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Cutting cost to increase share

10th July 2003, Page 16
10th July 2003
Page 16
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Page 16, 10th July 2003 — Cutting cost to increase share
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Building trailers for the UK haulage indus is a perilous occupation these days with tight margins, diminishing volumes and tough competition from overseas. Yet the UK arm of Europe's leading trailer manufacturer is breaking into new markets and planning to boost its market share. With Japanese-style production techniques and cost price reduced by volume assembly, Schmitz Cargobull looks likely to come

through lean times stronger and bigger, says Kevin Swallow.

• Without mentioning any names it's fair to say the UK trailer manufacturing network is undergoing a sea change. The reefer market is becoming less profitable by the hour and competEtion in curtainsiders is as hot as ever. And these are the two core markets for Schmitz Cargobull (UK).

Based in Harelaw, near Stanley in County Durham, since 1991, the company currently employs more than 300 people. It built and sold 1,400 reefer and curtainsider units during 2001/02, enjoying turnover of 241m. Production has increased by 21% to 1,700 units as the 2002/3 financial year ends in March with an expected 245m turnover.

Market share for Schmitz Cargobull (UK) currently stands at 40% of the reefer market and 20% of the curtainsider market in which the company trades. Overall targets include increasing its share of the reefer market and gaining 20% of the entire curtainsider market by 2005. Schmitz Cargobull AG, based in Germany and with factories based across Europe, builds reefer, curtainsider, tipper and skeletals in mainland Europe and is the leading trailer manufacturer.

Operations director and deputy chairman Dave Sidlow outlines the targets for the company over the next three years. "Production for 2003/4 will rise to 2,500 units and we are targeting £100m turnover by 2005/6," he adds. The company philosophy is to work In volume markets only."

Increasing market share in a sector that is steadily dropping in volume and margins is a tough process at the best of times but the company says it has the infrastructure in place to achieve this, with two factories, a repair and maintenance centre, and a research and development unit on a 92,000[713 site, ably supported by a 12-strong after-sales setup.

"We operate as an autonomous sector within the group," says Sidlow, "because the needs in the UK market are significantly different to mainland Europe, With our products in the UK we find that operators are making anything up to six drops a day and covering less distance. They need easy access to the trailer, whereas operators in mainland Europe generally cover longer distances and can make only one drop a day, or even a week:' We build in volume to keep unit costs down. Europe shares a common product, which we tailor to meet the demands of the UK market," says technical director Derek Skinner.

From a capacity to build four semitrailers in 1991 the operation is now capable of building 1,500 temperature controlled semi-trailers annually and 2,500 curtainsiders.

The Schmitz Production System is common to the automotive industry with its origins in Japan, and in particular Toyota. It involves J1S (just in sequence) material supply which prevents excess parts needing storage at the plant. In other words, the company only takes receipt of parts about to be used on preordered trailers. There is company-wide training for employees, performance monitoring and visual management.

Setbacks

Despite an efficient production system things are looking tough for the trailer manufacturing companies, including Schmitz Cargobull (UK). Producing volume can have its setbacks too and when City Logistics went bust in 2001, Schmitz Cargobull had more than 300 trailers tied up with the company. Skinner admits the company was worried. "When a major customer goes pop then it's going to create a problem, and we did not want the used market to suddenly become flooded with 300 trailers, reducing demand for new products—and reducing their value," he says.

Fortunately this did not happen and, as with Renault Trucks, the potential disaster did not materialise. "The contracted work had to continue and the trailers went in to service with the contracts they were already engaged in with City. It's hard to gauge without trailer registrations but the marketplace absorbed it. It wasn't as bad as we thought it might be," he adds.

But the reefer market is proving tough to sell in and has been for a long while. "The reefer market is pretty stable for us but margins are very tight," says Skinner.

The pressure on the UK reefer market comes from being outside of the Euro. Trailers from the Continent are cheaper to built and therefore keener priced. But Sidlow says prices can't continue to come down and already several manufacturers on the Continent are paying the price for slim margins. "Something is going to give, it can't keep coming down. There is over-capacity in Europe and a lot of companies are looking at ways of reducing costs, including moving production into Eastern Europe," he says.

Heading east

Schmitz Cargobull AG is also heading east with a new factory due to open in Hungary in the near future. There is a plant in Lithuania building rigids already in addition to the five sites in Germany, one in Switzerland and another in Zaragoza in Spain.

Skinner believes the efforts to reduce costs in the reefer market, and trailer manufacturing as a whole, will see volume production done by fewer manufacturers.

But while the reefer market gets tougher, the curtainsider sector is continuing to grow and Schmitz Cargobull (UK) is now spreading its wings into the dry-freight sector too. At the CV Show in Birmingham, it launched the new dryfreight semi-trailer designed to improve security and more likely to carry volume over GVWs. These new trailers are built onto pre-assembled fully galvanised bolted chassis.

Skinner says there is approximately 70kg payload penalty for the galvanised chassis but it offers long-term protection with high resistance to chipping from stones and a `self-healing' process against minor scratches that would normally rust. Sidlow says Schmitz Cargobull (UK) is hoping to sell around 250 to 350 dry-freight units in the first year of production, rising to nearer 700 annually in three years.

While the old factory used by longgone trailer manufacturer York has been well utilised for reefer production, it's the new factory that takes pride of place. It features one assembly line down the right, fed by a middle line where sections like the bulkhead, doors, floors and roofs are built, before being added to the main production line. On the left is the delivery and storage area. Skinner says the factory was built around the manufacturing process.

Only the running gear and panels are imported from Europe, everything else is made in County Durham but Skinner believes axles and running gear could be built on site in the future.

Despite tough competition and a reducing marketplace, Schmitz Cargobull (UK) looks well placed to succeed with its volume production and could be one of those rare manufacturers increasing its market share in a very tough business.


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