Former CEO & Chairman, Daimler Trucks Asia
Albert has more than 35 years of professional experience in senior management positions in the automotive industry, including over 32 years at Daimler. Among other roles, he was CFO, strategist and product planner for Daimler's global commercial vehicle business. Most recently, he was responsible for the Truck & Bus business of Daimler Asia as CEO and Chairman until 2016. Albert consults on the trucking industry through his consulting firm AXK Group. Read moreView Profile Page
Let’s start with some quick comments on the overall trucking industry.
These days, it’s maybe one of the most exciting phases of the trucking industry, of the last 100 to 125 years, because there is a fundamental change, which is driven by the environment, which is driven by CO2 reduction, which is driven by the recent Green Transportation. This means totally new emission-free propulsion systems and it means, on the other hand, significantly increased efficiency. A buzzword comes into play here, which is digitalization. To make this more hectic, truckers always want to get feel and touch. If you look at a truck or a trailer truck on the highway today, then you should imagine that, on average, a truck is only loaded up to 50%. It varies by country; some countries have a 60% average and some countries a 48% average. This means that with information technology, you can ensure that that truck is not loaded 50%, but 60%, 70% or 80%, and you will need 10%, 20%, 30% less trucks on the road.
You may think that for people in the truck business, like myself, who by the way, has a truck driver’s license, that this is not a good message, because the more trucks you sell, the happier you are. No; it’s not true. But let’s say the success of trucking gets to the problem of trucking because crowded highways drives the perception of the population against truck transportation. This is not good for the trucking industry. It must be an accepted industry. Trucking, nowadays, is on the borderline of being not accepted or being criticized. But there is no alternative to trucking because, as we have seen during the unfortunate Covid-19 time, without the truck, our daily life would not work.
There is no alternative to trucking because you can shift transportation, partially, to the train but this is very limited. If you want to double the transportation volume in trains, in Germany, then you would just move 10% of the truck load to the train. So we are talking 1%, 2%, 3%, 4%, 5% which again, which can be flexibly shifted if there are good connections. This is just one example as to why there is no alternative for trucking.
Having said this, coming back to your question, emission, alternative propulsion, innovation at its best and, secondly, digitalization, to increase the efficiency. This makes trucking very, very interesting.
What drives the total cost of ownership for larger trucks and how has this evolved?
This is the central thing for trucking. We call it total cost of ownership. This means what the cost is to run and operate the truck, one mile, one kilometer, one hour, in total. Why is this so important? These are the costs for the truck operator and impact revenue and margin for transportation. By the way, the margin in the trucking business is quite small. We are talking about 2% to 3% return on sales, just to give you an idea. It’s a very competitive industry. We are talking B2B. There is simply no emotion. There was some part of emotion in the US, the so-called owner operators, but this is also very much reduced. So the statement that there is no emotion is 99% true, because nobody buys a truck and spends €100,000 because his son, his daughter, his wife says, this is fancy to have a truck; please buy a truck. Nobody says that. It is pure business, B2B.
In B2B, the cost is the name of the game; total cost of ownership. The breakdown is relatively simple. There are two big parts in total cost of ownership. One is the driver, which is roughly one third. The other is the fuel, which is also roughly one third. That gives you two thirds of your total cost of ownership. The rest is the purchasing price, commoditization, maintenance, insurance, tires which then adds up to the 100%. The purchasing price itself is below 10%, for a long-haul truck. There is a second element to the total cost of ownership which is the uptime which, mostly, in the trucking industry, is not calculated into the total cost of ownership. There is no science behind it, but it is the uptime on the positive side and the downtime on the negative side. This is the truck running. The pay in is the durability of the truck. If you have a 2% to 3% return on sales and if, during the year, the truck is one week or 10 days down, due to some failure in the workshop or parts are missing and we have to wait for them, then you can easily calculate that 10 days in a year has an impact on your return on sales, so your total profit of the year is done. This gives you the background as to why uptime, the running of the truck, is so important.
This leads to the fact that service operations in the trucking industry are even more important than in passenger cars. Every truck will, of course, have to have regular servicing and will, sometimes, have a failure. There is no product out there that doesn’t have a failure. Even airplanes, with the highest redundant systems, unfortunately, sometimes they have accidents. But the name of the game is to be quick; let me give you the best benchmark example. The big fleet in the US, which is running tens of thousands of trucks, the average downtime of a truck, if the truck has a problem, from off the highway to on the highway – running to the workshop, going to the bay, getting repaired, out of the workshop, to the highway – is 1.6 hours. You may say, if it’s a headlamp, 1.6 hours is reasonable; I agree, it’s reasonable. But if you have an engine change – and this is all included in this average of 1.6 hours – or if you have an electronic problem, it’s just 1.6 hours.
This tells us the competitiveness of this industry and the importance of service in this industry and the importance of uptime. As a summary, the total cost of ownership is driver – remember the driver when we make speak later about the autonomous cost factor – fuel, and today we have the highest fuel efficiency in this super developed aggregates, components and engines. A heavy-duty truck, loaded with 40 tons has an average fuel consumption today of 27 or 30 liters per 100km. Maybe you are a little bit too young, but listeners of my age remember very well that passenger cars used to have this fuel consumption. Now a truck, loaded with 40 tons, operates at 27 liters of diesel, per 100km. Even then, the cost factor is one third. The rest of the components are the infrastructure costs of a truck.
What drives the buyer of a heavy truck to choose one OEM versus another?
First of all, it’s the flexibility of the OEM to make tailor-made out of the endless variants of a truck; a specific truck for the purpose the buyer is looking for. The variants in trucking are much higher than in passenger cars. To give you an idea, when I was at an assembly plant for trucks, maybe one of the biggest in the Western hemisphere, doing 600 heavy-duty trucks a day, I always said to the visitors, if you see two identical trucks – not from the same customer who has ordered 10 trucks, which are on the line – but from different customers, then I will invite you to dinner. It was an easy bet for me and I did not even have to ask for compensation if I win the bet, because you will hardly find, in 600 trucks a day, two identical trucks. That gives you a feeling for the variety of trucks.
So flexibility is one side; let’s say documented flexibility, where you can take out from the module kit. But also, not documented flexibility. Nearly every OEM, nearly every truck plant, has a special customer fitting center, after the big assembly plant. This indicates that there is high flexibility. If a customer comes to you, you have to fulfil his wishes, his rational wishes, for his transportation needs. Because if you can’t and you have a compromised solution, then you don’t have the best asset for what we discussed before around the total cost of ownership. Only the best asset serves the best fuel consumption and the best efficiency in transportation and the best usage and the least misusage. With that comes the least downtime.
If a customer wants to buy a truck, then at the highest level, you have to fulfil his needs and then you have to deliver the best total cost of ownership. This means the best fuel consumption with the best durability and a good price, I would say. After the explanation about total cost of ownership, it’s not only about the cheapest one. Remember that the purchase price is less than 10% of the total cost of ownership.
What does this mean for a new entrant coming into this market? How hard is it to establish a presence?
It’s very hard. The biggest challenge is that you have to have the sales and service network. Downtime/uptime is so important. If there is a problem, the customer is not prepared to drive 100km to the next service station. For 100km, they would have to drive nearly 1.6 hours and the timeslot has gone, so to speak. When you ask yourself why are there not more Chinese trucks in Europe, or why are they not trying to sell Chinese, Indian or Japanese trucks in Europe, the single biggest reason is, there is not a good sales and service network available. You would only have this if you did a cooperation with somebody who has a good sales and service network. Also, the service network is often more dense than the sales network. We talk about hub and spoke, so you have one sales point and, maybe, three, four, five, 10 service stations around this sales point. But you would have to do a cooperation with an OEM who had this.
Once you have your network, then you have to have patience. The client, the fleet, the truck owner will only buy one or two trucks from you, as a new entrant, and test this truck for one, two, three years. If it operates very well, then he might say, next time I will buy three of them. He cannot run the risk of buying trucks which are not performing. Remember, downtime, profit gone, business gone, bankruptcy. Today, with the Volvos, the Scanias, the MANs, the Mercedes, in Europe, these trucks have one thing in common; they are super modular, they are all high performing and they may differentiate a little bit, like the cream on the cake. This is because there have been decades of competition which educated or forced the system to the highest performance in the parameters that we discussed.
To come back to a very big truck market, like China, where there are some very big OEMs, it’s obvious that you ask the question as to why there are no Chinese trucks in Europe. There is no sales and service network and even if one of the big European brands would let a Chinese OEM would use his network, then the perception of the Chinese quality, rightly or wrongly, is let’s see, let’s wait and then there would be a little test buying.
In 2011 you had experience launching a battery EV truck. What did you learn? What has changed since then?
In the past years, alternative propulsion systems was some kind of belief and hobby. I was lucky enough to serve as CEO in a company that was and is very aggressive in this area – Mitsubishi Fuso. Back in 2005, this company developed the first light-duty hybrid truck. It was the best-performing truck in the world. It had an eight-liter fuel consumption per 100km in distribution. There was no regulation which forced this. We thought that this was increasingly requested technology, but it was not the case. The diesel trucks are so developed and the trucking industry is so conservative, maturity driven, no risk, that over years, we hardly saw 2,000 hybrid trucks around the world, which was very frustrating.