Better times ahead for European vehicle logistics
With sales predicted to start a slow recovery in most European markets, carmakers and vehicle logistics providers are looking towards ways to improve costs and capitalise on markets with the most growth. Christopher Ludwig reports on economic and policy changes at the ECG Conference in Berlin
Costantino Baldissara warned service providers that, though the gobal economy is improving, transport and logistics solutions remain a challenge
The European finished vehicle logistics sector will get some much-needed relief as the automotive market at last appears to have hit the bottom of a six year decline in the sale of new vehicles, with the region likely to return to modest growth next year, and steadily rise for the rest of the decade.
That, at least, was the view shared by market analysts and executives from global carmakers and logistics providers last week at the ECG Conference in Berlin. The annual event brings together Europe’s automotive manufacturers with members and suppliers that make up the Association of European Vehicle Logistics, or ECG.
“We might be at the end of a very bad period. Even if the market is stable, there will be an increased demand for transport,” said Costantino Baldissara, president of the association, as well as commercial and logistics director at Italian shipping firm, Grimaldi Group.
According to Michel Costes, president of consulting and analyst firm Inovev, sales for the European Union will finish this year 4% lower than 2012 at around 12m vehicles – a 25% decline from the market’s 16m-unit peak in 2007. This will have included drops for every major market this year except for the UK, which has experienced a recovery this year thanks in part to a large drop in vehicle prices, said Costes. But numbers will turn positive for most other markets in 2014. European production, following a 6.8% drop in 2012, should already rise modestly this year to close to 20m units (including Russia).
Some carmakers, notably premium brands such as Daimler and BMW, are anticipating stronger growth than others. Daimler, for example, has been increasing its production footprint, including growing production at its plant in Hungary, which opened last year, as well as contract manufacturing or alliance agreements with Gaz in Russia, Valmet in Finland and Renault Nissan in France. According to Egon Christ, senior manager for worldwide vehicle transportation at Daimler, the growth in output has prompted the carmaker to reengineer its network and has increased its demand for vehicle logistics.
“We’re aiming for growth, while efficiency will be our task in vehicle logistics,” he said. “Daimler appreciates efforts by vehicle logistics providers to bring more efficiency to our operations.”
Daimler's Egon Christ spoke of the need for increased efficiency and a potential network reshuffle amid increased output in vehicle logistics circles
While the potential return to growth is certainly good news, analysts at Inovev pointed out that increases would be small, and that the European market has undergone a structural change that meant it would be unlikely to return to 2007 sales levels for the foreseeable future. The company’s four-year outlook for the EU envisions sales only reaching around 13m passenger cars by 2018.
With passenger vehicle exports beyond Europe (95% of which are from Germany) are expected to be stable or experience only minimal growth, output at many of the continent’s manufacturing plants could remain well under capacity. Inovev’s Costa said that capacity utilisation has fallen below 69% in 2013, although the number varied by region, with plants in France and Italy significantly below the capacity utilisation levels than many plants in Germany, the UK and eastern Europe.
Slower growth at lower volumes
Inovev predictions suggest that western European vehicle sales are largely at saturation levels. By 2016, for example, the main EU markets will maintain similar levels of sales to this year, with Germany around 3.2m units (compared to 3.1m this year and around 3.4m in 2007), the UK about 100,000 units lower than this year at 2.4m (compared to 2.6m in 2007) and France recovering from 2.1m this year to 2.4m (2.5m in 2007).
Capacity utilisation levels are significantly lower in across plants in France and Italy than in Germany, the UK, and eastern Europe, said Costes Inovev
The Paris-based analyst firm also does not expect that the huge sales decreases in markets like Spain and Italy in recent years to regain lost ground anytime within this decade. Italy, which sold about 2.7m in 2007, is now around 1.4m units per year and will only reach 1.6m in 2016. Similarly, Spain has fallen from 1.8m units in 2007 to fewer than 800,000 units this year, and will remain below 1m in 2016.
“A number of factors will hold down car sales, including declining demographics in some markets, and an increasing use of alternative transport such as scooters, bicycles and car-sharing schemes,” said Inovev’s Jamel Taganza.
There was better news, however, for both the global automotive market and the wider European picture. Worldwide vehicle sales and production are expected to rise further, driven by recovery in North America and growth in China and Asia. Closer to home, production in central and eastern Europe, including Slovakia, the Czech Republic, Hungary, Poland and Romania, has grown even as plants in western Europe suffer from excess capacity.
Sales in Russia, meanwhile, are anticipated to recover after a decline in sales this year and reach levels similar to Germany by 2016. Domestic production is also expected to rise, propelled by Russian industrial policy.
Sales and vehicle exports to North Africa – especially for French carmakers in Algeria – remain particularly strong. The Algerian market should approach 500,000 units this year, with Renault (including Dacia) and PSA the leading brands. Renault has recently expanded output at its factory in Tangier, Morocco, and will launch the first Algerian assembly plant in Oran by 2015.
Cost reduction remains the key concern of providers in a highly competitive market, and particularly so for OEMS with excess production capacity, said Alliance Logistics' Lutz Quietmeyer
The shift in the market has already and will continue to have a significant impact on vehicle logistics, from changing flows to investment in equipment. Baldissara said that the outbound sector was ready to return to investment for trucks, rail wagons, ships and compounds. “But many companies lack the cash flow to invest,” he said.
Working together to reduce costs
With the market highly competitive, and many volume carmakers still with excess production capacity, cost pressure on vehicle logistics providers is likely to continue. “Cost reduction is the number one priority in my job, and the reason why I’m paid to go to work everyday,” admitted Lutz Quietmeyer, manager of distribution schemes for Alliance Logistics Europe at Renault Nissan.
However, the good news is that the industry appears more committed to working together to reduce costs than in the earlier years of the crisis, when carmakers tended to impose unilateral rate reductions. At Renault Nissan, for example, the carmaker has put considerable efforts into combining volume between its brands and in decreasing empty backhauls across all transport modes. Quietmeyer emphasised that it was “up to all of you providers” to work with the carmaker to find the best opportunities.
Magnus Olding of Volvo said the group had taken its logistics management and purchasing back in-house, and had recently worked with an LSP on an alternative route to Russia, taking a southern route via Italy
At Volvo Car Corporation, meanwhile, Magnus Ödling revealed how the carmaker had taken its logistics management and purchasing back in-house over the past year or more, and how much the carmaker valued working together with its logistics partners.
“We are open to working with providers to find new concepts and solutions. We recently worked with UECC on an alternative route to Russia, for example, which took a southern route via Italy,” said Ödling, who is head of network strategy and business applications for inbound and outbound at the Swedish carmaker.
The ECG, meanwhile, continues to meet regularly with representatives of the Automotive Logistics working group at ACEA, the European automotive manufacturing association. The ECG has also recently expanded its cooperation with the AIAG, a supply chain association in North America with more than 1,000 members, including carmakers and logistics providers.
EU policy impacts for vehicle logistics
Transport legislation in Europe is complex in that there are regulations that can differ between those of member states or at a wider EU level. However, in general the policy that is decided in Brussels can supersede certain national rules, and have particular consequences for vehicle logistics providers that work across national boundaries.
“Just as the economic climate has an impact on your business that you have to manage, so too is European policy important for your business,” said Christos Economou, deputy head of unit land transport at the European Commission.
The European Commission's Christos Economou told the conference about potential policies for weights and measures, which may effect tractor-trailer designs in the EU
Economou outlined a number of policy areas that were currently being debated at both the EC and European Parliament level that would be significant for vehicle logistics. Among them was the directive for weights and measures, which could ultimately lead to changes in the aerodynamics and design of tractor-trailer in the EU.
According to Economou, proposed changes to the directive were not specifically about the use of longer trucks ¬– and in particularly not about the 25.5 metre trucks referred to as the European Modular System (EMS) in policy circles, but commonly referred to as ‘gigaliners’ or ‘megatrucks’ in the media and in political debate. While these trucks are allowed in parts of Scandinavia and northern Europe, their use is controversial and bitterly opposed by many member states and political parties in the European legislature. When the EC’s vice-president and commissioner for land transport, Siim Kallas, suggested that trucks of this
length could cross borders between two EU countries that allowed their use, many members of parliament opposed even this, claiming that the EC could not make such unilateral decisions.
A chance to harmonise loaded lengths
EU affairs manager Tom Antonissen said that truck length limits vary enormously across the European Union, ranging from empty truck lengths to the degree of overhang
Economou stressed that proposed revisions to weights and measures would be more focused on improving freight efficiency, including improving aerodynamics, cab design and the use of IT. For the ECG, one of the most important potential changes in the directive could be in the area of allowable loaded lengths, an area on which the ECG has focused lobbying efforts for the past decade. This issue is not about the absolute length of a truck itself, but rather the amount of front or rear overhang allowed on a car carrier laden with vehicles. Tom Antonissen, EU affairs manager at the association, pointed out that there were currently 12 different allowable loaded lengths in force across 30 European countries (the EU plus Norway and Switzerland), which range from the same limit for empty truck lengths (18.75 metres) to various amounts of overhang (the length of a vehicle that protrudes from a truck).
“Only 4 out of 30 states still keep an absolute limit of 18.75 metres, while the majority of the others have adopted a maximum between 20 and 21 metres or more,” said Antonissen.
The ECG position has been and remains that the EU should harmonise the loaded length to a minimum of 20.75 metres. As Antonissen points out, such a change would have no bearing on the length of trucks, nor on weight limits or infrastructure dimensions (as the EMS would). The difference would, however, mean that trucks could load up to three more vehicles, improving fleet utilisation substantially in those areas where loaded lengths are restricted.
Antonissen pointed out that now was the best chance for this potential efficiency gain to be achieved given the proposed changes to the weights and dimensions directive. He asserted that this would improve costs and lower CO2 emissions, but he also pointed to wider risks if the EC failed to approve the changes. Today, the legal length (included loads) of trucks crossing any EU border is technically the same as the 18.75 metre absolute limit for truck lengths. This limit, however, is not currently enforced. However, the EC has expressed a desire for increased enforcement of cross-border transport regulations. While Economou maintained that the commission was more concerned with weights than it was loaded lengths, the ECG nevertheless warned that the 18.75 metre rule could be observed more strictly.
“This would create an overnight requirement for as much as 20% more car transporters to carry the same volume as today,” Antonissen said.
The good news for the ECG and its members, according to Antonissen, is that the EC and members of parliament have been receptive to its 20.75 metre proposal, with not a single policymaker expressing opposition. However, he acknowledged that the debates over the EMS or ‘megatrucks’ was “highly emotional”, and that any proposals around longer lengths were liable to get embroiled in this debate.
Following what would already be a complex policy approval process in the commission, the ECG does not expect a vote on the weights and measure directive (and thus the issue of loaded lengths) before April 2014. “However, months of delays are possible due to EU elections in May 2014, and it’s possible that there won’t be a result until 2015,” said Antonissen.
Still, the ECG appears to be as close as it ever has been to seeing such a change take place. Mike Sturgeon, executive director at the ECG, said that with the directive on weights and measures under review, it was “now or never, do or die” for loaded carrier lengths. “If we don’t get the standard passed during this policy review, I think the battle is lost,” he said.
It was noted that regulations relating to trucking operations in EU countries can be a be challenge to interpret, with some rules dubbed 'unclear'
Backing off on cabotage reform
Economou pointed to cabotage as another area of potential change for regulations. The rules apply to how trucks and drivers registered in one member state can operate in other EU countries. Economou acknowledged that even the current rules were vague – a foreign truck is generally allowed to perform three operations within seven days of entering another member state laden with goods. However, the rules around what constitutes an ‘operation’ are unclear – for example, in the case of a car carrier, an operation could mean either the delivery of three full or partial loads, or three single deliveries of vehicles.
While Siim Kallas and EC transport policymakers had earlier expressed an interest in overhauling cabotage completely to allow for more of a single transport market in the EU, the commission has since backed off significantly, as it is another highly charged issue. Some member states have even taken to applying even stricter rules on cabotage than the general EU regulation, according to Economou.
“We are now looking into issuing a report on cabotage rather than issuing a decision or definitive proposal,” he said, giving no clear timetable for when wider reforms might be put to a vote.
Funding road infrastructure and multimodal projects
Other issues included the potential to revise ‘Eurovignette’ road-charging schemes in the EU. Although this policy was recently changed in 2011, Economou said that reports suggesting an urgent need to invest in new or improved infrastructure, particularly in Germany, had prompted the EC to look once again at the schemes.
“In our view, what would be important about any changes to road charging is that it should be distance based, and that the funds generated should be ‘earmarked’ for road infrastructure and not put towards other budgets or transport modes,” he said.
While the majority of infrastructure investment is made by individual member states, the commission also plays in developing connections between countries in Europe. The EU budget that was recently approved for the next five years included an increase for the ‘Connecting Europe Facility’, which supports infrastructure and transport between member states and EU border markets. The budget has increased to more than €23 billion (although this was less than the €32 billion originally proposed). It was unclear, however, how directly these funds would be allocated to intermodal projects in the EU, since the prior ‘Marco Polo’ programme, which was aimed specifically at sea and rail transport, had been ended.
“It’s not yet clear how the funds will be used or allocated, but our understanding is that the EC will try to award money to projects that are doing better at reducing CO2 emissions rather than specifically as shifting freight off the road,” said Baldissara.
Cost cutting and cash flow are still king
Vice president of ECG Wolfgang Göbel detailed the findings from a recent survey, which suggests that better forecasting is the key to increased efficiency across the supply chain
Although there was cause for guarded optimism on the economic and policy front, executives from OEMs and logistics providers made it clear that improving operational efficiency would remain paramount in the outbound supply chain.
Wolfgang Göbel, vice-president of the ECG, and the director of sales, marketing and logistics at Horst Mosolf, revealed the results of a recent efficiency survey taken by the association. The survey identified a need for better forecasting in the sector as the top weighted response among members, followed by the need to improve standards for equipment and systems. Göbel said that the ECG would continue to share results with the ACEA working group and OEM logistics managers.
Kai Kraas of WWL spoke of the group's tracking system, and a programme aimed at improving tonnage allocation and reducing non-steaming time
Kai Kraas, chief operating officer at ro-ro line and logistics company, WWL, pointed to an internal operational excellent programme that aimed to, among other things, improve tonnage allocation, reduce non-steaming time and improve vessel utilisation. Kraas stressed the need to invest in IT systems and technology. WWL, for example, now has a system to track data more carefully and thoroughly, with details such as non-steaming time, speed and fuel consumption available per vessel and voyage.
“We use to have KPIs all over the place, but it just doesn’t work unless you are really measuring the right things in the right detail,” he said.
| | Serva Transport's Serva Koch stated that the company's automated parking system could increase storage efficiency and reduce compound-related costs
|Automated guided parking |
The conference also heard about a new innovation that could be relevant for the sector’s port compounds and vehicle distribution centres. Serva Transport Systems’ Rupert Koch, presented how the company’s automated parking system could potentially increase storage capacity and reduce costs at compounds. The system, which was originally trialled for airport parking lots, is based on a multi-pallet system, and involves the use of electrified, automatic guided robots that safely lift and move cars in lots without the use of drivers.
According to Koch, the company’s managing director, the system can move vehicles of all sizes – from a Daimler Smart to a BMW 7-series – while its automated system means that cars ban be positioned much closer to one another and then be rearranged or shifted by the robots to their intended locations in the lot. Koch estimated that parking spaces could increase capacity by 40%, and that distribution costs could be up to 30% lower.
Daimler’s Egon Christ highlighted how the carmaker has been adjusting or reengineering its supply chain to match its changing production network, including adjusting ports in northern Europe as well as plans to use a hub and spoke network in northern and southern Germany (read more here). One potential example for the future could be the use of Mediterranean ports for production in the south of Germany and in Hungary, rather than ports in northern Germany.
“By making more use of these ports, we can save 7-9 days of sailing time for some export destinations, which has a massive impact on inventory and cash flow,” said Christ.
Christ also said that Daimler has been pushing both its supply chain operators and its dealers to move towards more flexible opening times. Daimler wants more dealers to accept night deliveries, and for ports and distribution centres to shift towards longer or later operating times. While the carmaker has seen some success among German dealers in pushing for change, he admitted that, overall, the manufacturer was not satisfied with the pace of change.
“We need to convince our dealers to accept more night deliveries, but to do that we need help from you [finished vehicle logistics providers],” said Christ, suggesting that providers could help demonstrate to dealers that night deliveries were safe and need not dramatically increase their cost base.
There was discussion at the event over the need for vehicle logistics providers to expand beyond the uncertain markets in Europe to make up for losses or slower growth in the region. Daimler’s Egon Christ reminded the audience again that of the 100 or so vehicle logistics providers working with the manufacturer, only a handful of them were present in markets like China, India or Russia. Christ urged providers to consider working with carmakers in new markets, including Brazil where Daimler has recently decided to build a new plant, but he stressed the importance of patience.
UECC's Björn Svenningsen told the conference about recent expansions in the Black Sea's vessels bound for Russia, and North African exports from Europe, but cited poor congestion as a current hurdle across ports
“Don’t expect to make a fortune in a year or two. Places like China might need 10 or 20 years before you are really successful,” he said.
Björn Svenningsen, head of the car transport sales department at short-sea shipping provider UECC, gave some examples of how the shipping line successfully grown its business in new areas. UECC has recently expanded its services in the Black Sea for Russia, as well as for North Africa for exports from Europe. The company now has vessels calling Algeria, Tunisia and Libya.
“We will move about 150,000 cars this year to North Africa, including three vessels that are serving Algeria,” he said.
Svenningsen admitted that this business was not easy, however, in particular the port congestion and poor infrastructure in Algeria. At one point this past summer, for example, the waiting time for ships to dock in Algeria was as long as 24 days.
“The wait has since dropped to 18 days, but this is a long time to tie up vessels and inventory,” he said.
Nevertheless, Svenningsen said the expansion had been worthwhile as a means to improve its fleet utilisation and increase profits.
Svenningsen also pointed to new services that went beyond shipping geographies. UECC has recently increased what the company calls ‘network services’, which could mean getting involved with arranging the inland pre-carriage to a port or the transport of cars from a destination port to dealerships.
Magnus Olding of Volvo said that understanding the importance of logistics led the group towards integrated LSPs and in-house teams managing both inbound and outbound logistics
Management in-sourcing, operational outsourcing
Volvo Car’s Magnus Ödling presented one of the most important cases of a change in business case for logistics, with the development of entirely new in-house teams to manage inbound and outbound logistics.
Ödling explained that after Ford acquired Volvo Cars from the Volvo Group (the truck, construction and marine equipment manufacturing group) in 1999, the American carmaker didn’t want to build up a new logistics team. It therefore outsourced the procurement and management of logistics to Volvo Logistics, the in-house provider of the Volvo Group. For about 13 years, Ödling explained, logistics were not considered to be a strategic advantage at the Swedish carmaker, with Volvo Logistics managing the supply chain as a ‘4PL’.
But the top management at Volvo Cars, which is owned by China’s Geely since 2009, made a strategic change in 2011, when it decided to bring its logistics in-house. It served notice to Volvo Logistics that year for outbound logistics, and built up an internal team to manage the supply chain, which launched operations in August 2012. Last year it also served notice for its inbound logistics, and will go live shortly with an in-house management team as well.
“We had to build up completely new teams and competences, which was a challenge since Sweden now only has one carmaker,” said Ödling, referring to the closure of Saab, owned formerly by General Motors. “However, we now know a lot more about the logistics market and understand our budget and operations much better.”
According to Ödling, the logistics teams are situated right next to Volvo’s purchasing department in Gothenburg, which he said has allowed logistics to work particularly close with Volvo Car buyers to make sure that logistics services are procured with the right operational strategies in mind, rather than purely on price. “We’re the only group at Volvo that shares this proximity to purchasing,” he said.
Central systems and China
Among the important developments of the company’s logistics management is a central system for outbound distribution to track vehicle progress and to create automatic delivery ETAs, which will be based at Volvo’s global headquarters in Gothenburg, Sweden. The system is up to date currently in China, where the carmaker is weeks away from launching its first new factory under Geely in Chengdu. A second China plant is set to launch in 2014.
China is, of course, an area where Ödling sees tremendous potential for logistics, including in switching to a more customer-order driven supply chain for locally built products. He also wants to see a new system for managing customs in and out of China for both inbound and outbound logistics.
Despite Volvo’s new in-house approach, the carmaker is looking to work much closer with logistics providers. Ödling pointed to opportunities across its global network, including ro-ro shipping from Europe, the Chinese domestic market, and eventually exports out of China as well.
“We have a policy where we want to work both with local providers with local knowledge, but also global providers that can bring expertise from Europe to China and vice versa.
Many delegates commented on the need for transparency and new ideas amongst providers, particularly for customs and border controls
“Globally, we are looking for innovative, proactive logistics providers to come to up with ideas. We look forward to working with you [European vehicle logistics providers] much more closely over the coming years.”
These were welcome words for the ECG and the European outbound sector. Volvo, with its increased management focus on logistics, and growing production base outside Europe, represents both the opportunities and risks that providers in the region currently face. Nonetheless, Costantino Baldissara – speaking presumably at his last ECG Conference as president – expressed the hope that the sector could now expect better times both at home and globally.
The ECG Conference 2014 will be held next October in Amsterdam. The Association’s next event, its annual ECG Spring Congress & General Assembly, will be held in May in Athens, where members will elect a new president.
The next event for the European automotive logistics community will be in Bonn, Germany for the Automotive Logistics Europe 2014 conference, March.
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