Medium Heavy Commercial Vehicles: The other face of the pandemic in Brazil

In early March 2020, Brazil registered first cases of COVID-19
virus whilst Europe and Asia struggled with thousands of cases…
The initial measures were introduced, such as social distancing,
closure of schools, offices and manufacturers started a new era
that Brazil has never seen before. Even though the Brazilian
president and governors adapted a different strategy to fight the
spread of the COVID-19 virus, the country entered a period of
lockdowns, fear and uncertainty. A year later the pandemic is still
here. However, the re-opening of the economy and the return of
activities in the last quarter of 2020 has brought back the
optimism for a quick recovery of the Brazilian economy. This year’s
truck market looks set for strong growth.

What accounts for the change in direction? Important context is
provided by the macro-economic environment. The re-opening of
central economies in South America resulted in an increase in
demand for raw materials, which lead to a significant surge in
commodity prices. and Brazil as a large commodities producer
benefited from that. Moreover, the currency devaluation has
supported investments in some segments of the economy despite of
the devastation that the pandemic has brought. Indeed, in 2021
thanks the devaluation of currency (according to IHS Markit
economic data, the Brazilian Real devaluated almost 30% against US
dollar), which was a common phenomenon in Latin America’s economies
during the pandemic period, investments from exporters grew due to
currency trade and some segments of the economy, such as
agroindustry and agribusiness, performed very well. These segments
of the economy use trucks as the main mode of transport to move
their goods, hence, truck industry in Brazil has experienced a
great performance with an increasing demand for haulage goods.
Controversially, the increased demand for trucks to transport raw
materials aiming to feed the global supply chain has been hit by a
shortage of some basic components, such as plastic components,
iron, ore, and semi-conductors.

During the pandemic period, the shortages of some components and
interruptions in the industry affected the performance of truck
sales in Brazil. Sales of heavy commercial vehicles contracted
11.6% y/y in 2020, despite of a high demand from truck operators.
This year, the effects of the pandemic are seen in closures of many
businesses and cancelling of important fairs and trade shows. In
2021, the FENATRAN – the largest truck trade show in South America
– will go ahead, but on a smaller scale as few OEMs announced that
they will do their private launch events instead. The 2019 FENATRAN
exhibition generated BRL 8.4 billion in business.

In parallel, the pandemic also accelerated disruptions and
change behaviors, even in the logistics sector. The consumption of
internet products was boosted during the social distancing and at
the same time logistics companies have invested in improvements and
efficiency. The increasing pursuit of hubs to rent close to the
large cities grew significantly and this was reflected in capital
market, which saw the price increase of stocks and REITs. The
applicability of trucks also changed, with Class 6 becoming the
most required by truck operators in the medium segment (6-15t GVW).
During the first half of 2021, demand for Class 6 trucks grew by
48.8% compared with the same period of 2020. In contrast, Class 6
trucks decreased 15.4% year-on-year in 2020although this was the
lowest fall among all trucks >6t GVW. On the heavy side (>15t
GVW), trucks with specifications focused on agribusiness transport
(primarily articulated trucks with engine horsepower of over 420
with axle configuration 6×4 or 8×4) still have a domain and in
2020they represented nearly 20% of Brazil’s truck sales, and they
were responsible for 22.3% of truck sales in January-June 2021.
Demand for vehicles specializing in construction and fractional
cargo has increased as well. In parallel, the use of intermodal
(combination of truck + cabotage or truck + railroad) to transport
grains accelerated during the pandemic, and likely this will be a
trend among trucks operators aiming to reduce the transport costs.
IHS Markit analysts project that the heavy commercial vehicle
market in Brazil will post a substantial recovery in 2021 and it
will reach around 126,000 units.

The pandemic brought structural changes in the transport
industry in Brazil. The investments that benefited from the
currency devaluation, an improvement of profit margins and an
increase of efficiency, opened opportunities for improvements in
the medium- and long-term in the land transport sector. The
increasing global demand for goods combined with the use of new
technologies will likely require more efficient way of transport,
and trucks will continue to have a huge share in the transportation
business, even with an increase of cabotage and use of railways.
For both intermodal ways, transport still has a huge dependence of
trucks, to haulage from field to port (drydock or port). On the
truck side, tighter legislation (emission) for trucks will force
new investments in technologies such as alternative propulsion
(electrification, hybridization or use of biofuel), hardware to
increase transport efficiency, and ways for OEMs to support fleets
with additional services. In parallel, the government may
accelerate the introduction of new rules and incentives for new
technologies and therefore maintain Brazil’s importance in the
global truck market.

Source: http://ihsmarkit.com/research-analysis/medium-heavy-commercial-vehices-the-pandemic-brazil.html