Prior to the outbreak of COVID-19, heavy-duty motor oil (HDMO) demand in the truck and construction vehicles categories was growing due to the booming logistics industry and significant investments in the construction industry. However, the 2020 COVID-19–induced lockdown in China has severely affected demand for HDMO in the trucks category due to restrictions in the movement of goods as well as reduced demand. Despite a significant drop in demand for China’s service-fill HDMO in the truck category, demand for engine oils is expected to recover, albeit partially, driven by growth in truck sales and population.
The sales channel landscape, however, is changing among truck and fleet owners in China. A growing number of truck fleets are shifting toward in-house garages for maintenance, which is expected to result in a considerable loss in customer footfall in the independent workshop (IWS) channel, which currently accounts for nearly half of total engine oils sales in the truck category. The franchise workshop (FWS) channel, which is the second-place holder for HDMO sales, is likely to continue gaining share in the aftersales market.
The bus segment in China, which was already declining since 2016, experienced an even deeper dip in 2020 due to reduced travel activity amidst the pandemic. Highway passenger traffic in the country dropped by over 50% in the first half of 2020, resulting in lower operating rates and a drop in HDMO demand in the bus segment. Additionally, buses in China have faced fierce competition in recent years from high-speed railroad and subways. The railroad passenger traffic in the country increased by 8.4% in 2019 over 2018, while highway passenger traffic dropped by 4.8% during the same period. Low travel activity in 2020 due to the pandemic is estimated to further cut back the operating rates for buses in the country. Interestingly, China is seeing noticeable growth in battery-electric buses, particularly in the city bus category, which does not require engine oils. Under such circumstances, the already declining HDMO consumption in this segment is anticipated to experience an even steeper decline over the next five years.
Following this trend, the two largest channels for after-market HDMO sales in the bus category, IWS and fleets, are anticipated to experience declining sales in the future. Scaling this down further will be Chinese people continuing to drift away from buses and instead using railroads. The development of high-speed railroads in the country poses a threat to the buses plying between cities, which are the key customers for the IWS channel.
The construction industry in China experienced a relatively less severe impact of the COVID-19 lockdowns; therefore, demand for HDMO in the construction vehicle category continues to grow.
The construction vehicle category in China has experienced growth from 2015 to 2020 on the back of an initiative taken by the Chinese government to encourage the development of the country’s construction industry to boost the economy. Investments in real estate and infrastructure development helped bring the construction industry back on a growth trajectory in 2020, after a brief slowdown for only a couple of months. These trends are expected to augment the demand for HDMO in the construction vehicle category in China in the short-term future.
Moreover, the online sales channel for commercial automotive lubricants in China is still not as popular as the consumer automotive segment. However, the industry is seeing signs of possible future growth in this channel. Internet and e-commerce are highly encouraged by the Chinese government, and industry experts believe that a better regulation of online sales could keep the counterfeiting activity in check and may be able to drive healthy growth in this market in the future.
Going forward, the HDMO market in China is continuously changing with an altering vehicle landscape, the introduction of new National Standards for commercial vehicles, growing logistics demand, and significant investments in infrastructure and real estate projects stimulating growth in commercial fleets. Kline’s deep dive into this market in 2020 has revealed opportune trends in the HDMO sales channel landscape, particularly for trucks, buses, and construction vehicles, in the country. These trends and opportunities have been comprehensively presented by Kline in a detailed “what-if” analysis report, titled Heavy-Duty Motor Oil: China Channel Dynamics and Opportunities for Trucks, Buses, and Construction Vehicles.
To gain deeper insights into the Chinese HDMO market and post COVID-19 recovery as well the leading trends impacting HDMO sales in China’s commercial vehicle market for trucks, buses, and construction vehicles. Please REQUEST RECORDING to our free webinar.
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The full version of the article has been written for the STLE publication. Read here: https://www.stle.org/files/TLTArchives/2021/01_January/Market_Trends.aspx