Co-operation and gain
Top industry executives met to discuss everything from procurement strategies to port volumes. Anthony Coia reports
One of the main questions facing North American vehicle manufacturers is how best to achieve order-to-delivery goals. Jim Terry, senior manager, vehicle logistics at DaimlerChrysler said his company looks for several factors when evaluating a carrier or a network. “Quality is number one. Second is speed (of communication), which speaks to improving technology and information flow back to the OEM. Third is speed of delivery to market. Fourth is costs; prices are rising – gas is outrageous.” Gregory Smith, executive director, distribution and logistics at Volkswagen of America said that 2004 has been particularly challenging. “One reason is the change from building out a 2004 model where we shipped almost nothing from our ports to a ten-fold demand increase in wholesale now.”
He said, “The bar has been raised for customer expectations. Customers want quality, but they also want a deal. A couple of years ago we established a system in which the dealer can go on-line in order to find their vehicle location. The challenge is in giving the dealer the estimated time of arrival. We are right about 85% of the time, which is not enough. The inaccuracies are due to a breakdown in the production system or in the truck or rail system. Truck carriers keep their commitments about 60% of the time and rail carriers keep it 0% of the time.”
“In the cost area, we have to do everything we can. We have wrung a lot of money out of the system, and I do not think that there is much to wring in the current way of doing business. We have optimized the supply chain in many little islands: carrier rates, port processes, etc. We need to look at the whole supply chain and at ways to do handoffs better. It will take more collaboration in order to give carriers a lot more advanced information.”
“Right now, we are taking at least one-month’s worth of supply out of our pipeline. We are going to try to get our dealers to live with 35 to 40 days supply of cars on the ground. We do not want to have any cars in our ports,” he said.
WIN Vin Situation
An area of potential collaboration among vehicle manufacturers is exports from Mexico to the US and Canada. Terry said that currently DaimlerChrysler is short of ships, which delays the time for transporting from Mexico and up the East Coast. “However, that represents no more delay than what they experience from rail at this time,” he said.
DaimlerChrysler is fighting to procure railcars, particularly bi-level ones. Terry said that what would really help on the rail side is per VIN pricing. “We should get away from railcar pricing where everyone buys one railcar and that is what we pay. With a per-VIN system, we could start mixing. It would not matter what my rate is versus Volkswagen’s rate versus Ford’s rate. The railroad would charge each its own rate, so there would be no collaboration. However, I could certainly use Volkswagen to fill my Ram trucks on a railcar and increase the density of that railcar. Getting better utilization out of that railcar would minimize the shortage of railcars that we are experiencing right now.”
Volkswagen also uses vessels to ship from Mexico north along US East Coast. “Rail is not too bad. The biggest issue in Mexico is that the Port of Veracruz is hugely congested,” said Smith. William Kerrigan, director of consulting firm KGI, LLC asked whether since there is little terminal space for vehicles at Veracruz, there may be collaboration among the vehicle manufacturers to build covered parking decks, which would also provide weather protection.
Facing port constraints
Robert Barnard, department manager, international and domestic vehicle logistics at Mercedes-Benz said that with its next major product launch, volumes would substantially increase. “About 60% to 70% of our volume is imports. To that end, one of our biggest challenges that we are facing today is developing port property. Water property is not in abundance, especially with docks that can handle ships with 38ft or more draft. Also at issue is getting competitive rail into those ports.”
“The challenge is trying to find a port that wants to talk to you. Vessel lines are scrambling to grab space and since Mercedes-Benz owns its entire vehicle processing centers, we need to find a solution to work with carriers, and other parties,” he said.
Paul Carlton, president, Mitsui O.S.K. Bulk Shipping (U.S.A.) Inc, said, “When it comes to the land issue at ports, it is really an import issue, not an export issue. Manufacturers use the most land in the Northeast, Florida, and California. Due to container pressures, cars have fallen out of favor in the Northeast, and more are being railed up from the South Atlantic ports. There is land available in Brunswick, Jacksonville, and Charleston, but it has to be developed.”
Parking decks, already in use Europe, may become a more widely used option in North America. Barnard said that historically, land has been much cheaper than parking deck construction has been. He said, “with parking decks, you need columns in order to support the structure, and unfortunately, they become bumper magnets. However, some innovative designs are becoming appealing, particularly on the West Coast where property is so unbelievably expensive. Some land is not suitable for containers, but is also heavily unionized; Mercedes-Benz is a non-union operation. We may have to look at cost savings for 20 years from now, and parking decks will probably play some role.”
Maximizing port efficiency
How viable is the land bridge option for vehicle manufacturers? Vessels have to return to the Far East, so they have to go that way anyway. Robert Barnard, department manager, international and domestic vehicle logistics at Mercedes-Benz, commented, “We are looking at using land bridge at the end of this month and next month, primarily due to the labor shortage on the West Coast. Vessels are sitting 3 to 5 days at the dock with no dockworkers to unload them.”
“We need to follow our timelines, so vehicles will probably have to go on land bridge. Although it saves us 8 days compared to ocean, the downside is that the cost is huge. Railroads are not competitive and probably never will be competitive, not through any fault of theirs. In the western US, there are restrictions on how long trains can be due to the mountain passes, and the maximum is 1,100 cars on a train. Land bridge from Europe does not seem to be a long-term option for the US. For us, reliability is essential. As long as the dealer and customer know when their region gets carriers, that will be a lot more valuable than saving a couple of days and paying so much more.”
The globalization of the supply chain is of primary significance to Ricky Coley, manager, North American vehicle logistics for Ford Motor Company. “We are integrating our affiliated groups such as the Premier Automotive Group into the North American supply chain and making sure that that we recognize the synergies. The first stage was the port rationalization process. With PAG, Volvo was using one port, Jaguar another, etc., which was inefficient. We needed to combine and synergize, and integrate PAG with the domestic, North American supply chain. The second stage involves processing fees, land availability, efficient port processing operations, and multiple production lines versus single ones. We are using Brunswick and Baltimore based on the economics of moving containers into the Northeast,” he said.
Meeting market demand
Christopher Connor, president of the Americas region at Wallenius Wilhelmsen said that the size of the global fleet has increased sharply by more than 30% since 1997, but there is still not enough supply. He said, “the Asia to Europe trade exploded in 2004 and we expected it to continue to grow rapidly over the next two years. Overall, we expect a steady increase in demand on average of 6% growth over the next couple of years.”
“The carrier base is challenged due to the fragmentation of production. We are sourcing cars from many more markets, including Korea, Brazil, Argentina, and Australia. In addition, cars are 10% bigger on average in the last decade. Our solution has been in part to convert some container vessels, improving capitalization in the short term,” he said.
Paul Carlton president, Mitsui O.S.K. Bulk Shipping (U.S.A.) Inc., agreed that there is a tight tonnage situation. He noted that U.S. imports have grown from 4.1 million in 1995 to 6.5 million this year. The industry will add car capacity of 750,000 units over the next several years. “What is hurting the carrier side is the strong utilization of these vessels. We are seeing an explosion in demand in countries such as Brazil, South Africa, Argentina, Turkey, and Mexico. All demand the same level of service and quality, which places a lot of pressure on the carriers. We must look at everything on a global basis when you talk about our side, which is supplying tonnage to the car market. Vessels will move to where there is a better paying market,” said Carlton.
Defining the role of LSPs
A study on third party logistics survey recently released by Capgemini, the Georgia Institute of Technology, and FedEx showed that the automotive industry is slightly above other industries in its use of 3PL providers, with almost 81% of respondents indicating that they use 3PLs. Gary Allen, North American distribution leader at Capgemini said that the automotive industry’s use of 3PLs for inbound transportation is much higher than for other industries. In a reflection of growing trends in information technology, the use of 3PLs for RFID technology came out much higher for automotive than it did for any other industry, with 23% using them now and 43% plan to in the future, according to Allen.
Dr John Langley, TLI professor of supply chain management at the Georgia Institute of Technology said that the most respondents view 3PLs as tactical service providers as opposed to supply chain integrators or logistics strategist, although the latter two categories are increasing over time. On the negative side, about 49% of respondents said that 3PLs did not meet their service level or cost reduction expectations at some point.
How do you define a logistics service provider? Glenn Uminger, general manager, production control, logistics at Toyota Motor Manufacturing North America said, “As Toyota, when I hear 3PL or 4PL, our words are LP, logistics partner, with no number. Within Toyota Logistics Services, it is really a core part of our production system, from raw materials to finished vehicle delivery. It is a core part of generating benefits such as finding waste and implementing quality accountability that is ingrained within our whole supply chain.”
Regarding 4PL providers, Michael Wills, vice president and global leader, automotive competence center at Panalpina said, “we have found that there is a higher level of acceptance toward the idea of 4PLs in Europe and much lower acceptance in North America. This may be due to the maturity of logistics departments within organizations in Europe versus less maturity in North America.”