As UK car volume expands, led by exports of premium vehicles, carmakers are looking for more logistics capacity. Zoë Apostolides and Marcus Williams report
British new vehicle sales achieved their longest-ever growth spree this summer, with year-on-year sales having increased every month since March 2012. This surge, along with rising export demand – up 8% in the first five months of the year, representing nearly 80% of local production – has meant that finished vehicle logistics providers are more pressed than ever to transport the end product quickly and efficiently.
While this growth has certainly been encouraging for the outbound vehicle logistics sector, it has also brought its challenges. During the recession, vehicle sales dropped by 25% to around 1.8m units, while production and exports also collapsed. Subsequently, car hauliers dramatically cut or mothballed trucks and equipment; since then a difficult credit market has made it hard for carriers to invest and refresh fleets to previous levels. As a result, there have been capacity constraints both for road transport and export services at ports. Now though, there are at least signs that carriers are better able to respond.
Security from the premium segment
A good example of demand for UK-made vehicles creating the opportunity for reinvestment in the finished vehicle logistics sector, both domestically and abroad, is at Jaguar Land Rover. The carmaker saw sales reach more than 425,000 in 2013, up 19% on 2012, and while sales in the UK were up 15% for Jaguar and 13% for Land Rover, the majority of production was for the export market, led by Land Rover. Around the world, Land Rover represents the largest share of JLR company sales with 348,383 sold in 2013, an increase of 15%.
One carrier benefiting from both domestic deliveries and those to the UK ports of export is Acumen Automotive Logistics. In April this year the provider secured new contracts with JLR for the transport of 100,000 vehicles annually from its plants in the Midlands to dealers in the south of the UK, as well as for delivery to ports including Southampton and Tilbury.
The contracts will run for the next three years, during which time Acumen expects to treble its turnover based on the carmaker’s current level of growth. There is also the potential for a two-year extension.
In support of the contract Acumen has invested £3.6m ($6m) in 20 new tractor and car-carrying trailer units, as well as refurbishing its existing fleet of 24 trailers. The company bought 20 tractor units from Scania, chosen for their low operating cost and fuel efficiency, as well as 20 trailers from equipment provider Lohr, which are designed to carry eight Land Rovers or nine Jaguar vehicles, according to Acumen.
“We have set out to be Jaguar Land Rover’s carrier of choice,” says Peter Raybould, business development director at Acumen Automotive Logistics. “We have supported the company’s growth strategy over the past three years and like to think that the awarded contracts are our reward for good service.”
"Two years ago, for the first time ever, we chartered our own ship to go to China... About six years ago we would have been exporting something like 6,000 cars to China and now it is more than a 100,000" - Ian Hartnett, Jaguar Land Rover
That support began in 2010 when Acumen first won the contract to deliver Land Rover models to the south of the UK from the carmaker’s Gaydon headquarters in the Midlands. That contract was originally tendered by Ford on behalf of JLR because Ford, at the time, retained outbound logistics contracts for the division until the end of 2012, as part of the conditions of its sale of JLR to Tata in 2008.
Dedicated ocean services
The growth in UK exports is also triggering demand for dedicated services for ocean transport. Speaking at the International Automotive Summit of the Society of Motor Manufacturers and Traders (SMMT) in June, JLR’s director of purchasing, Ian Hartnett, picked out China as one of its leading export markets. To meet demand the company has been in talks with deep-sea operators about running dedicated services during certain times of the year.
“I think it was two years ago that, for the first time ever, we chartered our own ship to go to China, which was supposed to hit just at the peak Chinese selling time around new year,” Hartnett recounted. “We had a whole ship just for Jaguar Land Rover, which was quite scary because there was an awful lot of money on that ship and we could not afford to lose it.”
The company now appears to be looking to repeat this type of chartering given the rise in export figures, but there are considerations to weigh up when it comes to finding the right routes. “About six years ago we would have been exporting something like 6,000 cars to China and now it is more than a 100,000,” said Hartnett. “So the frequency in where you send the cars and from which docks, and which lines go to the right ports in Shanghai or Tianjin, [determines] the lines that go with it.”
Hartnett acknowledged that, generally, the carmaker could not influence a more regular service specific to its own needs given the export numbers it has compared to the wider volume brand market. Nevertheless, he said JLR was maximising the benefit by getting on the right lines with the right frequency. In terms of frequency, he said it was shipping vehicles from the UK ports of Southampton and Tilbury (close to London) every day – a volume increase which is good news for Acumen.
UK now a strategic growth market
There is also, of course, significant business for LSPs handling imported vehicles to the UK. Gefco has four key sites for the reception of vehicles to the UK, with three at ports – Portbury in Somerset; Sandtoft (at Grimsby and Killingholme) and Sheerness in Kent – as well as its inland regional distribution centre at Corby in Northamptonshire. Each offers a range of services such as compound management, PDI and accessorisation, prior to distribution.
These services fall under the responsibility of John Stocker, director of finished vehicle logistics for Gefco UK since April, who says Gefco is aiming to expand the range of customers it has in the country, whether through organic growth or acquisition.
“The company is looking for growth and it is looking for growth in markets that are strategically important, and the UK clearly has a strategic footprint in western European economies,” says Stocker, who adds that British plants are typically producing models unique to other plants in the region, reducing the likelihood of rationalisation.
Again, JLR crops up as an example of success and is a customer from which Gefco is gaining more business. Following JLR’s market test last year, a number of carriers were awarded contracts for business and Gefco was one of them. As Finished Vehicle Logistics was going to print, the French company was expected to announce new contracts with the OEM on the outbound side, following on from a significant inbound deal it recently secured for the supply of Magnum Optimum packaging units developed between itself and an as-yet unnamed packaging manufacturer. “We are working with JLR and have developed some additional business, and we are growing that business,” says Stocker, although he cannot confirm the outbound contract with the carmaker.
That Gefco sees the UK as a secure market is reflected in recent investment in its car carrier fleet to increase capacity. Though the details had not been made public at time of going to press, Lohr is providing the trailer units and first vehicles were delivered at the beginning of May.
“Capacity is one of the issues in the UK market at the minute,” says Stocker. “The market is growing but during the recession a number of medium-sized players left the market or they were swallowed up. So there is still capacity realignment going on. As the market grows the question is, when do people push in with the investment? Gefco has made a decision that it sees the market as secure and wants to develop more of a footprint and so, yes, we are putting more fleet on the road.”
That point about impact on the UK’s car carrier fleet is picked up by Dionne Redpath, sales and branch network director at Europa Logistics, which has a fleet of enclosed car carriers serving the UK and continental Europe. “The automotive industry suffered hugely during the recession, and of course this had a huge impact on the UK car carrier fleet, but things are picking up,” she says. “Vehicle logistics firms are responding to this growth, albeit cautiously. The challenge now will be for them to increase capacity and make appropriate investments, particularly set against the backdrop of continued regulatory issues and increasing fuel costs.”
Apprenticeships for drivers
Another issue for the UK – which would be familiar on either side of the Atlantic or the English Channel – is an ageing pool of qualified drivers. “The driver population is ageing and the industry needs to accelerate plans to train more new drivers and attract new talent to the industry,” says Stocker. “Gefco is launching new apprenticeship schemes to secure its working population for the future.”
Increasing the quality of trucking conditions, as well as training levels, is also crucial to the continued success of the finished vehicle market in the UK. Stocker suggests that a number of near-sourcing government initiatives are drawing supply manufacturing back to the UK, and these need to be accompanied by investment in car carrier fleets, drivers and technology.
"Gefco has made a decision that it sees the [UK] market as secure and wants to develop more of a footprint and so, yes, we are putting more fleet on the road" - John Stocker, Gefco UK
The outbound sector has already played a crucial role in the industry’s recovery, particularly in helping to meet surging demand despite capacity shortages and fleet cuts. “The outbound logistics network is a very efficient, innovative and competitive sector,” Stocker says, “which has provided manufacturers with the services and solutions to enable the significant growth being experienced in this market sector.”
Used car market
The growth for carriers has not only been in new vehicles, but also in moving and processing used vehicles, as witnessed at Paragon Logistics. “As a company, we are different to many of the other large car transporter operators because the majority of our deliveries come from fleet and used vehicles, rather than new vehicle dealer delivery,” says Mark Hindley, business development director.
While the seasonality of used vehicle volumes follows a different pattern, Paragon faces similar capacity challenges. “It is difficult to invest without longer-term contracts and the current trend towards commodity purchasing can be a challenge,” he says. “It is vitally important to our continued success and forms a key part of our future growth strategies.”
Paragon has a fleet of 110 car transporters, including two- and four-car transporters for serving private locations. It also operates a team of over 100 drivers who can deliver single cars with a full handover service. The fleet is an average of three years old and all drivers are equipped with advanced IT in the form of handheld devices, which enable electronic proof of delivery (ePod) and vehicle inspection functions.
Last year, Paragon purchased the vehicle services arm of Eddie Stobart, including vehicle processing and handling at ports and terminals. The carrier is also investing in its transporter fleet to maintain its age profile and benefit from lower emissions technology, but Hindley believes investment is only one route to growth within the finished vehicle industry. “Logistics needs to be viewed more strategically if investment is to keep pace with volume growth,” he says. “The industry needs more investment to create additional resources, but there are other ways to create capacity through increased efficiency and innovation. At Paragon, we believe that long-term partnerships with our customers provides the best platform to achieve efficient growth.”
As well as their internal struggles, car carriers have faced challenges within the UK’s regulatory environment. For example, over the last year, ECM and other ECG members have been lobbying the UK’s Vehicle and Operator Services Agency regarding dimensions and regulations for car carriers (that agency was replaced this past April by the Driver and Vehicle Standards Agency, which is responsible for road and driving regulations).
At the ECG Spring Congress in Athens this year, Ray MacDowall, of ECM Vehicle Delivery Services, called on UK, Irish and all other EU hauliers to help create the right regulatory environment.
One area of legislatory success MacDowall pointed to was the decision last year by the UK’s Department of Transport to ease cabotage restrictions during the country’s peak sales month in September and March (the UK, unlike most other European countries with only one, has two annual registration periods). Whereas an EU law that came into force in 2010 greatly limited the ability of UK hauliers to supplement their fleet with European trucks, a lobby campaign and legal consultation convinced the authorities to ease the rule specifically for car transporters during the March and September periods. This followed a similar move by the Republic of Ireland several years ago. The change was particularly important following the UK’s record sales period this past March.
MacDowall also told the conference it was more important than ever to harmonise standards with other EU carriers and drivers. “We participated in consultations on the Driver Certificate of Professional Competence reviews,” he said. “These have been regarding scope, harmonisation of content, and mutual recognition of qualifications between member states.”
Furthermore, MacDowall said the industry had worked together with the government on the introduction of a revised road user levy scheme, which is aimed at addressing road wear and tear. The levy, which went into effect this past April, is combined with an existing excise duty for UK-registered vehicles – a reduction in that original tax means that the overall cost for most carriers will not increase. Foreign-registered trucks, however, must pay their levies before entering the UK.
"We participated in consultations on the Driver Certificate of Professional Competence reviews... regarding scope, harmonisation of content, and mutual recognition of qualifications between EU member states " - Ray MacDowall, ECM Vehicle Delivery Services
The fututre is still uncertain
While sales are expected to reach their peak again this year at 2.4m units, the growth has not been universal. Honda’s Swindon plant, for example, has slowed production and cut jobs. Meanwhile, fears that the country’s car boom has been fuelled by cheap credit, together with worries over a potential housing bubble, form part of the reason why some carriers may need to tread carefully.
“The [Honda] news reports appear to focus on the lack of increasing future demand against a backdrop of over-production,” says Dionne Redpath.
With so much production dependent on exports, there are worries that further wobbles in the euro zone, or indeed in China, could throttle even the likes of JLR. Already the crisis between Russia and Ukraine has had some impact on exports bound for Russia. However, despite potential clouds on the horizon, most carmakers and logistics providers are happy to focus on meeting demand and improving costs and efficiency at a time when further growth is still anticipated. (For more on inbound and production logistics challenges for the UK, read here.)