Vehicle logistics providers have suffered from price pressure, rising costs and regulation, as well as large scale industrial action. But while more flexibility is sought on rail, there are signs that the country’s intermodal options are growing, writes Andrew Williams.
The automotive sector is a key driver of the French economy and remains the country’s leading employer, as well as representing about 15% of French exports. Across France, almost 40 different vehicle models are produced in 21 assembly plants. In 2009, light vehicle sales were a strong 2.7m units, while production was 1.8m units (down from 2.1m in 2008). Sales have only recently started to slide following the withdrawal of trade-in incentives.
France’s two home-grown manufacturers, PSA Peugeot Citroën and Renault, account for more than half of the domestic market, as foreign brands still do not enjoy a substantial market share in France. The exceptions (that prove the rule) tend to have a strong presence in France, such as smart, the Daimler-Swatch joint venture that produces from its base in Hambach (Lorraine) and Toyota, headquartered in Valenciennes (Nord-Pas-de-Calais).
During the recession the French vehicle logistics sector has suffered in much the same way as other countries, although the impact on the domestic market was relatively softened thanks to government trade-in incentives. But as these are withdrawn, the market is falling. Sales were down 1.5% in the first ten months of 2010, including a 18.5% year-on-year drop in October.
Although the sales drop is biting only now, there remain a number of severe pressures on logistics costs. These were partially caused by drops in profits amongst carmakers, but also as a result of “distress pricing” from several Eastern and Southern European carriers seeking business outside their own collapsed markets, according to Graham Taffs, commercial and marketing director at logistics provider Walon France. Taff also points to aggressive pricing from manufacturer-based operators seeking market gains. “This is resulting in squeezed margins, reduced capacity and reduced ability to respond to volume peaks,” says Taffs. The overall decrease in volume has led to further inefficiencies through the network according to Toyota Motor Europe’s general manager of the vehicle logistics group, Cyran Vanderhaeghen. “Because of the interdependency of flows, the volume decrease [results in] a reduced number of drops and longer dwell time at hubs to complete loads,” he says. Logistics providers involved in close working relationships with domestic carmakers have benefited to some extent from a relatively stable French market. But like French carmakers, they have also pursued international expansion. Gefco, part of the PSA Group, credits its nearly 20% revenue rise in the first three quarters of 2010 compared to 2009 to expansion in Eastern Europe and Russia. Another provider with links to a French carmaker is Groupe Cat, which was formerly a part of Renault. While it is now independent, it still has an exclusive contract for outbound distribution in Western Europe until 2012 with the carmaker. Groupe Cat has also expanded services in eastern Europe, South America and, increasingly, in India. But France remains a critical market.
“France remains a strong market in Europe for Cat. This means important volumes to cope with, not only for local distribution, but also for production to be exported to other markets, due especially to the Renault situation with six factories producing cars for local and export markets,” says Frédérick Vaglio, communication manager for Groupe Cat. “But the major challenge we have to cope with, if we had to identify only one, is to succeed in our challenge to further reduce the costs for distributing cars at the same high level of quality and lead time performances,” he adds.
A very French disease?
Historically, the French transport sector has been particularly susceptible to strikes. For Taffs, industrial action at ports and on the railways sends shock waves through the supply chain. Vehicle carriers such as Walon France have to absorb the cost impact of the imbalances caused by the strikes as well as clearing the backlogs once they end.
“Similarly, during rail strikes, normal rail-based flows are switched to road, causing truck capacity shortages, and raised costs for spot capacity. Clearly the customers are equally penalised through very extended delivery lead times,” he adds. Toyota Motors Europe also does not use rail for distribution in France, explains Vanderhaeghen, but always uses truck. Export to other destinations is either organised by truck or by rail, mainly in function of volume. In the event of industrial action affecting international rail deliveries, Toyota may have to revert to trucks, or consider alternative routes to prevent overstock situations.
Such strikes have also lead to long-term shifts away from affected areas. In the wake of strikes over pension reform this past autumn, logistics operators looked to Barcelona as an alternative port to Marseilles. To facilitate this shift, there is even a new rail link scheduled to start in December between the Spanish port and Perpignan in southern France, which has been welcomed by both the French state rail freight provider Fret SNCF and its Spanish equivalent, RENFE Freight. “It is of paramount importance that this new rail link between Perpignan and Barcelona works well,” says Alain Leray, deputy managing director at STVA, the vehicle transport subsidiary of SNCF. “We need to transport the volumes out of Barcelona because no one wants to go to Marseilles anymore.”
According to Leray, business is already shifting to Barcelona from southern France but currently there are restrictions for loading/unloading that need to be overcome. But he is confident the rail route will help this in the long term: “It is definitely the solution for the future,” he says.
Railing against the system
Historically, rail has been problematic for French vehicle logistics. Despite France’s strong rail network, industry players note that it is geared more towards passengers, while the national focus of the railways makes it difficult to move between neighbouring countries.
Walon France does not use rail since it does not consider it reliable or flexible enough. The company’s view is that whilst competitive rates can be achieved over long distances, costs associated with extended leadtimes and raised in-transit loss and damages should also be considered. “Certainly rail freight appears to have secondary priority behind passenger traffic, and this is aggravated by the recent decision of SNCF to carry only full train loads of freight wagons,” says Taffs. As mentioned, Toyota uses rail for traffic from Valenciennes to Italy and Poland, but does not use it for French distribution. “We have considered rail as part of vehicle distribution in France, however this results in longer lead time, additional handling and thus [an] adverse effect on quality and higher costs,” says Vanderhaeghen.
He has identified scope for improvements on the international movements as well. “For traffic to Italy we do indeed see room to improve communication between various public traction providers. Obtaining additional slots to accommodate peaks in volume is problematic,” he says.
For Groupe Cat, Vaglio agrees that passengers remain the priority in France. However, he highlights the huge losses by French operators on freight activity over the past few years. “This is definitely influencing any decision taken on rail and is probably a barrier for its development,” he says. Although rail remains a reasonably effective way of transporting large volumes for imports or exports, Vaglio argues that short sea is fast becoming a more competitive alternative. This increased interest is at least partially down to the efforts by some French ports to work closely with logistics providers to develop short-sea and deep-sea alternatives. “The example of Kia trusting us to distribute their vehicles in France through Le Havre is a good example,” says Vaglio, referring to the Korean carmaker’s decision earlier in 2010 to use the French port rather than Belgium’s Antwerp for Francebound imports.
Earlier this year, Groupe Cat also entered the short-sea shipping market by way of a joint venture with the Spanish shipping group, Suardiaz. The new company, Suardiaz Cat Shipping, currently runs on two rotations between the port of Santander in Spain and the ports Le Havre, Zeebrugge, Cuxhaven, Southampton and Teesport, with Suardiaz handling sea transport and Groupe Cat responsible for transport to and from the ports and terminal processing.
Government interventions ineffective
The French government has made moves to shift freight from road to rail with a road freight tax that was set originally to go into effect in 2010. It has however been delayed numerous times as the government attempts to devise a system to collect the tax, and is unlikely to come into force before the end of 2012. Road-based operators, unsurprisingly, are strictly opposed to the tax.
“Regulating or raising taxes on road operators will simply increase road operator costs, which they are unlikely to be able to fully recover from their customers. Thus more trucking business collapses would be inevitable,” says Walon’s Taff. There are general concerns that the French rail freight network would be unable to effectively support an increase in freight movements. “In France, in particular, forcing increased business to a state-owned operator, and renownedly volatile from an IR viewpoint, would most likely be counter productive,” says Taffs.
The reality is that, for many operators, the decision to use rail is driven mainly by volume. Further road freight regulations may not necessarily result in a substantial transfer to rail. “[Adding] more constraints will not help rail development and will complicate vehicle distribution in a market still impacted by the crisis,” says Vaglio. “Incentives could be more motivating but they should not just focus on rail but also on short sea which is offering, combined with French ports, a very good alternative,” he adds.
Privatisation as catalyst for change
There is support for the idea that the privatisation of the French railway system could act as an important catalyst for broader improvements. “From a rail perspective, privatisation of SNCF and the free availability of vehicle rolling stock, currently dominated by STVA and Gefco, would at least lay the foundations for change,” says Taffs.
From a truck perspective, he adds that French operators need to achieve a cost base aligned with their foreign competition in terms of permitted working hours, wages and social charges, operating taxes and regulations, and lower fuel costs. “On this basis French truck operations could be a more flexible and cost effective mode of transport versus its foreign competitors,” he argues.
Vaglio suggests that the best way to improve the domestic vehicle logistics system would be through the development of a variety of different transport modes. “Road, rail and sea transportation could be combined, but to some extent barges [could also be used] for approaches, flows or distribution in areas such as Paris, as Cat already does,” says Vaglio.
For foreign-owned companies in France it is not always meaningful to compare operations against domestic manufacturers. Although Toyota produces and distributes its Yaris model from Valenciennes, many of the vehicles it transports within France are imports from the Czech Republic, Turkey, Japan and elsewhere. Even so, the company works closely with its logistics partners to improve its current operational set-up and quality performance.
“We have recently been in touch with Voies Navigables de France to assess whether, longer term, the use of barges could be considered as an alternative mode of transport,” says Vanderhaeghen.
France’s vehicle logistics system still faces a number of challenges. Not least of these is that the rail infrastructure remains focused on passenger transport. For some, there is also little doubt that the somewhat parochial nature of the working arrangements between domestic carmakers and railbased logistics providers further limits the scope for future expansion on rail.
However, there are signs that operators are waking up to the potential of alternative transport modes. In particular, the sophistication of the national port infrastructure, as well as the relatively well-developed system of inland waterways, could lead many companies to consider making increased use of short-sea, deep-sea and barge-based transport.