Glovis America is not simply an offshoot of the Korean giant Hyundai; it is a lean logistics company ready to work across the automotive sector, from vehicle processing to transport, as the team in the driving seat tells Christopher Ludwig.
Glovis America has a double remit. A member of the Hyundai-Kia Automotive Group, it manages logistics for Hyundai and Kia, including vehicle logistics, processing and accessories, along with inbound sub-assembly and warehousing for the groups’ two US plants. Reporting to the sales arms of Hyundai and Kia’s US subsidiaries, Glovis retains management of all aspects of the network, from deciding ports and transport modes, to contracting and monitoring providers.
But Glovis America’s management is keen to point out that, like its parent company in South Korea, it is not simply an offshoot of the Korean carmakers, but a fully-fledged logistics company on the hunt for business outside the group. “One of our main objectives is to push the Glovis name, so that companies will consider us [as a potential supplier],” says Glenn Clift, vice president and chief operating officer. “We plan to continue acquiring assets, looking into doing more inspection work ourselves and marketing our IT systems. There is also substantial pressure from our customers to get into trucking.”
In South Korea, Glovis has its core focus on Hyundai- Kia and automotive, but it is also involved in logistics for industries such as steel and electronics, both within the Hyundai conglomerate and outside it. The company– formed in 2001 as HK Logistics–is traded publicly and run independently. In recent years, Glovis has also made waves in the shipping industry by building up a fleet of car carriers to move more of the group’s vehicle exports from South Korea. By contrast, Glovis America’s work with other customers or OEMs is still limited. The company’s vehicle processing subsidiary, Global Auto Processing Services (GAPS), processes some General Motors vehicles for exports, for example. The team also works with Glovis in Korea to fill space on the car carrier vessels for their return routes to Asia.
But expansion beyond the group is very much on the agenda for Glovis America, which is perhaps the most mature of Glovis’ global subsidiaries. Created in 2003, it was the first outside South Korea to turn the logistics arms of Hyundai and Kia into a separate company. While Glovis has operations alongside the carmakers in Europe, Turkey, Russia, India, China and Australia, it is the US where the push for new business appears strongest.
Expansion plans for the US
The company has already seen impressive expansion in the US thanks to its customers’ buoyant growth throughout the downturn. Hyundai and Kia sales rose 9% when the market shrunk more than 20% in 2009, and last year combined sales grew 22% to nearly 895,000 units, double the market rate. Kia opened an assembly plant in West Point, Georgia at the end of 2009, at which Glovis has a vehicle processing centre, just as it does at the Hyundai assembly plant in Montgomery, Alabama. Clift and his team believe that gaining outside business is not only the next step for the company’s growth, but will also have a positive impact on managing logistics for Hyundai and Kia. An expanded network would allow Glovis to find further backhauls, bundle freight and increase purchasing power.
When asked whether or not ownership links to Hyundai and Kia might pose competitive problems in the minds of potential customers, Clift says that any good service provider has to treat its customers fairly if it wants to retain business. Furthermore, even Glovis America’s current customers do not always see each other as sister companies, according to Brad Childs, director of business planning. From the point of view of each brand’s sales and distribution arm, the two are in heavy competition with each other. “There is definitely the Hyundai way and the Kia way, which each brand wants to be separate,” says Childs. “We have a strategy for how we handle those issues between our customers, and we know how we would do that if we brought in a third or fourth customer.”
Assets to have and to have not
Besides logistics consulting expertise, the primary assets upon which Glovis America believes it can currently grow with other customers are GAPS, and its IT system. GAPS performs the inspection and processing for Glovis at Port Huenmne in southern California, at the port of Philadelphia, as well as at the two plants–although Clift acknowledges that the plant facilities are probably too close to Hyundai or Kia to be marketable to an outside OEM. Nevertheless, having its own processing and installation arm distinguishes Glovis as a competitor to full service providers such as WWL (which itself acquired Nissan North America’s vehicle processing company, DAS, several years ago), at the same time that Glovis is also an important customer to such companies. It still relies on outside providers to do port processing in three other ports, for example, as well as two inland facilities.
Glovis America’s in-house IT system tracks vehicles from port arrival to the dealerships, scheduling the installation of accessories, tracking inventory as well as handling the audit and payment of invoices. It provides Hyundai and Kia with updates on vehicle status, and the system is setup for real-time visibility. Few vendors can provide at that level yet, but several are doing it every 15 minutes. At the Glovis America offices in Irvine, California, there is a network of screens showing the statuses, which will soon be available on smartphones too. “The system talks to the computer systems of truckers and railroads, so is something that can be universal to others,” says Childs. “We have our own IT staff that can adapt the system to any customer.”
Glovis currently owns no trucks. But Childs–who himself has a background in the car haulier sector with Allied–says that the company is under pressure from Hyundai and Kia to enter that part of the business, especially with capacity tight in certain parts of the country. “At the end of every month, when there is a rush of orders and we face capacity constraints, the first thing our customers ask is ‘why don’t you order more trucks?’” says Childs. But Glovis has resisted so far. While a truck fleet could allow Glovis more flexibility at peak times, and would be a selling tool to other customers, Clift is unsure whether trucking is a business in which Glovis wants to be involved. While he acknowledges that the market has recently lost many small-to-medium sized trucking companies, and that rates could go up if other players don’t enter the fray, Glovis also understands the fragility and low-margins of the trucking business. It is, after all, on the other side of the negotiating desk, and Clift admits that the push for lower rates and flexible contracts has been an anathema to the trucking sector.
“My concern is that everyone in the industry, including Glovis, is signing contracts with ‘out’ clauses that allow them to leave at any time, and the trucking companies are expected to buy expensive assets with little guarantee the contract will be there tomorrow,” says Clift. “I’m surprised many of them have lasted this long, but nobody wants to fix the problem.” Whether or not Glovis takes the plunge into trucking, growth outside its traditional business areas is on the agenda. It could come through acquisition or joint ventures, while Clift calls out for other providers to work with Glovis on putting together a service package. “If Glovis and another provider, like a port or trucker or railroad, provide a service together and can find a better rate for customers, we might be able to attract new business for multiple parties,” says Clift.
The Hyundai and Kia network
Of course, Glovis America currently has no shortage of business with the growth of Hyundai and Kia. It is currently reviewing its port and distribution network. In some cases, changes in the network are also being considered in view of attracting new business–such as by switching ports and giving GAPS the opportunity to setup as the processor, as done last year when it switched from the ports of Baltimore, Maryland and Newark, New Jersey to the port of Philadelphia, Pennsylvania.
Glovis’ current import network includes six ports. On the west coast there is Tacoma, Washington; Portland, Oregon; Port Huenmne and National City (San Diego), California. On the east coast there is Brunswick, Georgia and Philadelphia. Different to how Glovis imports vehicles in Europe, almost all of the US ports have vehicle-processing centres, with PDI, body and accessory shops. The exception is National City, where vehicles pass directly onto rail wagons and move duty unpaid to two processing centres in Texas: in Dallas for Kia, and in Fort Worth for Hyundai. As Texas has an inventory tax, these centres are in free trade zones and the duty is applied after the vehicles are processed and modified.
The Glovis network currently consists of 14 rail ramps, according to Lim, including the two plants. Director of operations, Art Lim estimates that Glovis moves about 50% of vehicles by rail, including 80% of imports from Tacoma and Portland, which move mainly to the Midwest, while 100% move by rail through San Diego. The other ports distribute the cars direct to dealers by road. The Hyundai plant in Alabama uses about 70% rail, while the Kia plant in Georgia is about 60-65%.
For road, Glovis has contracts with around 15 different truck providers, including three carriers represented by the Teamster union (Cassens, Jack Cooper and Allied). Lim says that the percentage of volume carried by union hauliers is around 20-25%, as Cassens moves a lot of its business in Chicago, Philadelphia and Kansas City.
Consolidating ports will continue
The network has seen changes and will see more with port consolidation on the agenda, especially since Hyundai and Kia have historically used separate ports, even in the same region. This was the case for Jacksonville, Florida, and Brunswick, a mere 75 miles apart, before they were consolidated in Brunswick. Until last year, the brands were split between Newark and Baltimore, before switching to Philadelphia. In the past, according to Clift, efforts to consolidate in the northeast were prevented by heavy congestion in the ports. But Philadelphia was possible after the increased domestic production levelled off imports, and a change in business model that meant smaller inventories of vehicles than before. But even Philadelphia could be a temporary solution, according to Clift. “Our strategy was always to consolidate the brands at Philadelphia while we continue to study a long-term, permanent port,” he says.
Glovis will apply that same strategy in the Pacific Northwest. Currently, Hyundai uses Tacoma, while Kia uses Portland, about 140 miles away. Glovis is exploring options for consolidating at either port, or even to look at an alternative– especially if it is somewhere that might allow it to attract new business or install GAPS as the processor, according to Clift. The smaller inventories and the shifts between domestic production and import could also lead to a reconsideration of Glovis’ inland processing centres. According to Clift, the strategy for these is based on carrying large amounts of unallocated inventory, stored in regional distribution centres and then dispatched to dealers as they are sold. In the past, Hyundai and Kia operated with some of the largest inventories of vehicles in the industry. “When the market crash came and the industry ended up with hundreds of thousands of excess stock, many manufacturers were calling us to ask what to do. I had a rolodex full of storage contacts,” he says.
But today, almost all of the cars reaching port or coming off the line are already allocated to dealers, which suggests that the movement to inland processing centres is slowing down vehicles and adding extra cost. Glovis is the last to use these two facilities, according to Clift, and should the low inventory level persist, he believes Glovis will re-evaluate their value. “Of course we don’t have a crystal ball to know whether or not the inventory levels will stay this low, because they are almost too low, and I think some sales are being lost,” he says. “But our customers say these levels are here to stay, and if that is true we definitely have to make changes to what we do.” Art Lim points out that with the plants already producing at full capacity, imports for this year are tracking somewhat higher than last year following several years of declines, which could raise challenges for port and storage consolidation. “The new Elantra is produced in Alabama, but because demand is so great Hyundai is having to supplement it with imports from Korea,” says Lim. “There are also hybrids that will be built in Korea, so we don’t necessarily see the import levels dropping now.”
Better planning for port processing
In assessing the network, Glovis is considering where capacity is tight. In general, according to Lim, conditions are worse in the northeast, with some issues in the southeast. There is also concern over an eventual shortage in tri-level rail wagons. While tight, Glovis does not see capacity as serious problem, yet. However, Childs and Lim say that an increasing shortage in drivers is a real concern, the solution for which could be higher salaries, and thus higher rates. Together with tight capacity, and regulatory changes, Lim is unsure what the total impact might be. “There has been a lot of talk from carriers that the result is going to be increased costs, so we are left wondering by just how much.” Lim says. “Could it be 25-30%? It is a very grey area.”
Glovis has begun looking at how to alleviate shortages, in particular through its port processing methods. According to Clift, the company processes as many cars as fast as it can, rather than scheduling the vehicles around dealer destinations. “We’ve talked about whether we should stage cars, and process orders for the same destination so that the loads would be coming out better for carriers,” says Clift.
While Clift says that he wants to avoid getting into load building for carriers, the current system produces incomplete loads, leaving truckers to wait idly until they can build a full load or leave with cars destined for multiple destinations. Lim says that optimal-load based processing is complex and results in some inefficiencies for the processor at the expense of the trucker; but nevertheless it should be the next generation for Glovis. Currently, truck carriers receive an ASN when a car is allocated in port and the day after it is moved to a rail ramp. “But we envision the next generation will be that when a vehicle is allocated to a dealer, we want to be able to tell a truck carrier when it is scheduled to be processed and define the day in advance with 90% accuracy, so that he can move his equipment in that direction,” says Lim. “It’s complex but other OEMs are doing that.”
That next generation will be important for Glovis America as a port processor and network provider for Hyundai and Kia. Likewise, the next generation for the company will be the jump from the logistics arm of Hyundai-Kia toward being seen as an independent service provider. Other providers with somewhat similar ownership structures have already made this leap–Gefco for PSA, and Volvo Logistics for the Volvo Group come to mind–while Glovis, with the benefit of more global links and even faster growing core customers, has every potential to be as successful or more.