Volvo Logistics, the third party logistics (3PL) arm of Sweden’s Volvo Group, has its sights set on growth of up to 20-25% in the coming years on the strength of recovery in North America and Europe and growing volume in emerging markets, in particular China where it is investing in its own transport fleet. But globally, the company sees rising oil and material prices posing threats to growth, combined with a shortfall in equipment investment by carriers, which will put further pressure on rates.
Volvo Logistics saw steady recovery in 2010, benefiting from a growing presence in China, even while the European and North American economies lagged somewhat behind. According to Viking Johansson, the company’s new vice president of global business development, Volvo Logistics’ global volumes have now surpassed pre-crisis levels from 2008. For 2011, continued growth in Asia and South America, together with new business gained in Europe, should keep the 3PL expanding at a fast rate.
Expansion of the Volvo Group – which includes truck, bus, construction equipment, aerospace and marine technology– is driving a large portion of Volvo Logistics’ growth for both exports from Europe as well as for serving the supply chain for new factories built in Asia. Volvo Truck sales recovered 50% in Europe during 2010 (including 97% in the fourth quarter), albeit from a low level. Last year, North America grew 59% while Asia jumped 81%, respectively. Construction equipment also saw gains as the group returned to solid profitability. During its 4th quarter earnings report last week in Stockholm, the group said that it expected the heavy duty trucks markets in Europe and North America to recover to pre-crisis levels of about 220,000 vehicles each, along with continued growth in emerging markets.
Volvo Group does not publish specific financial information on Volvo Logistics, but Johansson predicted sustained growth in the near term. “We think that a 20-25% increase in sales over the next couple of years is not unreasonable if we include our customers outside the Volvo Group,” he told Automotive Logistics News at Volvo Logistics’ headquarters in Gothenburg.
Along with strength in the group, there have also been positive developments for Volvo Logistics’ external customers, which represent 40% of its business, including the Zhejiang Geely-owned Volvo Cars.
In Europe, Volvo Logistics is currently running a large series of tenders to reengineer the transport networks that it manages on behalf of group customers, Volvo Cars, Renault Cars, Nissan Motors and others. The company has also recently gained a contract for packaging services to Magneti Marelli, a tier supplier and part of the Fiat Group. This follows a contract gained in 2009 with Ford, providing inbound services to its plant in Genk, Belgium.
But the most important focus for the company looks set to be in China and other emerging markets. Johansson’s newly created role, which puts him in charge of developing business with customers both inside and outside the group, highlights Volvo Logistics’ global push. He was most recently responsible for managing business with Volvo Cars, and prior to that had been based in Shanghai to develop Volvo Logistics’ Chinese services.
Geely has said it could build up to three new factories in China for the brand, although official plans are yet to be announced. Volvo Logistics, which lost its financial links to Volvo Cars when the Volvo Group sold it to the Ford Motor Company in 1999, remains the carmaker’s lead logistics provider in Europe, managing inbound and outbound logistics and purchasing services for its plants in Sweden and Belgium. It has also worked for Volvo in China together with the Ford and Chang’an joint venture, which produces a small number of Volvos locally. However, Johansson admitted that his company’s future relationship in China with Volvo Cars was still to be decided.
“In China, Volvo Cars says that our relationship could be different [than in Europe] since, of course, they are owned by Geely, which builds 400,000 cars a year,” he said. “The message is that we will be tendered like any other supplier. We hope we are in a good position because of our experience and knowledge of Volvo, but we don’t have a free ticket.
“But the truth is we don’t have a free ticket in Europe either,” he added. “We are continuously tendered for business from Volvo Cars–most of them we gain, some of them we lose.”
Building a fleet in China
Besides the potential for increasing services to Volvo Cars in China, Volvo Logistics is seeing high demand from the expansion of the Volvo Group and other customers. As such, the company has made an important step in 2011 for its Chinese transport operations with the creation of a wholly owned trucking company, with its own fleet. Citing some of the difficulties experienced by fellow European logistics companies breaking into the Chinese market in joint ventures, as well as its own experiences of working with local joint ventures, Johansson said that Volvo Logistics believed it would be better to do trucking alone rather than partner with a local company.
“We have worked with JVs in China and have seen the challenges,” Johansson said. “To secure and safeguard our core values of safety, quality and environmental care, we are setting up our own wholly-owned trucking company with our own assets.”
The initial phase will start with an investment in 30 trucks, and the company should be operational this year, according to Johansson. The move toward owning assets marks a departure for Volvo Logistics when compared to its core markets in Europe or its services in North America, where it owns very few assets. But in China, there is a different regulatory framework for a 3PL; if a company wants to subcontract trucks, it must own a proportion of its network. By owning 30 trucks, for example, Volvo Logistics can subcontract a network of about 300 trucks.
In Europe, by contrast, Volvo Logistics operates a network of 8,000 trucks, but owns only 15, all of which are used internally for operations such as prototype movements or model launches.
The company is also obtaining a license to carry out pre-delivery inspection (PDI) services, also a highly regulated area in China.
Rising costs ahead
Looking ahead, Johansson said that the main challenges to the company’s growth in the next years come from rising prices and the potential for capacity shortages. “The upturn is still a managed one, and many of our providers have not invested, which we believe may cause shortages in some areas and drive up prices,” he said. “The challenge is to remain competitive and to keep good relations with our providers so that they are not too opportunistic.
“We need to have a fair and sound business, but should also not price ourselves out of the market. We want to avoid large rate increases for our customers.”
Johansson emphasised how a total supply chain management approach can help to mitigate the price rises brought on by these developments, a process that Volvo Logistics called ‘design for logistics’.
“Transport will only become more expensive going forward thanks to oil and coming regulations, and so logistics will become more of a focus at the corporate level,” Johansson predicted.