Disruption has become the norm in vehicle logistics as the sector enters its third year of seemingly constant turmoil. From the Covid crisis, to the consequent impact of the shortage of semiconductors, and now the ongoing war in Ukraine – it has never been more urgent for automakers to cooperate with their transport and logistics providers to resolve issues caused by the disruption and future-proof the outbound supply chain.
The European Association for Automotive Logistics (ECG) held its 27th General Assembly and Spring Congress in Malaga, Spain on May 12-13. The organization represents around 85% of Europe’s finished vehicle logistics providers, and several high-level experts and members from across the industry have come together to discuss coping strategies in extraordinary global circumstances.
At the congress, ECG members drew attention to specific issues facing different parts of the business and many gave grim descriptions of the logistics landscape. The overall lack of confidence in future volumes leads to a downward trend in planned investments.
The sentiment of operators vis-à-vis the sector is marked by pessimism. According to the ECG’s latest quarterly Cost and Confidence Survey, less than 20% of respondents feel optimistic about the business outlook.
“Optimism is certainly not encouraged by contracts that are not fit for purpose in rapidly changing environments,” said ECG chief executive Mike Sturgeon.
Several pressures are currently adding to the gloom. Inflation casts a long shadow across Europe. According to Eurostat, the statistics agency of the European Commission, inflation in the EU rose by an average of 7.5% at the end of March, and forecasts predict that it will reach double the figures in average in the region this year. This figure is driven by rising inflation in Eastern Europe.
Carriers are responding with more flexible contracts.
Namrita Chow, analyst at Automotive Logistics, explained how Girteka Logistics is growing despite rising costs, with 2,000 new Volvo FH trucks delivered in 2022. Girteka has agreements with customers that take into account price fluctuations and revises contracts existing ones to include floating prices. .
In addition to inflation issues, there is an ongoing shortage of drivers in the sector, which is part of the wider labor shortages and rising labor costs affecting the industry. logistics. This also applies to workers in the compound and the technical workshop.
The ECG Cost and Confidence Survey found that the number of road operators planning to invest in trucks and drivers over the next six months has fallen to around 30%. Drivers have been leaving the sector for two years due to the crisis and the collapse of volumes. Ukrainian drivers also flocked to their homes to support the war effort. These issues combined have increased wait times for delivery of vehicles to the customer.
There are also cost increases associated with replacing and maintaining critical assets, such as ships, barges, rail cars and road carriers.
“Operators cannot move vehicles without assets. The automotive industry faces an extremely high risk of losing its suppliers,” warned ECG Chairman Wolfgang Göbel.
On top of that, the uncertainty surrounding the conflict in Ukraine is driving up the prices of materials and components, while driving up operating costs and fuel prices, the latter being the primary concern for industry players. finished vehicles, according to a recent survey by RPM and Automotive Logistics.
Höegh Autoliners, one of the world’s largest providers of maritime finished vehicle services, is monitoring the situation in Ukraine, while complying with international sanctions. The company said issues with the supply of materials critical to vehicle production due to the dispute encouraged more in-depth communication with OEM customers who were affected.
China’s Zero Covid Policy
Another issue affecting the sector is the new Covid lockdown in Shanghai and China’s zero-Covid policy, which may now extend to other major manufacturing sites in China. The impact on production and logistics has been detrimental. Parts are languishing in supply chain bottlenecks and exacerbating volatility in vehicle production, and that’s likely to happen in the months ahead. Ship congestion off China’s coast is still at record highs.
Justin Cox, director of global production forecasts at automotive analyst LMC Automotive, said “all bets are off” when it comes to the Omicron variant of Covid. He stressed that Covid-related backlogs and disruptions remain an ongoing concern.
The automotive industry is dependent on China for parts supply, more so at a time of growth in electric vehicles, as most battery suppliers (and semiconductor producers) are based there and in Asia at large. However, companies are increasingly looking for alternative sourcing locations away from China and localizing production.
Even automakers and logistics partners that have recovered have had to significantly reorient their business models, Cox said. They now mainly focus on high-margin products and fast-selling vehicles, such as sports cars. However, even this apparent silver bullet is under threat due to inflation.
According to Cox’s medium-term scorecard, most companies are unlikely to return to pre-pandemic production levels this year. Others, like GM, Honda and Ford, aren’t expected to see a full return until 2026.
More broadly, manufacturers are increasingly looking to adapt existing infrastructure to reduce costs instead of investing in entirely new developments.
Digital tools to save
At the same time, logistics providers are seeking greater efficiency through digital tools to reduce the costs of moving vehicles to market.
Matt Holmes, director of insurance claims specialist Sevatas, focused on Digital Vehicle Handovers (DVH) as a potential improvement to the logistics process in the face of global upheaval. This technology records vehicle quality at vehicle release and collection points in the delivery process.
Blockchain technology combined with global inspection databases are the basis of data collection in DVHs and accumulate information from factory to dealership to ensure the quality of cars being rolled out, replacing reliance on data silos.
At the same time, Holmes called for the formation of a legal protocol to better understand digital transfers.
ECG has supported digitization of the supply chain with reciprocal support from Sevatas to design solutions to improve data flows.
The creativity and innovation on display demonstrates how logistics leaders are getting involved in trying to circumvent lingering issues, and data transparency is now central to that process.
In search of optimism `
Innovation can be difficult to execute for immediate gains, especially in networks and processes that have been entrenched in the automotive industry for many years.
VW’s head of green logistics, Daniele Saba, spoke about regulatory pressures. OEMs and partners will have no choice but to adapt to international and national laws in a range of areas, from sustainability and safety in shipping to politically motivated localization.
However, this has resulted in a corresponding swerve to acquire accurate data and increase transparency which, in turn, he predicts, will make responding to changes more manageable. The difficulty of responding to crises will not always be the rule in logistics.
While there is undoubtedly unease in automotive logistics at the moment, the atmosphere of creativity evident at the ECG provided a much-needed positive counterweight.