultz. “Five or 10 years ago, fuel consumption would not have been discussed, but now even though [fuel in the Gulf] is probably the cheapest in the world, it is cost that needs to be taken into consideration,” he adds. Aftersales support is also becoming increasingly important sales tool, and in order to win sales and to improve reliability for customers, the manufacturers are stepping up their local presence in order to provide better aftersales support. DaimlerChrysler, for instance, has set a regional distribution centre in Jebel Ali so it can provide parts from within the Middle East rather than Europe. This enables it to cut lead times on parts and hence improve its level of support. “Aftersales is very important,” says Schneider. “Good service is important in this region and that is why in the past few years we have set up a regional parts warehouse and a regional training centre to support dealer and distributor in the region.” As the local market develops, haulage companies are also leasing more trucks, as this gives the reliability that comes from using a new vehicle but without the need to pay the full price of buying one. The advantage with leasing is that the trucks can be used for a specific project, and then returned without the worry of ongoing maintenance or the exposure to the residual value risk. “Leasing is very important in this area. The companies take life cycle and cost into consideration, so for the investors it depends on their requirements, the length of the project and the operational use. This is why leasing is so popular,” comments Schneider. GAC Logistics, for instance, makes use of leased trucks in the local market, so it can quickly increase and decrease the size of its fleet depending on demand. PWC Logistics, based in Kuwait, likewise has over 2000 trucks in its fleet, 75% of which are owned and bought new, with the remainder leased. “Every business has a level of fluctuation and we try to have a fleet to give us the bulk of our requirements and then we modulate the trucks by leasing,” explains Charbel Abou-Jaoude, managing director of logistics operations, PWC Logistics. “A lot of international companies [operating in the region] are looking at leasing trucks,” adds KV Vijay Raghavan, manager of Zabeel Rent A Car, Dollar’s UAE partner: “It takes a lot of headaches away from these companies, and then they [the companies] are able to concentrate on their core business instead.” LME ||**||

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