IAA TRANSPORTATION x Andreas Schmitz, CEO der Schmitz Cargobull AG - IAA TRANSPORTATION Podcast

Yes, hello Mr. Fogt, thank you for the invitation. I look forward to the conversation.

Exactly, we are, as many know from the road picture, number one in the trailer and semi-trailer manufacturers. And I believe the key to our success is really that we fulfill our brand promise: reliable and innovative. Especially with a trailer, the word 'reliable' should not be underestimated. It is extremely important that the trailer, which is often the smaller part of the costs in the overall vehicle and considering the load, and possibly a plant or factory behind it, the trailer is not the most expensive part, but it should be very reliable so that the load always arrives on time. The other part is of course innovation. Innovation moves us forward, but it is always subordinate to reliability. That means we ensure that our vehicles are tested. We have had a test center for decades, which is now being copied by competitors to some extent. But it has enabled us to bring very reliable and also innovative products to market. And I believe customers appreciate that. Also, when we talk about innovation, it is important to be close to the customer, to listen to them, to understand what they need, and then we find innovations that are suitable for them. As long as we base ourselves on that, and all our employees constantly think about what it means to be reliable and innovative, not only for products but also in our daily dealings with each other and with the customer, we will continue to be successful.

Yes, that is not just one thing. I believe that is the decisive factor: it is truly a bouquet of topics that we work on with our innovation management. And the sustainability strategy we have set up works the same way. It is not the one measure that brings us success, but many small measures that usually have a much better payback in CO2 reduction than the one big thing. That means we also do some big things. For example, our new plant in Spain has solar panels on the roof, with which we can cover more than a third of the electricity supply over the whole year. In the summer months, we even achieve well over 50%. These are all building blocks. We deploy them where they are most efficient. For us, it is similar to an investment decision: we also look at how much CO2 savings it brings per euro we spend. And we try to ensure that it is also a CO2 saving that pays off for us as a company. We are a bit more lenient with the payback period than we would expect for a machine; we often go to 7 or 10 years to also do something good for the environment.

Yes, that is again a whole bouquet of requests. I believe that first of all helping our customers in the transport sector to reduce CO2 is crucial, but at the same time he also has economic constraints. Only a solution that reduces CO2 while also reducing costs for our customers will be adopted. We have very concrete things. For example, with our cooling units, we brought out a new cooling unit, the D80, which consumes significantly less diesel per hour when it is actually running. With the refrigerated vehicles themselves, we have significantly improved the insulation so that the cooling unit itself runs significantly fewer hours. These are examples that are not visible at first glance, but they enable CO2 savings for the customer and particularly reduce their costs. Then there are other topics, especially when material costs rise, if we can use the material longer, that is also a cost reduction for the customer. This is clearly seen in our vehicles: we try to build vehicles that are durable. We galvanize our vehicles, so they do not need to be repainted. They easily last more than 10 years, which is reflected in used vehicle prices and our customers driving them longer. This also includes all services. I need to keep the vehicle in drivable condition, not only in the first three or five years, but also ensure that it is used safely and reliably over its entire lifecycle, which now spans more than 10 years. That is a measure that allows the customer to spread the vehicle cost over more years. We are also working on further innovative solutions, such as a recuperation axle that recovers energy to feed the battery and enable an all-electric cooling unit. That is an innovation where the customer may not get a payback in three years, but over ten years he can operate such a vehicle and get his initial investment back.

Yes, I'll start historically. We have been working on telematics solutions since the late 1990s, so that is more than 25 years. At that time, it was about finding the vehicles. Large fleets wanted to know where their vehicles were. They just wanted to know where my vehicle is. Then came the topic: I would like to be able to check my vehicle a bit. Maybe I can see the brake pad. It was more about the vehicle back then. Today, it is increasingly about the load. That means I want to check the load, I want to see what is on the trailer, I want to ensure that the temperature was always maintained, I want to make sure that the expensive goods I transport arrive as safely and controlled as possible. This naturally includes the position, and also addressing the vehicle itself, e.g., a door lock to ensure no theft, to ensure that the load is not contaminated. These are topics that are in the foreground today. If you combine that with our own cooling unit that we developed, you get a very powerful combination. We can control the cooling unit, we can control the load, we can ensure that the door is not opened on the way. And through the telematics, which works as two-way telematics, you can also adjust the temperature at the cooling unit or readjust it if the driver made a mistake. So we have introduced a four‑eyes principle. I would say the two eyes should still be the driver who is directly there, and then there is an eye that is now digital: we check the temperature and the fuel gauge for the customer. As soon as there is an error, an error alarm appears with the driver as well as with the dispatcher. The dispatcher is another eye; he has a lot of data in view, can check the vehicle, knows what load is on the vehicle, and can check whether the temperature matches and so on. There are still many human errors that lead to food spoilage, and technology like telematics can incredibly strongly support to bring the goods more safely and securely to the customer.

It's actually very simple, and there are countries that show us how it's done: the Spanish, the Nordic countries. It's simply about coupling two trailers one behind the other, as we have seen in America or Australia. That is a solution for long-distance transport. On long-distance routes, two standard semi-trailers can be driven behind each other. The advantage is that we only have one tractor unit and one driver, thus reducing total costs and at the same time reducing CO2 emissions by more than 25%. The trick is that we use standard sizes, so the entire loading infrastructure, whether on a ship, rail, or in logistics centers or on the last mile where I might have to drive through narrow streets, remains intact. I can drive in with a standard semi-trailer, uncouple it, and have no problems. That would be a really great solution to quickly achieve CO2 reductions in the transport sector. Unfortunately, we in Germany still find it very difficult. I am very disappointed when I hear arguments that road transport becomes even more efficient compared to rail. I cannot understand that because we have to reduce CO2, and efficiency gains mean CO2 reduction. That is the point. We don't want to just become more expensive. And I have a certain disappointment with politics in Germany. I must say, other countries are simply further ahead and developing better. Look at Spain. Such a concept reduces CO2 and at the same time strengthens a country's competitiveness because all goods are transported, and logistics costs are an increasingly important factor in every car produced. If I can reduce them, I gain competitiveness. That's why I believe it's a good concept, and I am convinced it will prevail in the long term. There are always concerns about bridges, but even if we drive over 60 tons, we then have less axle load per axle than with current vehicles because the weight of an entire tractor unit is saved. Of course, there are certain bridges where a minimum distance might be prescribed for trucks and trailers, but if we just start with a positive network, I think we would get quite far.

I think we are not so bad at automation. From what I see, a lot is done. For example, we ourselves are collaborating in the data factory North Rhine-Westphalia, the Fraunhofer Institute and Schmitz Cargobull work together on a concept for the digital factory, and we are making good progress. That means we have automation, digitalization of the factory and data so that data is always available where needed. At the same time, we continue to invest in Germany, but unfortunately more and more of these are replacement investments. For example, we have just completely equipped our axle production with robots, and it is fully automated. I think we are doing pretty well. In Germany, it is more regulation that hinders us from being fast enough. As an example, our plant in Vreden: we wanted to start building it more than ten years ago. We had difficulties repeatedly, then there were issues with the development plan for which we were not responsible. Nonetheless, it led to us having to completely revise the concept, and now ten years later we finally finished this new digital factory. Of course, we developed it further in the meantime so that the old thing wasn't built, but it's annoying when you want to push something in Germany but there are naysayers everywhere, regulations, and then it becomes expensive and we are no longer competitive in Germany. That is unfortunately the reality. Another example: the plant in Spain I mentioned is probably our most modern plant at the moment, and we built it in less than 12 months including the planning phase, maybe 18 months. It would be nice if we could achieve that in Germany again.

I think there are several aspects. Regarding manufacturing and production sites, I believe the whole topic around construction needs to be faster. There must be fewer opportunities for appeals and loops. I have to be honest: in Vreden, it wasn't about violating anyone's rights; it was simply that some people wanted to squeeze money out of it, and it's sad when you can't move forward. So I think approval processes need to be leaner, faster, and better. A lot is said about it, but not much happens. It seems more new rules are added. In road transport, I am very skeptical about what is coming from Europe. The Vecto tool, for example, imposes something on our customers that they partly cannot use. As manufacturers, we have to achieve a fleet CO2 value, which means we must install certain solutions in almost all our vehicles to meet the average fleet consumption. The problem is that a trailer itself emits no CO2; it only causes CO2 when it is actually driven. But when the trailer is treated as if it is always driven, that's not reality. That is the problem with regulation: it doesn't capture reality. Reality is always different locally. Politics must have the courage to transfer more responsibility back to the citizen or the haulage company so they can make the right decision. For example, if we attach an aerodynamic optimization to a vehicle, it is not a cheap solution. If I drive to Spain and back, it doesn't make economic sense today. Only when CO2 taxes are high enough will the haulier install it. But forcing a haulier to use it locally, where he may not even go on the highway or reach speeds where the system would help, is a waste of resources and makes it needlessly expensive. My fear is that in Germany we won't manage to deal with these rules pragmatically but will implement them extremely narrowly. Other countries will do it differently, and then we will have another competitive disadvantage in Germany. I would like to see politics set the framework, possibly raise the CO2 tax faster and announce it, so we can all adjust and find the best local solutions. Unfortunately, in Germany we are increasingly in a kind of planned economy, and I thought we had learned that this doesn't work. I believe we need mature citizens who get the right incentives, and then we will make the right decisions. I know no haulier who says he doesn't want to reduce CO2, but he also has constraints and gets annoyed when solutions are prescribed that may actually emit more CO2 when everything is considered, and just increase his costs. I think we need to come back to market economy principles. Just as we achieved a social market economy, we can achieve an ecological market economy.

Again, two topics. First, internally: what do we do internally? I rely on our IT department, which has the resources to ensure data integrity. We have many hacker attacks, almost daily, and so far our IT has managed to keep us secure. Unfortunately, we have to invest a lot of money to maintain that. Similarly, we have responsibility for our customers. Especially our telematics, which I just described, can do a lot, but if someone hacks into it, he could cause damage, e.g., by raising the temperature in the cooling unit or, even worse, triggering the brakes. So we have to be careful. Fortunately, with our partner Bosch, we have found a solution that ensures the devices we use are hacker-proof, to increase security so that it is not easy to hack into such a system. Then we have further systems for data security to give our customers confidence to use these products. The customer is in a transport chain that is also a cold chain, and must ensure everything works. I am surprised that sometimes very rudimentary, cheap solutions are used that simply do not consider data security. I believe that in the end, reliable solutions will prevail, and customers will know who they can rely on.

Yes, we are still at the beginning, I must admit. What do we see? The large broad spectrum is not our topic; we try to find specific solutions for our trailers, usually first in refrigerated vehicles, and then from there something develops for other vehicles. For example, we can imagine, and we are working on it, that the cooling unit's data can be intelligently evaluated to detect an impending failure. This will not only work with pure algorithms; machine learning will happen. The data will be analyzed, and AI will recognize from patterns that when something like this happened in the past, a fan fails. Those are things we hope to introduce predictively so that the customer can be informed before an actual failure occurs. Many from Formula 1 know this; they measure the engine temperature precisely and know: 'Oh, we have a problem, we can't drive as hard now.' Similarly, we can think of it with our cooling unit, where data will indicate something. We are still in the early stages, but we believe it will come. We can also imagine that eventually the cooling unit will be controlled more intelligently, consuming less fuel or even less.

The IAA is still the industry gathering, and I believe the IAA in Hanover is the international industry gathering. It is important that we maintain this location in Germany, because people from all over the world come together to exchange ideas on transportation and share news. Innovation spurs innovation. We see innovations from our competitors, they see ours, our customers see them, we talk to each other, and that promotes innovation and develops new concepts. For us, the IAA cycle every two years is always a bit of an innovation cycle. We set ourselves the goal that by the IAA 2026 or 2028, a certain solution must be ready, and then we want to exhibit and deliver it. So it plays a crucial role as an industry gathering to exchange and present news.

Yes, we have already presented some topics. Perhaps exclusively for you: we will bring out a new cooling unit with an E‑pto connection. That means we will have an electric cooling unit that has a diesel engine as a safety backup, but can be powered electrically, especially by an all-electric tractor unit, via an e‑pto connection. Then this cooling unit runs completely electrically. That is one of the highlights. But there is really a series of highlights that I can't explain audibly now. When we look to the future: we are the trailer, so we are not the tractor unit with engine technology or electric drivetrain. But I believe we will see that powerful batteries will become available. We will use them to eventually run our cooling unit fully electrically with the battery. I am firmly convinced that will come. When the cost difference between diesel and electric energy is large enough, our customers will jump on it. The question is in how many years. It is crucial that weight is further reduced and battery technology develops accordingly. I think that is the biggest and most significant contribution we can make. Then there are the topics around the trailer: reducing rolling resistance, reducing weight, etc. Honestly, we have been doing all that for decades. If we could build a trailer that makes a tractor unit consume 10% less diesel, we would have done it long ago because the customer would make so much money that he would only buy our trailers. There will be continuous small incremental improvements. When comparing from the 1970s/80s, a trailer weighed 9 tons, was 12 meters long, and had a payload of 20 tons with two axles. Today we have three axles, the trailer weighs around 6 tons, and has a payload of 24 tons. So a lot has changed. And when I talk about safety, how much better the brakes are, you see continuous evolution, and it will continue. I am not convinced that a Vecto tool sets the right incentives; it would be more clever if it ran through the market, which has worked well in recent years.

We really want to reduce by 50% by 2030, and we believe we are on a good path to achieve that. We can even imagine that we might reach 90% by 2030. But we do not want to achieve that by paying an indulgence fee like buying forests in Canada that were there before. We want real savings in our CO2 consumption, without offsets. We want to reduce energy in our plants and ensure that the energy we still need comes from sustainable sources, especially solar in Spain or wind, and in Germany as well.

Five words for the strategy is difficult. But we have set ourselves the goal, and this is our new strategy: 'We deliver profitable growth for our customers.' And the IAA has the motto 'Delivering Performance.' So we want to deliver performance systems for our customers. And never forget our brand promise, which is decades old: reliable and innovative. That belongs to it, and it is the foundation on which we are built. I am sure that the company will continue to play a pioneering role.

Fogt, we look forward to your visit and we will have many new things that will certainly be of interest.