The Transportation Market for Cable Assemblies:
Navigating the Sea, Air, and Land

A slow but steady recovery across the transportation market means
opportunity for cable assembly makers.

By David Pheteplace, Bishop & Associates Inc.

The transportation, non-automotive cable assembly market grew 33.8% in 2010, after declining 25% in 2009. In 2011, this market continues to do well, for the most part. The companies Bishop tracks saw first quarter sales increase 41% year-over-year, and net income was up 400% year-over-year. In year-over-year sales performance for the first quarter, PACCAR was up 47.2%, Cummins Engine was up 55.8%, Wabash was up $184%, Trinity Industries was up 41.9%, and Westinghouse Air Brakes was up 25.1%. Daimler AG truck revenues are up 20% year-over-year for the first half of 2011, although their bus revenues are down 3%. Boeing Commercial Airplanes’ first quarter results were down 5% from the prior year, at $7.1 billion on planned lower Boeing 777 deliveries, but second quarter results were up 19%, giving them a 7% increase for the first half of the year. First quarter revenues for Airbus were up 12% year-over-year at €6.7 billion. All considered, the transportation market is off to a good start for 2011.

The transportation, non-automotive category consists primarily of commercial aviation, trucks, buses, rail, boats/ships, and recreational vehicles. Each of these market sectors has its own challenges and opportunities, despite sharing a common purpose.

In the commercial aviation market, American Airlines placed a record-breaking order for commercial airliners in July 2011. They divided a 460-plane order between Boeing and Airbus. Boeing received orders for 200 Boeing 737s and Airbus got orders for 260 Airbus 320s. Depending on options for each of the airliners, the combined value of the orders is approximately $39 billion spread over 2013 to 2022. The orders will result in substantial business for connector, contact, and cable assembly manufacturers, with a value in excess of $1.8 billion. Boeing is currently producing 32 737s per month and will increase that to 35 per month in 2012, 38 per month in 2013, and 42 per month in 2014. Airbus is currently producing 36 planes per month and will increase that to 42 per month in 2012. The market for these medium-haul airliners is being driven by recovering air travel demand, the airliner’s need for better fuel efficiency, the aging of the existing fleet, and the increased availability of funds to the leasing market. James Albaugh, president/CEO of Boeing Commercial Airplanes, foresees demand for over 33,000 airliners over the next 20 years, valued at approximately $4 trillion. This represents over $100 billion in value to the interconnect market. Both companies are doing well in revenue growth in 2011, and the remainder of the year appears strong at this time. The overall commercial aviation market also appears to be on a solid growth path.

The truck market in North America and Europe seems to be rebounding. PACCAR reported strong demand in both regions, with revenues up 54% year-over-year for the first six months of 2011. In North America, April sales increased 157% year-over-year to 38,120 units, according to ACT Research. Wabash, a manufacturer of truck trailers, reported a sales increase of 184% year-over-year for the first quarter of 2011. Many companies are reporting difficulties with getting their supplier up to producing the higher volumes, as many first- and second-tier suppliers cut back significantly on their capacity during the recession. This strong demand is the result of economic recoveries, albeit slow, in both regions. The truck market in China is benefiting from the continuing strong growth of their economy. According to ReportLinker, China produced over a million trucks in 2010, up over 60% year-over-year. Daimler AG sees enough potential in the Indian truck market to open a plant in India to produce 6- to 49-ton trucks specifically designed for their market, which Daimler identifies as the second largest market worldwide for medium- to heavy-duty trucks. Daimler’s worldwide truck revenues were up 31% year-over-year in 2010 to €24 billion, and the number of units sold was up 37% to 355,263 trucks. Year-to-date, Daimler’s truck revenues are up 20% over first half 2010.

The bus market, particularly in Europe and North America, actually benefitted somewhat from the recession. Private automobiles became less affordable, particularly for lower-income consumers, so more people needed bus transportation. Although Europe has extensive train service, many riders take the bus for the last few miles from the train or subway station to home. In North America, most mass transit travel within cities or regions is by bus. Daimler Buses was up 8% in 2010 with worldwide revenues of €12.8 billion, and unit sales were up 20% to 39,118 buses. Year-to-date, Daimler revenues are down 3% from prior year. Volvo Buses revenues increased 11% year-over-year in 2010. Their revenues increased in all regions of the world except Europe, which was down by 19% from 2009. North America revenues increased 27%, South America 41%, Asia 20%, and ROW 85%. For the first half of 2011, Volvo’s year-over-year revenues are down 5% in Europe and down 7% in North America, while revenues are up 31% in South America, 3% in Asia, and 29% in ROW. The overall result is up 1%. According to a Volvo Buses second quarter statement, they see demand slowly increasing in Europe and North America in the low single digits (except city buses demand is flat in both regions). Asia and Africa demand is positive and demand in China is slipping compared to 2010. They also see a significant interest worldwide in hybrid buses and cleaner-running buses. Overall, the bus market appears to be heading for a growth year, but in the low single digits.

The rail market in North America for freight grew 7.3% year-over-year in 2010 for total car loads, according to the Association of American Railroads (AAR), but it’s still well below pre-recession volumes. Coal represented 37% of the volume. The AAR also identified that the industry spent $10.7 billion of capital investment and is expected to spend approximately $12 billion in 2011. Trinity Industries is the largest railcar manufacturer in North America with approximately 50% of the market. The revenues for their rail group are up 67.9% for the first six months of 2011. They project the North American market to be 30,000 railcars in 2011, up 75% from 2010. Bombardier Transportation, for locomotives, saw a 7.5% increase in the first quarter 2011 vs. 2010. GE Transportation reported orders are up by 19% in the first half of 2011, with orders for 167 locomotives in the Americas. GE reported revenues of $1.2 billion in the 2^nd quarter, which was up 74% vs. the prior year results. Second-quarter reporting noted an “attractive transportation business cycle.” GE’s first half 2011 is up 43% from 2010, year-over-year. Siemens Mobility reported locomotive orders up 291% year-over-year in their third quarter ending in July, with a contract for 130 high-speed trains. Revenues were down 5% during this same timeframe and down 5% in the previous quarter. Siemens reported strong business in North America and China. China’s rail system building binge for high-speed trains may have hit a snag in July, however, when two of their trains in Wenzhou in Zhejiang Province collided and killed 39 people. Corruption in the Ministry of Railways and faulty signaling systems are blamed for the accident. China’s rush to modernize and expand their rail systems has been criticized for its lack of focus on quality and safety. Economic growth has slowed down in India, which has the largest rail system, but in the rail market worldwide, 2011 looks to be a positive year, with year-over-year growth exceeding 5%.

The boats/ships market is recovering from a weak 2010. Hyundai Heavy Industries is the largest ship builder, with 2010 revenues of $7.5 billion, which was a decrease of 12.8% from 2009. Year-over-year sales were up 23.6% in their second quarter and their run-rate for 2011 would represent a 19% increase over 2010. By year-to-date June 2011, their orders are up 418% on a year-over-year basis from the prior year. Hyundai builds primarily tankers, container ships, and bulker ships. Samsung Heavy Industries is the third- largest shipbuilder worldwide, building primarily container, tanker, LNG, drill, and production facility ships. Their sales were flat in 2010 at $13.1 billion. In the first quarter of 2011, the revenues were up 5.6% over the prior year. Their orders through April 2011 are already 8.2% higher than their orders for all of 2010 at $10.5 billion and they have a backlog of $42.4 billion total. The Samsung first quarter report reports that global new orders for 2010 were $94.6 billion with 39% from South Korea, 37% from China, 5% from Japan, and 19% from all other countries. As of April 2011, new orders of $33.2 billion have been placed, with 58% from South Korea, 16% from China, 4% from Japan, and 22% from all other countries. The following chart illustrates the number of new orders placed each year, dating back to 1999. 

Global New Orders for Ships (Units)

Source: Samsung Interim Report

Samsung comments that China was the leading purchaser of ships worldwide from 2003 to 2008; after 2009, new orders have normalized at 2003 to 2005 levels; and orders for specialized ships are increasing. Daewoo Shipbuilding is also doing well, with $7.1 billion in new orders through June 2011 vs. $10.3 billion for all of 2010. Their total backlog is $36.1 billion. Sales in 2010 were $11.5 billion. Although we have not addressed smaller boats and pleasure craft with the companies presented, the boat/ship market appears to be headed for mid to high single-digit growth for 2011.

The recreational vehicle market includes motor homes and trailers, motorcycles, ATVs, and the like. This market has been hard hit by the recession and is slow to build back in the Western economies. In 2010, Harley-Davidson’s sales only grew 0.7%. In the first quarter of 2011, their year-over-year growth was only 1.5%. Yamaha Motor Company manufactures everything from motorcycles and scooters to ATVs and snowmobiles, with 2010 sales of $15.2 billion up 12.2% from 2009. For the first quarter 2010, the sales were up only 2.8% over prior year. According to the Recreational Vehicle Industry Association, wholesale shipments of motor homes and towable RVs in North America totaled 144,000 units for the first six months of this year, a 12% increase over the prior year. In 2009, the industry only shipped 166,000 units all year. Thor Industries is the largest manufacturer of RVs in the world, with revenues of $2.3 billion in 2010, a 50% increase over fiscal 2009. Year-over-year, their quarter that ended March 31, 2011, had a 25.3% increase over the prior year. One of their best-known brands is Airstream. Fleetwood Enterprises, the second-largest manufacturer, filed for Chapter 11 in November 2010, so no financial information is available. Hymer AG, located in Germany, is the third-largest manufacturer of RVs. Their 2010 revenues were €695 million, up 6.1% over prior year. For the first six months of their fiscal 2011, their revenues are up 23% over the prior year. Overall, this industry will see a 10% to 15% increase over 2010, due more to easy comparisons than to a strong market. While motorcycles are a common mode of transportation in Europe and the Far East, the RV industry is almost completely founded on discretional income spending. With the slow economic recovery in the Western economies, growth may be tentative if unemployment increases and GDP growth stagnates.

The following factors will influence the value of the transportation cable assembly market in 2011: 

• Most Western economies will generate a GDP grow rate of 2% to 3%. This has already been missed by the U.S., with growth under 2% for the first half of the year. China and India’s GDP growth is expected to be between 7% to 9.5%. Stagnation of the world GDP growth will hurt this market.

• Availability of consumer credit is important to this segment. Increases in the borrowing rate, particularly in North America and China, will have a negative impact on this market.

• Gas prices are expected to remain relatively stable at current levels. Significant increases in gas prices will hurt this market.

Although the world economy is still fragile, transportation cable assembly sales are expected to grow 3.9% in 2011. Bishop & Associates expects the worldwide market for these cable assemblies to be approximately $5 billion this year. The highest growth rate is expected in China, at approximately 15%. The largest market by region will be Europe, with transportation cable assemblies amounting to $2.3 billion in value.