A massive drop in imports and subsequent over-reliance on the export market has left the Spanish vehicle logistics sector in a critical state. Barry Cross looks at how manufacturers and providers are working to ensure a healthy prognosis for the industry.
The Spanish vehicle logistics market has been hammered in recent years by the near collapse of domestic sales. Only the strength of Spanish exports has been able to offer some relief, however the tremendous imbalance between exports and imports has made the business unprofitable for many providers.
Compared to most of Western Europe in general, Spain witnessed the largest decrease–46.6%–in the number of passenger vehicle registrations in the 2007-2009 period. The market grew by a meagre 3% last year, thanks mainly to fleet sales, while in the first six months of 2011 there has been another 26% drop. Fleets of road transporters conveying finished vehicles have been savaged. New registrations dropped from 292 in 2008 to just 29 in 2009–a decrease of 90%. For the first ten months of 2010, registrations amounted to 54.
According to Juan Manuel Sierra, secretary-general of the National Association of Vehicle Transport Companies (ANP), “in 2009 and 2010, the registration of used vehicles outstripped the registration of new ones.” He explains that the loss of volume prompted many vehicle logistics providers to slash prices, often operating at below cost to secure business. Between 2007 and 2011, the number of vehicle carrier companies dropped by around 30% as weaker players went to the wall.
“The de-structuring of the sector is now an established reality. Export plants are starting to experience problems since providers can no longer guarantee service,” he says. A bright spot has been the export market, with France and Germany, in particular, absorbing output from Spanish manufacturing plants. SEAT, a Spanish carmaker owned by the Volkswagen Group, started production this year of the Audi Q3, expected to have volumes of around 100,000 units a year. Nevertheless, even this has not offset the downward trend in domestic sales and with markets in turmoil over concern in the Eurozone–including considerable worry over Spanish banks and debt–several of Spain’s major export markets could see contraction.
After steep drops in production, manufacturing levels for cars increased by 5.6% in 2010 thanks to the subsidies still in force in a number of EU countries, while production of industrial vehicles rose 30%. According to Sierra, the forecast for vehicle manufacturers in Spain between 2009-2015 is for the downward trend to continue until the market bottoms out in 2012. Thereafter, there will be year-on-year growth of 5.3% until 2015 for the manufacture of all vehicle types, while cars will grow by 7%. A salient point is that the forecast for 2015 suggests that the manufacturing of vehicles in Spain will still not have returned to pre-2009 levels.
In 2010, finished vehicle exports increased by 10.4% to 2.1m units, according to Sierra, representing 87% of the vehicles made in Spain. “The increase in the export market share can be explained almost entirely by the weakness of the domestic market,” he stresses. Indeed, this imbalance has continued into 2011, with around 89% of finished vehicles in the first half sent abroad, according to the Spanish car manufacturers association, Anfac. Exports have risen to 1.19m in the first half of 2011, a 7% rise compared to the corresponding 2010 period. Of the total number of exported vehicles, around 80% are cars. However, exports of industrial vehicles were up 24% in the first six months of 2011. Unsurprisingly, the turnover of companies transporting finished vehicles decreased 54.4% in 2007-2009, according to the ANP, with companies effectively operating at a loss in both 2009 and 2010.
“This sector is in a critical situation,” says Sierra, with many providers barely surviving. Given that it will take at least five years to return to pre-2007 sales levels, logistics companies will have to limit their exposure to the vehicle logistics market and start passing on real operating costs to customers, as well as branching out into other value-added areas. A certain level of cooperation between providers and carmakers has to take place, he argues, to ensure companies can provide a competitive service in the medium and long term.
Adapting to change
Manuel Medina, finished vehicle distribution planning manager at SEAT, notes that last year was one of considerable change for the company and its logistics providers. “For us, 2010 was very much a year of transition, in which we had to adjust to new volume levels and reorganise distribution. The road haulage industry had also done its homework, making changes to routes and capacity to enable it to provide a good service to automotive plants,” he says. Going forward, Medina is now confident that, even taking into account increased production of the Audi Q3, providers have been able to put in place a level of road transport to meet its requirements.
He also points out that SEAT has greatly improved its time ratio between production and output, which should allow it to absorb increased production at the Martorell plant over the next few months without expanding the number of parking slots or otherwise hire space outside company premises. Asked what the road haulage sector can do to be more competitive, Medina says he would like to be able to treat vehicle logistics providers in exactly the same way as he already treats transport companies that handle the movement of components. “We’d like to give them a production schedule and then they have a truck or train available at the plant when the vehicles roll off the production line. To get to that point, the whole process needs improving. That would involve changes to the production itself, to the culture and to the way transport companies are managed. At SEAT, we are working towards this objective.”
In the short term, Medina says, it’s not unrealistic for both road haulage and rail providers to reduce the amount of empty running given the availability of real-time information sharing technology, which should allow the nearest available transporter to pick up and deliver the appropriate consignment. However, transport operators must come to agreements between themselves to arrive at this collaboration. For rail, Medina does not believe it is a question of whether sufficient capacity is available or not, but rather how to deliver to dealers the vehicles they need to sell–that will invariably involve road haulage. The debate therefore needs to be which consignments should be moved by sea, which by road and which by rail. “But this isn’t a debate that manufacturers or brands should have in isolation; it’s a discussion that needs to take place on a pan-European level,” he adds.
Spain’s rail industry got a boost last year with the introduction of a standard gauge rail link between the port of Barcelona and the French border. However, Medina believes its impact will be limited, in part because the infrastructure inside the port cannot accept 750-metre long block trains and its lacks a public discharge area where vehicles could be placed after discharge. Also, gradients near the French border require double heading of trains heavier than 1,100 tonnes, thereby undermining the economics of operating them.
“We are currently looking into the economics of using this line, but I have to say that, taking into account all the information available to us, we remain pessimistic,” Medina admits. “As far as SEAT is concerned, we would like an international gauge line to serve our plant at Martorell, near Barcelona, and also see the existing line to Portbou converted to that rail gauge, too.”
Reflecting the market
The fortunes of the port of Barcelona-based car-handling terminal, Autoterminal, have mirrored the structural strengths and weaknesses of the Spanish logistics market. According to managing director, Jacinto Seguí, imports dropped in line with the domestic market, transhipment volume was barely impacted, while exports actually increased despite the comparatively weak markets into which some of them were being sent. “In 2009, for example, volume went up 172% and in 2010 by 27%. However, compare our current performance with the historic highs registered in 2007 and we are looking at losses of around 23%,” he notes.
For the current year, Autoterminal is predicting growth of 10-15%. It might have been higher, but the fall-out from the recent earthquake in Japan has driven down the number of expected imports. “We expect the Spanish market to slowly recover over the next five years, although our transhipment business with other European countries is not expected to vary all that much. Overall, we are looking at discrete increases, without any large variations from one year to the next.”
Seguí is rather optimistic regarding Spanish automotive manufacturing, noting that exports are rising, while new models will be produced, guaranteeing continuity of work for the country’s assembly plants. However, he says that the most significant factor for the industry will remain cost containment, which has been a key element in the survival of car production in Spain, which competes with plants in Turkey and Eastern Europe.
Commenting on the road haulage industry, he observes that specialist vehicle transporters have been reduced in number, with around 40% of Spanish commercial vehicles of this type withdrawn as operators have struggled to survive. “For us at Autoterminal, the main impact has been the imbalance noticeable in terrestrial movements between Spain and the rest of Europe, which has negatively impacted some exports that would otherwise have gone by road,” says Seguí. However, the port terminal relies heavily on rail to move the majority of its exports, with around 20-25 block trains laden with Spanish-produced vehicles handled weekly. Nevertheless, this sector is also hurt by the imbalanced traffic flows. For years, Autoterminal has been acting as a major transhipment centre for finished vehicles. Inbound products from Japan, for example, are rotated out to 12 different countries, including France, Portugal, Italy, Greece, Turkey and Ukraine. Other clients in the Far East use the facility as a gateway to markets in southern Europe and North Africa, which Seguí expects to continue.
Harbouring plans for the future
The northern Spanish port of Pasajes is one the country’s most important in terms of finished vehicles, being a main gateway port of United European Car Carriers (UECC). The recent recession however, proved brutal, driving down volumes considerably. From a high of 304,568 units in 2008, the car terminal handled just 223,012 vehicles a year later. Since then, there has been a slow recovery, with throughput of 251,518 cars in 2010 and a projected 257,268 units in 2011. Agustín Fernández, UECC’s COO, says: “The dramatic drop in imports is explained by the fact that Spanish car sales during this period have dropped by 27%. However, for this year, in terms of exports at least, we expect to reach levels achieved in the ‘boom’ years of 2007 and 2008, amounting to about 230,000 units.”
Prior to the recession, UECC had already invested heavily in its Pasajes terminal by building a vertical storage facility, which doubled the terminal surface capacity for imported volumes. In line with the needs of the market, UECC is gradually increasing its value-added services to customers, such as introducing pre-delivery inspection. An outer harbour project is being discussed by the authorities which, if implemented, would make it possible for large car carriers to enter the port, which would help its competitiveness given that vessel length is currently limited to 150-160 metres. But Fernández explains that with the lack of imports, road and rail operators have reduced their export capacity simply because they have been unable to attract imported cars as return loads.
The imbalance seems unlikely to correct itself quickly as the growth levels in car sales seen in 2008 are not predicted to return in the short term, since these were based on easily available credit and booming property prices, which caused an economic bubble that ultimately burst. Because of low domestic sales, OEMs in Spain continue to concentrate on export volumes. “Taking into account that GDP in Spain is expected to slowly improve, it is expected that domestic car sales will follow a similar trend, growing by 1% to 2% annually,” says Fernández.
In contrast, the commercial vehicles sector has seen sales increase more dramatically as the average age of industrial vehicles on the road has increased and replacements have been required. These factors have seen sales of heavy commercial vehicles rise by 37% in the first six months of 2011. The tough market has impacted on the terminal beyond volume with several road transport operators going out of business. Fernández says the road haulage industry is less competitive and reliable as a result. However, a flicker of hope might be seen in the changing attitudes of carmakers. “During the second half of 2008–and in both 2009 and 2010–road transport prices were significantly reduced. However, following the collapse of many owner-driver operators, OEMs are more careful when selecting suppliers, aiming to ensure reliable capacity provision. The previous ‘only price matters’ policy has been dumped, because those types of operators could not always meet the tough levels of quality demanded by the car sales market.”