Transport needs today and tomorrow
Opportunities in our business landscape
The transportation industry is cyclical with swings up and down in the short term. Add new emission standards, political decisions and expectations about future business conditions, all of which impact customers’ decisions to purchase now or wait until later. However, in the longer term, the industry’s growth is closely linked to an increasing need for transportation as economies grow.
Closely linked to the GDP development
The Volvo Group is one part of the transport industry that connects production with consumption. We are what you might call the circulatory system. Demand for transport capacity and thus for many of the Group’s products is closely linked to the GDP trend.
The extent of investment in infrastructure, which drives demand for building and construction equipment, is also closely linked to the GDP trend. Increased global wealth means that there is a long-term need to build roads, airports, railways, factories, offices, shopping centers, as well as housing and recreational facilities. The registrations of new trucks on a particular market often follows the same pattern as economic growth in the region.
– The transport industry is largely in tune with the overall economic development, but demand for our products is also to a large extent determined by expectations about the future business conditions, says Johan Adler, Head of Economic Research in the Volvo Group.
Short-term factors affecting demand
In the short term, demand is affected by a number of factors including fuel prices, interest rates, the implementation of new emission regulations, etc. New emission standards have traditionally resulted in more expensive, more technically complex trucks. This has often generated an advance purchasing effect, a pre-buy, as haulage companies have taken the opportunity to update their fleets just before the new regulations come into force. At the same time, new regulations have positive effects on the environment.
For instance, the EU moved to the Euro 6 emission standard at year-end 2013. The new standard entails significant cuts in emissions of nitrogen oxides and particulates, which is good for the environment. In order to reach these cuts, more advanced and thus more expensive engine technology is needed. During the autumn of 2013 there was an increase in demand for Euro 5 trucks as some customers chose to invest in these trucks ahead of the new emission standards.
Markets move at different paces
The transportation industry is directly linked to economic developments, but the global economies do not move at the same pace. Countries that are heavily dependent on exports, such as Sweden and Germany, are more affected when consumers in other countries tighten their belts. Countries like the USA and Brazil are also impacted by a slowdown, but to a lesser degree, as they have such large domestic markets and a relatively small part of what they produce is exported.
– The fact that the Volvo Group is global is an enormous advantage. If we had not been established on the growth markets, we wouldn’t have been in the position we currently enjoy, says Johan Adler.
Growth rates in different parts of the world
According to Consensus Economics, global GDP grew by 2.4% in 2013 compared with 2.6% in 2012. GDP in the EU was flat following a decline of 0.4% in 2012. U.S. GDP increased by 1.9% (2.8%). Japan's GDP expanded by 1.7% (1.4%). Growth in countries such as Brazil, India and China continued to be relatively subdued in 2013. For 2014, global GDP is expected to grow by 3.1%. The expected acceleration in global GDP growth in 2014 is largely driven by the improvements in the U.S. and Europe.