China and India have raced ahead in domestic car sales, but logistics providers and port operators in Europe are wondering when, and if, they will arrive on local shores in any substantial way. Malcolm Wheatley reports on what to expect in the coming years
Asia’s automotive tigers roared loudly in 2009. Vehicle sales in China have been above the million mark every month since March, with growth towards the end of 2009 more than 80%. It is likely to overtake the US as the largest market and maker of vehicles, at least for one year. India, too, is buoyant, with car sales growing more than 15% in 2009, and production up as well. Maruti Suzuki – responsible for around half the cars sold in the country and a substantial number of its exports – reported at the end of October that its quarterly profit had almost doubled.
The economic hype is building the expectation that the roar of these tigers will be coming soon to dealer lots in Europe. Li Shufu, Geely’s chairman, for instance, predicted that his company’s exports would reach 1.3m units by 2015. At recent auto shows, fellow Chinese manufacturers like Brilliance and Build Your Dreams Auto (BYD, pictured above) have been at pains to stress that their quality, safety standards and fuel efficiency increasingly have Western markets in mind. But insofar as Western markets are concerned, North America (bar Mexico) might be too far for the moment.
For one thing, Chinese and US politicians continue to trade sharp words over what American officials see as an artificially devalued Chinese currency, as well as the recent tit for tat over Chinese tyre imports.
And while Americans are buying smaller cars, size is relative. The A and B segment vehicles in which India specialises, for instance, have almost no market in the US.
Europe is another matter. The product tastes are a somewhat better fit, and certainly the dynamics of the European continent offer opportunities at varying ranges of the brand spectrum, from the lower cost east to the more expensive, quality-orientated west (although the recession has opened up opportunities at the low cost end of the spectrum here as well). Indigenous Chinese brands have already exported vehicles to Eastern European markets such as the Balkans and Russia. Meanwhile, OEM joint-ventures in China and India, particularly for the Japanese, have had reasonable success in exporting to Europe, such as Honda’s Jazz/Fit from Guangzhou (although it has now moved some of this production to the UK), and indeed Suzuki from India.
China’s big paper plans
But it’s relatively easy to dismiss the notion that Europe will soon see a significant influx of vehicles from these economies, particularly from the newly-emerging car brands. IHS Global Insight, for example, does not anticipate a substantial impact on Europe’s shores within its five-year forecast horizon (see chart, page 52). That is despite several Japanese and Korean OEMs exporting models from China and India in recent years from local joint ventures. But duties, taxes and logistics cost, as well as the spare capacity in Europe, seem to be reversing that trend in some instances. IHS forecasts that China’s vehicle exports, which dropped more than 50% in 2009, will stay below 2008 levels in Europe as some production is localised in Europe. Honda, for example, is shifting Jazz production to its UK plant (the Guangzhou plant will continue producing for the domestic market). It is a similar story for Hyundai’s i20, which had been exported in smallish numbers from India, but is already produced at capacity there. Hyundai said earlier this year that it would shift some production to Europe, where it has plants in the Czech Republic, Slovakia and Turkey.
The volumes to Europe of indigenous brands from China have been modest: Brilliance, Chery and Jiangling Motors have all shipped limited vehicles to Europe. Geely’s ambitions must be set against the more prosaic reality that its exports in 2008 were just 38,000 (including CKD), and are believed to be considerably lower in 2009. Even if it does succeed in acquiring Volvo, if the past examples of Asian-based acquisitions of struggling Western carmakers are any example – Nanjing (later SAIC) and Rover, Tata and Jaguar Land Rover – there will be no quick impact on vehicle flows.
Meanwhile BYD, on whom Warren Buffet has placed his bets, has big plans for its electric and hybrid vehicles. While it is showing strong growth in China, its exports to markets in the West remain only bold predictions for now. More than 80% of China’s car exports still go to developing countries, often where China has a political relationship, notes Owen Xie, deputy managing director of NYK Logistics China, and general manager of the company’s auto logistics division. “Vehicle flows are to North Africa, the Middle East, and South America, but not yet in any volume to Europe,” he says. “At the moment, Chinese manufacturers are focused on establishing their sales networks, and improving their product for Western markets.”
India is already becoming a player in Europe. While China has arguably been attracting much of the world’s attention, it is India that is poised to become the first of the two countries to send more significant volumes of vehicles Europe’s way. According to Bloomberg, India is the only Asian country to grow its exports this year: from January to July exports increasted to nearly 230,000 vehicles, a growth of 18% compared to drops in Japan (-43%), South Korea (-31%), Thailand (-43%) and China (-60%, to 164,800 vehicles). IHS also sees India alone as growing its export market share in Europe among other Asian countries.
Part of that growth is thanks to the success of the A-star hatchback, built by Maruti Suzuki. MM Singh, head of production for the company, revealed at the Automotive Logistics Global Conference in September 2009 that the company would export 130,000 to Europe this financial year. Among the country’s indigenous carmakers, Tata has exported its Indica model and Ace light truck to Europe, but again only in limited volumes, although the ultra low-cost Nano could radically lift those volumes if the company’s ongoing evaluation of its export potential proves promising. Mahindra & Mahindra, another Indian OEM, has shipped the company’s Mahindra Goa SUV and its Bolero pickups to a number of European markets, including France, Spain, Italy and several Eastern European countries. It also has plans to send an SUV to the US.
However most of the vehicles likely to arrive in Europe from India could be Nissans, from the OEM’s new plant at Oragadam, near Chennai, which is due to come on-stream in June 2010. Renault, Nissan’s partner, which has currently pulled back its involvement, is expected to use it in due course as well.
The Oragadam factory has an initial planned capacity of 200,000 vehicles, with European exports accounting for between 60-70% of total production.
Exports are planned to begin in the second half of 2010, with around 110,000 units in fiscal year 2011, rising to 180,000 units in the future in fiscal 2012 and beyond. Initially, the bulk of production will be the new Micra, a key component of the carmaker’s long-term strategic plan, and a vehicle that has been produced in the UK.
Nissan signed a deal in 2008 with the Port of Ennore, making it the first carmaker to use it as an export base. Located 24km north of the Port of Chennai – and originally conceived as a satellite port to it – Ennore is India’s 12th largest port, handling mostly coal and iron ore.
Assessing the European landing point
But of interest to European port and vehicle logistics operators is where exactly those and other Indian-made vehicles are headed. Not to mention, of course, the Chinese-manufactured vehicles that are still likely at some point to head for Europe. In less than ten years, it’s not difficult to imagine substantial Chinese and Indian volumes, all needing well-equipped ports with appropriate handling facilities.
In the long run, ro-ro should become the more dominant mode for transporting these cars from Southeast Asia, although Geely is already supplying CKD models to the Russian market. Likewise cars moving in containers are likely to remain a popular option until volumes are higher, leaving the opportunity to grab volumes open to a considerable number of ports in Europe.
But the efficiency of ro-ro will narrow the field considerably over time. As Espen Hofland, head of the president’s office at South Korea-based shipping line Eukor Car Carriers puts it, a relatively small number of ports currently handle the bulk of the business, and it’s difficult to see that changing. “Continental ports such as Bremerhaven, Zeebrugge, Antwerp and Rotterdam handle the volumes from Asia and these are also the main ports in Europe,” he notes. “They have positioned themselves as specialised in car handling, and they are therefore both attractive and able to handle the volumes.” At Zeebrugge, for instance, Wallenius Wilhelmsen Logistics (WWL) last year invested over €8.5m ($12.8m) to develop two new vehicle processing centres to jointly serve the world’s motor industry and agricultural and construction equipment makers.
WWL began its operations in Zeebrugge ten years ago, and today its operations there cover a 47-hectare site, helping to make the port the world’s biggest for the import and export of finished vehicles. The company has 400 sailings a year to and from Zeebrugge, and it handled more than 300,000 units there annually.
“Imports come in from North America, southeast Asia and the Far East. At present, the focus is very much on emerging markets such as China and India,” says company spokesperson Robert Minton Taylor.
What’s more, the established players have every incentive to compete fiercely for market share. As Wolfgang Göbel, director of sales and marketing at vehicle logistics specialist Mosolf Group points out, volumes are very much down.
“We know from all the key players that port handling volumes dropped by 50% in 2009 compared to 2008,” he notes. “China and India are mainly growing their domestic markets, and their exports aren’t in the position of being able to balance the significant reduction of imports from Japan and Korea. In simple terms, the industry is operating well below capacity, and every shipping line, port and inland distribution network would be more than happy to take any Chinese and Indian imports.”
That said, no one is taking the arrival of the Indians and Chinese for granted, and among the key players, competition is fierce. Bremerhaven and Zeebrugge are “fighting for contracts”, says Göbel, and Mosolf itself has visited China and met with a number of automotive manufacturers.
So too has Amsterdam-based Koopman Logistics Group, operators of Koopman Car Terminal in the Port of Amsterdam. With deep-sea, short-sea, barge, rail and road connections, the 350,000 square metres, 17,500-vehicle capacity Koopman terminal boasts good seaway connections with Asia, as well as being a logical location for direct-dealer distribution to Benelux countries, Germany and Switzerland, as well as to Eastern Europe through partners.
“We’re doing what everybody else is doing,” is how Ernst Cooiman, managing director of the Koopman Car Terminal, sums up the business’s marketing strategies. “We’re going to conferences, going to meet automotive manufacturers, and putting forward our arguments to persuade them to come to us and not a competitor. We have a number of advantages, but so do some of our competitors.”
Chief among those advantages could be the strength of Koopman’s existing relationship with Renault-Nissan, which could help it land imports from Nissan’s Indian plant. The terminal already handles Nissan and Infiniti imports from Asia, as well as some Renault models imported from Korea. And while he notes that Koopman hasn’t heard from India’s domestic manufacturers that’s not been the case with China: Jiangling Motors, he adds, sent some test vehicles to Koopman to be processed.
Jiangling also sent vehicles to Bremerhaven, another of the major port players contending for inbound Chinese and Indian vehicle flows. Bremerhaven handled over 2m vehicles in 2008, and has a total capacity of 2.5m vehicles, as well as facilities for SKD/CKD and container logistics. But the volume expected for 2009 has fallen to around 1.2m vehicles. Japanese manufacturers have processed their vehicles through the port of Bremerhaven since 1971, points out Michael Bünning, director of sales and marketing at the ports operator, BLG Logistics Group, while Korean manufacturers have used the port since 1991.
“Bremerhaven has the strategic advantage of being located in the largest automobile market of Europe, Germany, and contrary to all other Western ports, is situated much closer to markets in Central and Eastern Europe,” notes Bünning. “Bremerhaven is 40% nearer to markets in Russia, Ukraine, Poland and Czech Republic to name but a few.” He adds that BLG’s research among China’s carmakers suggests a strategy that points to Bremerhaven’s continued significance to the Asian import market.
“We are now absolutely convinced that the Chinese auto manufacturers will offer their cars on the European market now, and in fact a few initial shipments for Germany and Russia have already been handled through Bremerhaven,” he notes. “Our extensive market research in China has shown that the Chinese car manufacturing industry wishes to launch their vehicles in Eastern Europe first, and then slowly develop the markets towards Western Europe. Bremerhaven is predestined for this kind of strategy.”
Kia went to a smaller port, and so could others
But not every Asian carmaker is fully persuaded of the merits of the major ports. Bünning’s point about a Chinese strategy moving through Eastern Europe raises the prospect of other ports in southeast Europe as well, such as Slovenia’s Port of Koper or Greece’s Port of Piraeus, among others.
And besides the geographic reasons, there could be other benefits for Asian importers to consider smaller ports. A case study is Kia Motors UK, for instance, which moved its seabased Asian import operations from Sheerness to the Humber Sea Terminal at Killingholme, adjacent to the much older Humber bulk and container port of Immingham.
With the construction of the terminal’s first two ro-ro berths in 2000, Killingholme moved from shipping obscurity to being a major UK player, moving to eventually handle vehicle imports and ferry services.
“Closing down an existing operation and moving to a greenfield site at Killingholme that required a change of shipping route wasn’t without risk,” concedes Awais Ajmal, head of supply chain and business process at Kia. The company stayed with shipping line Eukor, but the change of route required a trial survey to make sure that a large car carrier could dock at Killingholme and discharge safely. The effort, though, was worthwhile. “VW, PSA and Suzuki were all using Sheerness, and it was getting crowded,” he explains. “A greenfield site gave us more space, and also made a more logical starting point for our distribution network, a lot of which is north of Birmingham.”
The proximity to Immingham also acts as a backup in the event of difficulties at Killingholme: by design, the shipping service that brings vehicles from Kia’s Slovakia factory via Cuxhaven, in Germany, goes through Immingham. Asian imports into continental Europe, he adds, continue to go through Bremerhaven and Zeebrugge.
In short, by opting for a fast-growing new entrant port hungry for business, Kia got a deal that it obviously regards as better. The parallels with budget airlines, many of which also eschew the major city airports, are obvious.
Europe is not short of second and third-tier ports hungry for business. For now, the majors hold sway: Bremerhaven and Zeebrugge et al seem impregnable. But the next years could bring change to ports able to attract the right attention.