Ford China is pursuing green manufacturing and logistics strategies in a bid to lead the automotive sector’s contribution towards lowering pollution levels over the country’s cities.

But there is also another, gloomy symbol rising as quickly as the economy – a dark, acrid cloud hanging above the traffic-choked streets that the world at large, and especially the Chinese people, are watching carefully.

In recent years, China has become the world’s most powerful symbol of economic growth. With billions of dollars of investment turning on its vehicle market, the country’s rise has been a considerable blessing, if not a vital economic lifeline for global carmakers during times of uncertainty in many of their home markets.

It is, of course, the smog of pollution and environmental decay. Anyone who has visited a Chinese metropolis such as Shanghai, Beijing or Guangzhou will be familiar with the hazy reality. The weather forecast insists that the day is sunny and cloudless, yet the view from the upper floors of a towering office or hotel reveals little more than the shadowed outlines and dim antennae of buildings dotting the foggy horizon.

Earlier this year the pollution became global news when it was reported that particulate matter in Beijing had at one point reached nearly three times what is considered to be toxic levels – and almost 60 times the average standard for air quality in the US.

The problem is going to take the effort of an entire society to solve, and it’s clear that the automotive industry should play a big role in defining how China is going to control emissions. Ve h i c l e l ogistics, too, will have to address these issues, in particular by shifting a greater amount of cargo off the crowded roads and onto rail and water transport. This move to more multimodal transport will require investment from all sides, including the government and the industry, but it w ill also take something arguably even more critical and equally difficult: collaboration among all OEMs.

That is something understood by Wa ng Yibing, plant group manager for Greater China at Ford. He is particularly keen to find opportunities for collaboration with other manufacturers with which Ford might share backhaul flows by either truck or barge transport. For example, carmakers such as Shanghai GM and Shanghai Volkswagen build cars in the Shanghai region, while Ford builds vehicles 2,000km to the west in Chongqing. “If we were to backhaul vehicles by river or highway it would make a huge contribution to fuel savings and emissions reduction,” says Wang.

Ford’s green strategy in China

Screen Shot 2013-06-26 at 14.12.31

Wang Yibing, Ford's plant group manager for Greater China, wants to work together with other OEMs on areas like reducing empty backhauls for barge and road transport, in efforts to help make China's automotive growth greener.
To be fair, the automotive industry and its logistics sector are far from being the main culprits in China’s rising pollution and emission levels – theirs are not usually the belching, coal-fired or chemical waste-producing factories. Modern automotive plants in China are increasingly built with energy and water conservation in mind, and follow strict procedures on waste disposal. And the global automotive brands that have enjoyed such strong success in China, including European and American nameplates, build models that greatly limit noxious pollution and are increasingly more fuel efficient than in the past. Meanwhile, studies by the likes of Ford and Renault Nissan have suggested that logistics accounts for little more than 1% of the total lifetime emissions of a vehicle.

However, the image of thousands of trucks spewing diesel smoke and vehicles clogging the city streets puts automotive logistics directly in the grimy spotlight. And even if neither the public nor the government is paying much attention to the esoteric details of vehicle logistics just yet, Wang believes that even the outbound chain will be subject to a big push back against pollution in China, and Ford must be ready to respond.

“Ford takes its role as a corporate citizen very seriously globally and in China,” he says. “There will be a push from every segment of society, including the government and OEMs themselves.”

Ford is now making a serious effort to push first when it comes to reducing supply chain emissions in China. As part of a global sustainability project linked to the ‘One Ford’ business strategy, the carmaker has introduced a number of initiatives in China, topped by the aggressive launch of more fuel-efficient vehicles and powertrains. The company plans to launch 15 new models by 2015 as well as 20 new engines and transmissions that Ford claims will make its passenger car fleet 20% more fuel efficient than today.

"Although we don't yet have enough data for year-over-year comparison, we can point to a 6% improvement in emissions in the fourth quarter of last year compared the the preceding quarter" - Wang Yibing, Ford

Also essential to the plan is a focus on reducing waste and energy in manufacturing and supporting environmentally focused NGOs in China.

While Ford’s material planning and logistics division (MP&L) might play a relatively small role in the American carmaker’s overall plan to reduce emissions, it could nonetheless have a significant impact on China’s current logistics network and processes by setting important trends. For example, Ford is one of the first OEMs in China to adopt procedures such as specifically reporting the carbon emissions from its nationwide vehicle logistics.

Wa ng, who has taken a lead in such areas for logistics, says that Ford first introduced this reporting for China in January 2012, following years of doing it in more mature markets. Ford collects data from its joint venture, Changan Ford, and its trucking providers, to monitor emissions for inbound and outbound logistics. And the early signs are that emissions are being reduced per vehicle shipped.

“Although we don’t yet have enough data for year-over-year comparison, we can point to a 6% improvement in emissions in China in the fourth quarter of last year compared to the preceding quarter,” says Wang.

Ford is looking carefully at its vehicle logistics network design, and has also introduced more rail transport into its outbound network. It has plans to use more river barge and short-sea shipping as it brings new plants online, increases imports and introduces the luxury Lincoln brand to China in 2014 from the US.

Grow volume, reduce pollution
Ford’s ambitions to lower emissions – and thus, its fuel and overall logistics cost – come at a time of significant expansion for the company. In 2012, Ford deliveries in China grew 21%, compared to 2011, to reach 616,000 vehicles. Most of the sales were served by production in China by its joint venture Ford Changan, at its plants in Chongqing and Nanjing. The company now has plans to double its capacity in China to more than 1m vehicles with the introduction of a third manufacturing plant at Chongqing in 2014, and a plant in Hangzhou, about 150km south of Shanghai, in 2015. Ford also has plans to double the number of full-service dealerships in China by 2015, from the 340 it had in 2010. Ford had 480 dealerships across China at the end of 2012.

The OEM imported a further 8,000 finished vehicles to China in 2012, mainly from the US and Europe. But here, too, Wa ng says that Ford is introducing the Focus ST and Explorer to China starting this year, as well as the Lincoln brand in the second half of 2014. “Our import volumes will grow,” he says.

This expansion will likewise mean a doubling of vehicle logistics capacity and considerably more handling at ports and terminals. Wang stresses that the company wants to make these increases “in a sustainable way”, and he says that the company has in mind specific network redesigns and modal changes that will help it to lower logistics costs and emissions per unit in China even as volumes increase. One example could be to use Ford’s network planning tools in a redesign of Ford’s outbound network to rationalise transport routes and reduce mileage, including the possible addition of further vehicle distribution centres besides Ford’s current one in Wuhan, in central China. It will also include a more balanced distribution of vehicles transported by road, rail and water.

Rail progress
Wa ng can already point to a fairly impressive development in using rail transport for vehicles in China. After starting using rail for vehicles just three years ago, Ford is now moving 10% of its vehicles in the country by rail. It’s a number that Wang definitely wants to increase.

While he admits that Ford faces infrastructure limits for rail, it has nevertheless extended the mode in some regions, notably to Beijing for distribution in northern China. Ford also uses rail for distribution to Qinghai province and the Xingjian autonomous region, northwest of Chongqing.

“We are also exploring other opportunities to ship finished vehicles by rail,” says Wang, adding that although China’s rail network is geared more toward passenger transport, the rapid development of the country’s h igh-speed passenger rail network has been freeing up more capacity for cargo.

Wa ng also points to a high level of engagement from China’s Railway Ministry, which controls the country’s vast network. “The transport ministry is very much interested to do business in this field,” he says.

Wa ng adds that, although the railways in China are government-owned, the service levels are reliable. Much of this business is handled through concessions by private companies, which have good standards for loading, receiv ing, discharging, handling and security.

“The limitations for rail in China are not about quality, but about infrastructure,” he says. “For finished vehicles you need a ramp, first of all, and it is better for it to be located near to your vehicle yard. But in China, this type of infrastructure is still very limited.”

This integration of rail ramps with factories or even road highway infrastructure is so limited, reveals Wang, that it is sometimes necessary to self-drive vehicles as well as haul them to the nearest ramp.

Screen Shot 2013-06-26 at 14.12.43From Fords Chongqing plant, vehicles are moved by barge to its distribution centre in Wuhan, and further east to Nanjing and Shanghai

While the expansion of Ford’s two new plants could provide more opportunities for rail – particularly for Hangzhou, which is close to Shanghai on the east coast – they will not necessarily come with better rail links in the short term, not least since extending rail lines and building ramps is controlled by the central rail ministry. Rather, Wang predicts that there are still opportunities to add more railway transport using the services currently available in the market.

“There are still quite a few railway providers in China and we are working to introduce them to our JV partner to explore some opportunities,” he says.

More to come by sea
For multimodal, Ford is already most advanced in river barge transport, which makes up 35% of distribution in China. The Chongqing plant, although far from the consumption areas on the east coast, benefits from its position on the Yangtze river. Ford has thus been using barge transport to move vehicles east to its distribution centre in Wuhan, and as far as Nanjing and Shanghai, which are close to the mouth of the river.

But although Ford has used barge in China “from day one”, according to Wang, there are plans to expand its use once more capacity becomes available. One potential opportunity could come when Ford’s plant in Hangzhou comes online. Although plans have not yet been decided, Wang says Ford could create a backhaul opportunity for itself by hauling vehicles from the plant to Shanghai, and then moving them back west to Wuhan and Chongqing on the same barges that arrived with vehicles.

Wa ng also sees significant opportunities to use more water transport as vehicle imports to China increase with the introduction of the Focus ST, Explorer and Lincoln. Vehicles are imported into the ports of Tianjin in the north and Shanghai in the south, and Wang says that Ford would like to pool volumes of its domestic production with the imports and move by short-sea along the east coast of China. “While short-sea is now emergent for moving vehicles in China, Ford has not yet used the mode. I think it’s a great idea as we produce more vehicles and as we bring more imports to China,” Wang enthuses.

Working together does no harm
Wa ng feels that one of the most significant areas to both reduce emissions and increase the use of multimodal transport would be through collaboration with other carmakers in China. Again, given the Chongqing production sites in the west, movement along the Yangtze makes it possible to consider barge backhauls with carmakers located further east along the river, including Chery in Wuhan and SGM and SVW further east in the Shanghai region. But with the planned rise in imports and eventually the new Hangzhou plant, Wang does not rule out the potential for north and south flows that could be shared by sea or by road with the likes of Beijing Hyundai in the north, or a number of Japanese OEMs in the south around Guangzhou.

Wa ng admits that the industry might well need a neutral or even government platform to facilitate such collaboration – in fact he points to this April’s Automotive Logistics Chinas conference in Shanghai as a good place to start. While he says he is not yet sure about the competitive considerations that other OEMs might make take, at Ford it’s very clear: sharing vehicle logistics poses no commercial or competitive disadvantage.

“We think that this type of collaboration would be beneficial to our business and to other OEMs,” he says. “We could ask our logistics service providers to move from Chongqing with our vehicles and then another OEM could authorise their vehicles to go into our empty trucks, perhaps even using their own contracted rates. There needn’t be any conflicts of interest.”

Blowing the smog away

Screen Shot 2013-06-26 at 14.13.03Ford would like to increase multimodal transport, as as make it more efficient by sharing backhauls with other OEMs in China
While Ford faces the twin challenge of doubling its vehicle output and deliveries while reducing its emissions and pollution, the company’s strategy for vehicle logistics, at least, suggests that volume is an important factor in network efficiency. Ford is likely to be more able to increase rail and water transport once it has added more volume to the network, while folding other OEMs into the mix would make this equation work better still.

Likewise, more imports are going to make it more feasible for Ford to roll out its global vehicle distribution IT system in China, which would be an important step to gaining better visibility across Ford’s transport network – thus helping it to react more quickly to problems or waste in the system.

Whether through such IT tools, more logistics engineering or sharing backhauls with competitors, Wang believes Ford can make a significant jump in its modal mix, particularly by multiplying rail’s share. Benchmarks with other, larger OEMs in China, have revealed that they have a modal mix split fairly evenly between road, rail and water. Wang wants, and believes it possible to have, the same even split at Ford.

“The emissions savings would be huge if we did this, since statistics show that switching from road to rail can reduce emissions by 40% per unit,” he says.

It’s hard to estimate how much impact such reductions in vehicle logistics would ultimately have on the deadly pollution that threatens to linger around China’s cities and industries. But in such a visible and admired industry like automotive, such efforts could at least get the wind blowing the smog in the right direction.