First up and then down again. The transportation industry is cyclical with swings up and down in the short term. Then add emission standards, political decisions and expectations about the future, 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 transports and infrastructure 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 life blood. 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. In the short term, demand is affected by a number of factors including fuel prices, the implementation of new emission regulations, interest rates, etc.
The registration 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 governed very largely by expectations about the future,” says Johan Adler, Head of Economic Research in the Volvo Group.
This is one of the explanations why many North American haulage companies chose to postpone their investment decisions in the autumn of 2012. Even if there was business to be done and goods to transport, with both the presidential election and federal budget negotiations around the corner, customers decided it was better to be safe than sorry and therefore postponed their purchases.
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 US 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.
Another kind of event that impacts the whole of the commercial vehicle industry is the introduction of new emission regulations. New standards have traditionally resulted in more expensive, more technically complex trucks. This has generated an advance purchasing effect, a prebuy, 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.
Growth rates in different parts of the world
According to Consensus Economics, global GDP grew by 2.5 percent during 2012 compared with 3.1 percent in 2011. GDP in the EU declined by 0.3 percent following an increase of 1.6 percent in 2011. US GDP increased by 2.2 percent (1.8 percent). Japan’s GDP expanded by 1.9 percent following a decline of 0.5 percent in 2011. Growth in countries such as Brazil, India and China hit cyclical lows during 2012. For 2013 global GDP is expected to grow by 2.6 percent. The emerging markets in primarily Asia and Latin America are foreseen to be the prime drivers of global growth.
This information is extracted from the Volvo Group Annual Report 2012.