For several months now, vehicle lead times have been protracted - and the problem shows no signs of abating before next summer. The causes of the problem are well known: limited component supply (for instance in tyres, NOx sensors, and gearboxes) and exponential demand in Eastern Europe. The UK and US markets are both suppressed which encourages manufacturers to move their product into the new growth areas. And while operators may look forward to the day when trucks roll into the yard quicker,
the manufacturers are keen that this shouldn't be at the expense of their lucrative new markets such as Poland. So the key question is: what can manufacturers and operators do to mitigate the situation?
All the manufacturers we spoke to can only boost capacity to a limited degree. Labour resource is relatively easy to find but without fresh component supplies, it achieves nothing. New plants take a long time to come on line and while most manufacturers - recently MAN, Daf and Iveco - have opened factories in Poland or Russia, these will only slightly ease the strain on the Continental market in the short
term. Two of the operators we spoke to singled out Scania for raising prices and having a lack of interest in fleet business, although there is a general feeling among operators that the less profitable fleet orders take lower priority for all truck makers.
The manufacturers robustly deny this, and in Scania's defence prices have edged up across the board. Therefore Roger McCarthy, UK sales director for Scania UK, probably speaks for all manufacturers when he says: "We've seen sub-suppliers increasing their prices on the back of [increased demand]. In turn we've been forced to move these price increases into the market." He adds that for Scania to maintain 17% market share in heavy trucks, "vehicle supplies to large, medium and small fleets forms part of our overall marketing strategy".
However Nigel Butler, sales and marketing director at Renault, admits: "With capacity shortages you do tend to draw a line under [less profitable] deals quicker." Factory capacity is increasing: Renault's Bourg-en-Bresse plant will grow to 300 heavy vehicle units a day and Mercedes-Benz's Woerth factory in Germany will be boosted from 115,000 units in 2007 by 20-30,000 units in 2008.
Being market leader is a double-edged sword for Daf as product popularity pushes lead times to 65 weeks on the largest vehicles. Painting the cabs is a particular snag point as the manufacturer has only one paint facility. This is despite Daf's Leyland Trucks plant being one of the most efficient in Europe with its capacity having already been increased twice. The US downturn has left Paccar plants operating at less than capacity but they would need to be retooled before they could serve the UK.
The current high demand is a blessing for manufacturers, but necessitates greater discipline and better planning in the forward-ordering process. "Communication has become more important both with the factory and with the customer," says Steve Kirk, PR and marketing director at Volvo. The desire to grow market share is also a motivating factor for Iveco and Renault, both currently on 6-7%. Renault boldly intends to double UK business next year which will mean selling and then building far more trucks - how it will do this is less clear. And Iveco says Turin is diverting vehicle production to service its UK market to establish the new Stralis in fleets.
I have just ordered all our replacement vehicles for the whole of 2008. Our fleet is managed on a contract-hire basis with lead times being so long, and to avoid price increases, we have had to order the entire schedule for 2008. We do have an issue in managing expansion because we have to predict now what we will require for the whole of next year in terms of additional equipment. Obviously large new contracts will affect this massively and it will probably mean that unless we want to gamble on what we order we will have to take spot-hire vehicles and live with the long lead times.
Again if the work involves a contract this is difficult to manage as new vehicles for the contract will come 7-8 months after the work commences. This also means running vehicles without our livery and identity, which we dislike, and there will soon be a shortage of spot-hire vehicles. As the lead times get longer we are seeing panic buying set in and people feeling they have to order now. We've had three price increases in 2007 from our supplier via manufacturers MAN and Volvo and I know there are at least another two scheduled for 2008.
The manufacturers are obviously working on a supply-and-demand basis and seeing an opportunity to increase their rates. Again it is the haulier who gets squeezed because it is seemingly impossible to pass these increases onto customers. My own feeling is that with this and rising fuel costs we will be seeing more hauliers going by the wayside in 2008.
"There are problems with lead times and axle shortages but they don't affect us because we ordered in plenty of time. I ordered 225 trucks last November and everyone thought I was crazy but it's the best thing I ever did. You can plan for growth and plan for fleet replacement but you can't predict the volume of work at any one time.
"We run a mixed fleet - but for the first time, of the 340 trucks I have on order, none are Scania. I asked for a price for 100 vehicles for next year and they never came back to me. It seems a funny philosophy. Their prices have gone up and I think they are more interested in selling smaller numbers to people who will pay more. We already have 190 vehicles on order for 2009."
We have no solution as yet - we're still in a quandary as to what to do. Traditionally we've owned our trucks but we're looking at R&M contract-hire arrangements now. We're picking up trucks as dealers have them available. I know lots of people are forward-ordering but I think it's risky. It wouldn't be a problem if the trucks were consistent. But we got 10 new Euro-4 Scania R-Series in February and they have cost us £70,000 in extra fuel. It's very disappointing and a lot of money.
Our Renault Premiums and Mercedes Actros and Axors have been OK, but the problem is when you order Euro-5s you may find you don't want them once you know how they'll perform long-term. You cannot know what a truck is like until you're running it - if we'd ordered two years' worth of the Scanias we'd have had a problem. We haven't bought used trucks for a while and prices have hardened so much it's not worth it now. It's not easy whichever way you try it. But if we can't get any trucks for a while, we'll just do without.
Lead times can impact our ability to get full revenue from contracts - ie someone takes out a contract but we can't charge them until the truck turns up in seven months' time. We are seeing customers extending contracts and also taking up pre-contract rental until their contract-hire or lease truck turns up. All capital investment in our rental fleet is taken care of a year ahead and the customer is affected more than us by shortage of contract-hire vehicles. And the rental market has performed very well this year, partly because of lead times.
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