With US domestic freight trends weak, inventory lagging on production and exports from the US to Europe and China slowing, the forecasts from the opening session at this week’s Automotive Logistics Global conference in Detroit sounded like more bad news for the transport and logistics industry. But while caution is warranted, there were signs of optimism amid increasing light vehicle sales and production as well as from seismic shifts in the regional flow of vehicles from North America.
According to Benjamin Hartford, senior research analyst at Robert W. Baird, there remains a low level of consumer confidence amid high unemployment and low growth. This has translated into static figures for truck tonnage, with a particular slowdown in growth notable since May. However, there are reassuring signs that the housing market has stabilised, that consumers are paying down household debt, and that pent up demand would continue to push up new vehicle purchases. Hartford pointed to sales for 2012 forecasted to reach 14.3m units and 14.8m in 2013.
Hartford noted that a general growth in manufacturing in the US, up around 5% year-on-year relative to GDP (compared to -15% I 2009), was having positive impacts on freight levels in the country.
On a global basis, the industry continues to be marked by a continuing shift in manufacturing and sales to developing markets. According to Michael Robinet, managing director of IHS Automotive Consulting, in 2000, developing countries accounted for 10% of global vehicle production; it is now 30% with China and Brazil both key markets for plant relocation. This is forecast to double by 2019 to 60%.
Japan and South Korea are losing ground to South Asia, North America, the Middle East and Africa, as well as Central and Eastern Europe. Significantly, China’s growth will be focused mainly on internal requirements
and exports to developing markets, according to Robinet.
For vehicle flows, the Asia to Americas trade is being hit by the rise of the Japanese yen and production co-location, which will account for a declining share of what Robinet referred to as ‘super-region flow’.
Vehicle flows from Asia to the Americas is slated to decline from 7% of total combined sales in 2000 and will be 4.6% in 2020, while the rise in volumes from North America will be driven by the southeastern states United States and imports from Mexico into Asia.
Meanwhile, volume from those areas to EMEA regions is set to double by 2020.
Robinet concluded that backhaul volumes from the US and Mexico, both to the West and East, offers a new dynamic for the transport infrastructure supporting global vehicle movements.
Mexico and the south
The growth of production in the US south, and in particular Mexico, is also pointing towards increasing bottlenecks in both material availability and across logistics modes and ports. According to IHS, by 2019 production plants in the US south and in Mexico will represent almost 50% of North American light vehicle output, with much of the shift coming at the expense of the Midwest and Canada. Plants in the Midwest have dropped from producing 44% of North American light vehicle output in 2007 to around 40% today, and forecasted to drop slightly to 38% by 2019. Plants in the southeast, meanwhile, now represent 23% of production (up from 20% in 2007) and will reach 26% by 2019. Mexico has grown from 13% in 2007 to 19% in 2012, forecasted to rise to 23%, particularly with the country set to add nearly 1.5m more units of production in the next four years. Canada is forecast to shrink from 16% today to 11%.
Even if many tier one suppliers, such as Delphi, have the majority of their plants in Mexico, much of the tier and lower tier supply base is still based in the Midwest or the US. “There are not enough tier one and tier two suppliers in Mexico,” said Robinet. “They can’t necessarily get their factories up and running in time to meet the growth. Mexico needs more engine and transmission capacity, for example.”
Although Robinet pointed to significant challenges in getting material into Mexico, as well as getting vehicles out, he pointed to even more important opportunities. “Those who best understand Mexico will really benefit,” he said
