REPORT: Commercial fleet telematics

Orlando explores the Middle East's growing telematics industry
Middle east, Telematics industry, ANALYSIS

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Orlando Crowcroft explores the Middle East’s growing telematics industry, and finds out how the technology can benefit fleet owners and operators alike

As with all emerging sectors, the anticipated value of the global telematics market varies wildly. Even conservative estimates, however, suggest it could reach $11.2bn by 2014.

A recent report by ABI Research forecasts that revenues in the commercial fleet telematics market will increase from $7.25bn in 2012 to $26.8bn in 2018. The bulk of this growth will be in the US, but Asia – including the Middle East – comes in close second.

Rising fuel costs and increased competition in the logistics market have made cost a major factor for industry stakeholders, whilst the massive push towards wireless connectivity in all areas of business – not just transport – making high-tech telematics systems more viable.

In addition, a regulatory push from governments to mandate the use of fleet management software to improve safety standards. The European Union (EU), Russia, and Brazil will all require the installation of telematics in new vehicles from 2015 and 2016. The US, meanwhile, remains one of the largest telematics markets in the world.

In the Middle East, where regulation – particularly in the commercial vehicles sector – generally takes longer to develop, it is the companies themselves that are pushing the new technology. While security is often a key concern for fleet managers who use telematics to track stolen vehicles, in the Gulf it is profitability and safety that are the primary motives for end users.

Such considerations are likely behind claims, most recently by research firm Frost & Sullivan, that the Middle East’s unified connection (UC) market is expected to reach $235mn by 2014.

In Oman, a deal between MiX Telematics and the Omani Public Authority for Electricity and Water (PAEW) is already showing results. The fleet management system has been installed in 400 of the authority’s trucks and a reduction in accidents was noticeable within just three months of the initiative’s introduction.

Alan Hall, managing director of MiX in the Middle East, said PAEW served a population of over 1.5 million people and transported more than 650,000 cubic metres of water per day. In order to achieve the aim of connecting 90 percent percent of the Omani population to the water network by 2035, telematics, which can optimise both safety and efficiency, was a no-brainer.

“PAEW had a critical need to control violations within their vehicle fleet. Unsafe driving, vehicle collisions, speeding, high maintenance costs and excessive fuel consumption were all areas of concern before PAEW fitted MiX Telematics systems,” explains Hall.

Speeding represented the main concern for the authority, Hall reports. The ability, not only to monitor journeys but also to communicate with drivers, has proven to be a significant help in the reduction of reckless driving. It is little surprise that, knowing their movements are being monitored, drivers’ habits improve.

“Having the tools to effectively manage our vehicles and drivers enabled us to achieve a sharp reduction in major violations such as over-speeding, unfastened seat belts and harsh braking,” explains Saif Al Mawali, director-general of administration at PAEW, who said the technology had also served to lower fuel consumption.

Hall points out that other end users in the Gulf had already seen the cost benefit of telematics solutions. He claims that one of MiX Telematics’ clients – a large oil and gas company – had seen a 72 percent sustained improvement in driver behaviour only six weeks after the installation one of the firm’s systems. The same customer achieved a 15 percent reduction in fuel costs within just 12 months.

This is not to say that the emerging sector does not face challenges. Chief amongst them is the high cost of telematics hardware, which makes the argument more difficult for small-and-medium-sized fleet operators. This is especially important in the current economic climate, particularly in the Gulf, where margins are tight and the market is perennially competitive.

Another factor that is particularly concerning for the Middle East is the gap between the fast-moving technological changes and the number of qualified practitioners in the job market capable of operating these new systems. Large fleet operators and major transport companies might have little problem bringing in the top talent but smaller players can struggle within the finite skills space.

Lastly, companies must consider the limits of telematics technology in accounting for the actions of drivers. Although software is able to identify when a driver makes a rash decision or an erratic turn, it can be difficult for supervisors to discern the exact circumstances that lead to such actions. Consequently, there could be situations in which operators are unfairly penalised for acting in the only way they could.

Even so, these factors are unlikely to put a dent in the global telematics market, with costs sure to reduce as technology advances. The dearth of individuals qualified to oversee these systems, meanwhile, is equally likely to improve due to supply and demand. Also, as data grows, it will be easier to account for the role of driver action in causing and avoiding accidents. Even at present, the pros – such as avoiding reckless driving and speeding – seem to outweigh the cons.

Certainly, in global telematics, a slew of mergers and acquisitions this year suggests that the market is finding its feet. Vector Capital recently sold Teletrac (formerly TrafficMaster) to Danaher Corporation for an undisclosed sum. This comes after another huge deal in which Qualcomm sold Omnitracs to Vista Equity for $800mn in cash.

“It will be interesting to see Vista Equity’s strategic roadmap for Omnitracs, and how this will impact other players during the next few years,” comments Gareth Owen, principal analyst at ABI Research.

“The commercial telematics industry [in Europe] has long been a very fragmented market, but there are now firm signs that this is changing and we expect to see several players breaking the 500,000-subscriber unit barrier over the next few months and years.”

In the Gulf, John Taylor, chief operating officer at SITECH Gulf says end users are becoming more receptive to the potential benefits of telematics, using products such as Vision Link and Product Link, which enable fleet managers to monitor their entire cohorts.

These systems allow supervisors to keep watch over factors such as fuel usage and to compare working time with idle time. With this in mind, Taylor says that the Middle East’s telematics sector looks well placed to grow further during the coming years, stating: “It is already popular among medium and large fleet customers.”

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