Several asset-light premium freight third party logistics providers to the automotive industry in Europe have told Automotive Logistics that, following several months when business nearly disappeared, their revenue and performance is now beginning to match or outpace that of 2008, although the processes around such freight appear to be gaining a more standardised character somewhere between a regular and a premium service.
But for carriers, particularly airfreight, automotive volumes remain drastically down.
Time:matters, a spin off of Lufthansa Cargo that provides premium and ad hoc services across road, rail and air, has seen its revenue remain “extremely stable,” according to CEO Franz-Joseph Miller. “Most of our services have grown, and for ad hoc [emergency] freight we had one of our best months ever in June,” said Miller.
The company, which had revenue of €60m ($85m) in 2008, has specifically seen its automotive business growing in the past year. Although Miller believes that it currently represents less than 10% of total turnover for Time:matters, the company has picked up new customers recently both in its spare parts network, as well as for shipments related to automotive production.
“While our aftersales business makes up the larger part of our work in automotive, we have had the most growth for ad hoc,” he said.
Over at UK-based Priority Freight, whose automotive business represents about 50% of its revenue, first quarter revenue for 2009 was up a few thousand pounds over 2008, and since April the company has been running ahead, according to Managing Director Neal Williams. While Williams partly credits the good performance to a diversification strategy begun two years ago, which has seen automotive exposure reduced from 70% and European-wide business increased to 40%, the company has more automotive clients than it did 12 months ago.
“Freight from each carmaker or tier one might be lower than in the past, but an aggressive sales and marketing strategy on our side has allowed us to stay stable,” he said. “We’ve not had the drop offs that other carriers have had.”
But while 3PLs with the flexibility to procure emergency transport across transport modes might be fairing better, carriers continue to reel from the steep drop in volumes, rates and overcapacity. Rutger-Jan Pegels, Director Automotive, Air France / KLM – Cargo, says that automotive volumes – which represent about 7% of freight the airline moves – is down 40-50%. He said that the drops had been most substantial across its production and spare parts business, while the movement of finished vehicles (which is often tied to tests and model launches, as well as premium cars) is somewhat less effected, down around 20-30%.
“The business is affected by a combination of the drop in sales and production, as well as a tendency among manufacturers to avoid airfreight where possible,” he said. “Even still, airfreight represents about 3-5% of the volume the automotive industry transports.”
Both Williams and Miller said that much of the improvement in performance for their companies started from around April or May for automotive, following the steep drop off at the end of 2008 and early 2009. “By the time of last autumn, if a carmaker or supplier was facing a possible shutdown because of a supply problem, it was no longer a problem for them,” said Williams. “There was no reason to pay £40,000 ($65,000) for an air charter when they needed to cut production anyway.”
But as manufacturers have de-stocked and cut production to prepare for an entrenched recession, at least some appear to have been caught unaware but the increase in demand in some areas, such as for small cars, and as a result of scrapping incentives. Williams noted that Priority Freight has done some particularly healthy work from European origin freight moving into Germany.
But for Air France / KLM Cargo and airfreight, Pegels said that the slowdown remains “generic, and across all borders.” He adds that the company does not expect a one to one correlation between a rise in automotive sales and airfreight, and it is not the standard modality for automotive shippers.
Freight in a halfway house
So if carmakers and suppliers are so cash strapped, how is it that they might require as much or even proportionally more emergency and premium freight than before in some cases? The answer, ironically, might lie somewhere in what carmaker’s are doing to cut cost in the supply chain. Miller noted that because some customers are scaling down on standardised and contracted logistics services to save money, in some cases it has lead to an increased need for ad hoc transport. This trend was also seen to a certain extent in the early days of the downturn in 2008 before the financial market crash brought car production to a near halt.
But Miller also notes that, while automotive companies might be trimming down their logistics networks, at the same time there is more emphasis on standardising emergency freight. “We see that, especially in automotive, companies are becoming more professional when it comes to premium freight,” Miller said. “Before, decisions would often be made [by shippers] on a warehouse or shipping department level, whereas now companies are doing tenders for direct deliveries and air charters.”
Pegels also said that his company has observed a much tougher process for companies to ship by air. “I’ve heard stories that logistics managers cannot use air without getting approval from high levels of management in the company,” he said.
He noted more customers switching to regular air services where they could rather than rely on charters. It appears that customers now want processes and systems that are standardised, but flexible enough to change on short notice. Williams called such cases “lines that are a sort of halfway house between premium services and a scheduled line.”
Miller described a case where the company set up a flexible solution for a daily haul for one customer between Austria and Spain, while Williams refers to similar lines for Priority Freight where the company allocates a certain capacity at a staging post to avoid the potential for bumping cargo onto airlines. “We’re working with a company at the moment that had been doing daily return European routes by air that we are able to by road,” he said.
