Lively debate about the need to invest in new logistics capacity, coupled with moves by European carmakers to finally improve their communication with suppliers, were both highlights of this year’s ECG conference, completed last Friday in Berlin.
While newly-appointed head of Opel/Vauxhall logistics, Jeffrey Morrison, was vowing to improve GM’s ‘poor’ relationship with its suppliers in recent years, Daimler’s head of worldwide vehicle distribution, Egon Christ, was announcing a new working group between Europe’s carmakers and logistics providers to hammer out ways of providing cheaper and faster car deliveries.
Meanwhile, Renault Nissan’s general manager of European outbound operations, Thomas Vernier, revealed the startling fact that 36% of his stock of cars was held in the outbound supply chain between factories and dealer forecourts at any one time (the balance was already at the dealers), yet only 5% was actually moving. The rest – 31% – was just waiting, and costing between €2-4 per day per vehicle in financing costs alone while doing so.
Discussion over capacity investments hinged upon a fundamental issue facing European vehicle logistics companies today: whether or not now is the time to rebuild what was shed during the economic crisis.
ECG president, Costantino Baldissara (pictured), came out strongly in favour, stating that LSPs should be modernising assets to create a more efficient network that will be ready to meet future demand, but added that a return to profitability would be critical to their efforts to raise the funds for such investment. “And to make a profit,” he said, “the sector needs the support of its customers.”
While acknowledging the weakness in domestic European demand, he pointed out that, with strong exports to Asia and recovering markets in the US and Russia, there were reasons to believe that the worst is over and that volumes will continue to recover. LSPs need to be ready if they are to avoid losing market share, he said.
“Can we assure the car industry that we have the capacity to meet such demand?” he asked. “Or will we become the bottleneck of the recovery?”
According to Baldissara between €4-7 billion is needed to replace the 20% cut in truck, rail, vessel and terminal capacity made during 2009, though he admitted that investment, particularly for land transport, was currently low despite improvements in lending from banks. “The production of car carrier trailers, for example, is down around 80-90% [from pre-crisis levels],” he told the conference. “The only area where investments have been made is shipping, and this is mainly orders made prior to the crisis.”
But unlike the North American market – where the Automotive Logistics Global conference just completed in Detroit seemed to point to a clear lack of capacity (read more here) – not all ECG members agreed that there is a looming shortage. Or that now is the time to invest.
Alain Leray, deputy managing director for STVA Group, the vehicle transport subsidiary of SNCF, openly challenged the call for investment. He said that profits for LSPs should first be attained by better controlling the provision of transport capacity. “It’s basic supply and demand economics,” Leray told both OEMs and his fellow LSPs. “If you want to make higher profits, and see OEMs pay higher rates, then you should reduce investment and create shortages [in the transport market] so that prices can go up.” He added: “Only when there is a reduction in assets will we start to make any money.”
Baldissara countered that the industry had to invest and modernise if companies were to survive in the long run. He noted that refusing to participate in the market – by limiting transport assets, for example – would more likely only invite other, lower cost providers to capture market share. He also noted that simply doing nothing was bad for the overall economy. “Something has to be done to move the industry,” he said.
This year’s conference, which was organised on behalf of the ECG by Finished Vehicle Logistics magazine, attracted more than 200 attendees from carmakers and logistics service providers across all modes of transport in Europe. A full report on the event can be read here and the next conference will be held in Paris in 2011.