Optimising FVL beyond bottlenecks
Routes, reassessments and regionalisation: How auto supply chains are turning trade changes into network gains
In our latest livestream, logistic experts explored how to capitalise on crises, examining finished vehicle routes, port congestion and a fluctuating EV landscape
In today’s volatile automotive landscape, the only constant is change. In the face of geopolitical uncertainty, key component shortages, and other ongoing crises, the industry has routinely had to react at speed to disruptions. However, these disruptions can be mitigated, or even capitalised upon, through increased flexibility, resilience and a holistic understanding of the logistics landscape.
In our ‘Turning trade changes into network gains’ livestream, industry experts including Peter Hörndlein, managing director of vehicle logistics at Volkswagen Konzernlogistik (Group Logistics), Volkswagen Group, Sam Fiorani, vice-president at AutoForecast Solutions, and Emily Uwemedimo, managing editor at Automotive Logistics, explained the challenges and opportunities in finished vehicle logistics.
Routine reassessment is a requirement
In the face of these risks, companies need to be aware of where the pain points are in finished vehicle routes and make sure adjustments are proactive, rather than reactive.
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“You can never really be at a standstill,” stated VW Group's Hörndlein. “Once you have a solution that works for a while – and, at the moment, that’s a rather short period of time – you then see changes.”
Changing market predictions, production outputs and fluctuating consumer demand can all influence these changes, he explained. Geopolitics has added “a big question mark” against the group‘s established routes, especially to the US. To combat this uncertainty, Hörndlein said the carmaker is "constantly reviewing the network and optimising it.”
One pain point identified through this constant review process was the bottleneck created by a reliance on northern European ports – approximately 74% of the group’s annual shipping volume went through Zeebrugge in Belgium or Emden, Bremerhaven or Cuxhaven in Germany. Hörndlein explained that this reliance led to “inefficient transport routes, high costs and long lead-times that needed to be covered to get up to the north, a quite inflexible network with the limitations and congestions of ports currently, and a general shortage of capacities”.
To fix this bottleneck, VW launched a new vehicle terminal in the Port of Venice, Italy. ”We have split the volumes – volumes for Asia and Turkey will go out by Venice, and the rest of the world will still be connected by the northern ports,” said Hörndlein.
“Venice will be a strategic anchor in our port network,” Hörndlein added, outlining planned route expansion across Asia driven by the new terminal.
Route diversification
Ports have proven to be a pain point in finished vehicle logistics, and increased route diversification can provide a way for logistics teams to mitigate their impacts.
“Vessel capacity is tight in both Europe and North America and congestion at key ports continues to really build up. The knock-on effects of those are real and costly for the industry,” explained Automotive Logistics' Uwemedimo. “They’re holding vehicles for longer at ports and storage yards. It’s really ties up working capital, limits operational efficiency, and ultimately does drive up total logistics costs.”
Access to multiples routes give the VW Group Logistics team more opportunity to be flexible in vehicle flows as each can be leveraged as required, embedding resilience across operations as there is less reliance on a singular avenue where these knock-on effects can come into effect.
“We still have the northern ports as a back-up solution,” said Hörndlein. “We have the chance to switch back and forth if capacity constraints or volume need adaptation. It’s a multiple win situation.”
Uwemedimo explained that “at a time of increasing cost pressure and capacity constraints, these network investments are critical,” and pointed to other port projects across the Mediterranean as examples of how routes might diversify.
However, logistics teams should be aware of the timelines involved in optimisation endeavours. “While these new network investments are vital long-term enablers of efficiency and resilience, they’re not just instant solutions to immediate capacity constraints – they take time to ramp up fully,” she commented.
Balancing routes with regionalisation
A rise in protectionism can often be mitigated by increased regional manufacturing, but AutoForecast Solutions' Fiorani explained that logistics teams should be increasingly aware of a rapidly changing landscape and be prepared for regional and international vehicle flows to change over the coming years.
In North America, for example, the USMCA agreement has been a driver of both inbound and finished vehicle flows since its inception, but these are at risk as it comes up for renegotiation next year.
“There are likely to be changes and an increased focus on keeping more vehicles destined for the US market sourced locally”, explained Fiorani.
“Reducing the demand for products shipped from Canada or Mexico to the US will upset the balance sheet and could result in the closure of some plants,” he added.
Recent tariff fluctuations have caused North American OEMs to be more cautious with regionalisation plans. “Automakers are keeping a close eye on negotiations and holding back announcements until the politically correct time to reveal them,” Fiorani said. He pointed to Stellantis’ next-gen Jeep Compass as an example – the production, which was set to begin in Canada, has been paused.
GM, meanwhile, pushed for domestic production of several models, including moving the manufacturing of the Chevrolet Equinox from Mexico to the US.
It’s not just North American OEMs who will be impacted by the increased focus on a domestic market. Plans by European OEMs to use the US as an export base are also “caught in the crosshairs”.
Companies like Mercedes-Benz and BMW, who both “export more utility vehicles from their US plants than they sell in the US,” may now need to reassess their global finished vehicle logistics plans as a result, he suggested. Similarly, Audi’s plan to have its Mexico plant “be the sole global source” of certain models was hampered by changes to free trade agreements.
The flow of vehicles to the US from outside North America could also reduce: “Vehicles shipped in from abroad could be priced out of the market and those are not typically sold in volumes big enough to warrant local production.”
‘Finding a way to free up trade with the EU, as well as South Korea, Japan and Mexico, will be difficult. Until it happens, the whole industry is holding back investments and product plans,” he added.
However, stability should reassert itself in due course. “The current trade issues with the US should shake themselves out in the next year... The industry doesn’t deal well with this much confusion and additional cost,” he said. “It takes years to come up with answers to problems that were suddenly thrown in the industry’s lap.”
Electric vehicle logistics
Fluctuations across markets have caused some doubts about continued investment in the electric space, but the international demand for EVs continues to grow and routes will need to be modified accordingly.
Adoption of EVs in the US market has fallen short of estimates, prompting a return to ICE models, Fiorani explained, suggesting that "we’ll see a spike in new products by the end of the decade”. This is partly driven by a rise in OEMs being able to apply multiple powertrains to vehicles on the same assembly line. One factory can be the starting destination for several variations of a model, reducing the overall required complexity of vehicle transport.
“Even our most conservative model was not conservative enough, and we’ve revised that outlook a number of times. Currently we’re looking at 15% of the US market being fully electric by 2030,” he said.
In Europe, EV adoption is higher, but the region is facing increased competition from Chinese EVs. “Instead of retrenching and putting up barriers, Europe is preparing for a battle. Chinese automakers are on their way and will take some of the market share away from legacy companies,” he explained.
Despite tariffs placed on Chinese EVs coming into Europe, Fiorani suggested that exports will rise, driven by slowing demand at home. Some automakers will instead try and localise production in Europe “to keep regulations at a distance and keep the market open”.
As a result, European automakers need to ensure that processes are optimised and efficient to avoid passing along any additional costs to consumers. “While [Chinese OEMS] are operating at price advantage, the playing field needs to be levelled before the competition continues,” he said.
