How have the past 10 months of the pandemic affected NAI/JIPCO?
2020 was a rollercoaster ride for us. After a strong start, we were affected by the lockdown. This situation changed everything, as we were not able to work in our service operations and factory. Like others, we were obliged to work from home. Daily, we virtually discussed the best ways to deal with the situation among the Management Team. We optimized our cost position in various areas. Saudi Arabia's tripling of VAT to 15% from July 1, 2020 also impacted on our sales last year. The new tax boosted our results directly before VAT increased, as everyone rushed to purchase necessary equipment before the deadline. This caused a slow-down in 3Q2020, followed by strong demand in the last quarter of 2020. Taking the overall circumstances into consideration, 2020 was a successful year for NAI and JIPCO.
Did JIPCO benefit from the government stimulus to ameliorate the effects of the shutdown?
We applied for government support, which has helped us greatly. The Government of Saudi Arabia introduced the right measures to cope with the effects of the pandemic. Today, we are operating even better than normal. We have had a strong start to 2021. I treat this as a positive economic sign, based on my experience in the global commercial vehicle and truck business over the last 20 years. Whenever there is demand for trucks and commercial vehicles, it is a reliable indicator of a strong economy and vice versa. Currently, we have high demand for trucks. Accordingly, we have a strong order book. We are benefiting from the realization of Saudi Arabia's mega-projects, as this is creating increased demand in the construction segment. We are facing high demand overall in the logistics sector. As a result we decided to extend working shifts on our assembly lines.
Have you seen a significant change in JIPCO's customers and their demands and use of your products?
We are witnessing a level of increased professionalization. Purchase criteria are changing. As a consequence of last year's lockdown, JIPCO decided to set up an e-commerce channel for spare parts. This is one of the ideas that emerged out of the pandemic, and we will launch this platform in 2021. Initially, this will target our customers who typically run their own workshops and require spare parts for their trucks and commercial vehicles. We want to test the waters and find out whether these customers are open to ordering online. Placing an order is a matter of selecting the right parts, as well as availability and delivery terms. Currently, the majority of the parts business is conducted by sales agents, who visit customers or authorized resellers. In addition to COVID-19, the generational change is also changing the way people want to do business. Even if decisions lie with the founder of a family business, the children often have different ideas about how to do business and what the priorities should be. This is a change we see in our industry.
Are spare parts a significant part of JIPCO's annual revenues?
Spare parts are an important part of JIPCO's revenue. However, spare parts do not contribute significantly to our profits. Mercedes-Benz Trucks are decades in the market leading role. Accordingly, Mercedes-Benz Trucks is the highest among all brands in the Kingdom. These trucks are causing a constant demand for spare parts. Due to the fact that this market is huge, you can find Mercedes-Benz Truck parts in every corner. This is good for the customer but challenging for the distributor. We are facing a tough competition with several suppliers offering Spare Parts for Mercedes-Benz Trucks. Unfortunately, from our perspective, not every customer requires genuine Mercedes-Benz parts. Other OEMs, distributing parts, take their share. This makes it a competitive environment. It is tough, to generate profits out of spare parts sales in the Kingdom. The customer is benefiting from this competitive situation. The attractive spare parts pricing and availability is one of the arguments to decide for Mercedes-Benz Trucks.
What are your expectations at JIPCO for the next year, including your e-commerce ambitions?
In terms of overall business development, I am extremely positive for 2021. There is a certain dynamic in the market; there is demand. Therefore, I am extremely optimistic about this year, as well as for the medium and long term for the Kingdom. I believe that everything described in Vision 2030, with all the ideas contained in the mega-projects and the initiatives being realized, for example related to Riyadh City, will all have a positive impact on the country. Whether it is tourism, localization, or other economic activity, we will clearly benefit from this. JIPCO's new e-commerce business will be launched in 3Q2021. The challenge is that the parts business is not that simple. Parts need to fit in individual truck types and models from specific years. If you want to avoid customers having to return parts because they are not compatible, you need an intelligent selection and description process. This makes it more challenging to implement an e-commerce channel for such a complex product. Because of our positive medium to long term view for the Kingdom, JIPCO made the decision to build a new factory in KSA. Our current production facility in Jeddah has been established in the 1970s, so it is nearly 50 years old. We decided that rather than renovating the old factory, it is better to invest in a completely new one. This will give us the opportunity to not only produce and assemble Mercedes-Benz trucks locally but also do the same for another products from Daimler Trucks, which also owns the Mitsubishi Trucks brand. These are light- and medium-duty commercial vehicles, used for example, as refrigerated grocery delivery vehicles. We will also assemble these units locally. In line with Vision 2030 and the requirement to localize more, it is an advantage for us in the long term to offer trucks assembled and localized in the Kingdom. The Juffali Group will create a kind of Industrial Park, which will contain the assembly of Mercedes-Benz and Mitsubishi Fuso trucks. We also have the Arabian Metal Industry, which is also a Juffali company, and this produces all sorts of vehicle bodies used on trucks. We will be able to show certain competencies by being present in one place with three companies. JIPCO's headquarters is currently in Jeddah, but Riyadh is the place for us to be. We will build our new headquarters there in two years' time. This reflects our overall message that even though everyone has thought about cost savings and what can be done to survive and keep their companies profitable, JIPCO believes it is a great time to invest and be ahead of the wave in Saudi Arabia.