2016 in review: takeovers, disputes and political upheaval21 December 2016 | Gareth Tredway
The year 2016 may well go down as one of the most significant in recent history – not just politically but also for the automotive supply chain. Surprise voting results in the US and Europe have created significant uncertainty regarding global trade that may go on for years and is already impacting logistics, while ongoing changes in production, ownership and regulations are driving further changes. Automotive Logistics looks back at the year’s key stories…
Despite the uncertainty created by the US election and UK referendum, the global automotive sector remains strong. According to recent data from PwC Autofacts, light vehicle assembly is expected to end up at 91.5m in 2016, up 3.7% from a year earlier. By 2022, the total is expected to exceed 110m vehicles.
Within this is the expectation of a greater proportion of electric vehicles in the production mix. This development, along with other longer running trends that are part of an overall need to reduce costs and emissions, as well as improve efficiency, continued to play out in the automotive logistics sector and wider supply chain in 2016.
There was continuing consolidation in global shipping and logistics areas, including continuations of major deals first announced in 2015. Among them was FedEx completing its $5 billion acquisition of TNT Express, DSV buying UTi and XPO Logistics shedding jobs and also selling its North American truckload business to TransForce, all of which followed its major acquisition of Con-way in 2015.
Global production shifts also continued, with several new plant openings and constructions announced in the year. China continues to receive foreign investment from the likes PSA Group with its joint venture Dongfeng Peugeot Citroën opening its fourth plant there in September, while Dongfeng Honda recently broke ground on its third plant. And, despite a slump in the South America region, Mercedes-Benz and Jaguar Land Rover opened plants in Brazil, while VW Truck and Bus has just announced significant investment there.
Few regions have seen as much continued investment in automotive production and export as Mexico, however, where nearly every major OEM is building new plants or expanding production lines, from Volkswagen Group to Ford, BMW and others – investment which so notably drew the attention of the US president-elect Donald Trump during the election campaign.
Elsewhere, there were significant clampdowns on anti-competitive behaviour in the ro-ro shipping industry over the past 12 months. In June, for instance, Wallenius Wilhelmsen Logistics (WWL) became the fourth car carrier confirmed to have been fined by the US Department of Justice (DoJ) in relation to price-fixing on international ro-ro services between 2000 and 2009, following an investigation that began in 2012. It later reached another settlement in Brazil, where investigations into similar allegations involving other shippers continue.
– The year kicked off with some positive news when international economic sanctions against Iran were lifted following 2015’s agreement to lift nuclear-related sanctions. The move marked a major step forward for both Iran’s domestic car producers and those international brands eager to make the most of pent-up demand in the Iranian .
Since then, several deals have been announced, including Renault’s agreement to add production in the country and fellow French carmaker PSA Group forming a joint venture to build and sell Citroën vehicles there.
– It did not take long for the refugee crisis to make the news with border controls imposed in several European countries to restrict movement of migrants and respond to terrorism. At the Geneva motor show in March, the heads of Daimler and GM’s Opel division warned of the dangers any tightening of European border controls would have on the logistics underpinning their respective lean manufacturing systems.
– February kicked off with news of a haulage permits dispute between Poland and Russia and a blockade in Ukraine, resulting in weeks of disruption to freight between Europe and Russia.
After several weeks of hard negotiations, Russia and Poland finally reached an agreement in April on the issuing of permit quotas required for trucks to carry freight between the two countries.
– In what was the first of several announcements by carmakers in the year relating to assembly in Africa, Daimler Trucks Asia began Fuso assembly in Kenya.
In September, Volkswagen also announced Kenyan assembly with the decision to build the Polo Vivo at a facility near Nairobi. The German carmaker then signed a JV deal in Algeria in November for the assembly of VW, Seat and Skoda brands, including commercial vehicles.
Prior to that, in August, China’s BAIC announced a major investment on the continent (pictured) when it said it would build an $800m vehicle manufacturing plant in South Africa. The plant is expected to open towards the end of 2017.
PSA Group, meanwhile, has just signed a deal to assemble pick-up trucks in Tunisia for the local market.
– Two earthquakes hit the Japanese island of Kyushu in April, halting operations at assembly facilities across the country, including sites run by Honda, Nissan, Toyota and Mitsubishi, and dramatically affecting the tier supplier base in the entire region.
Almost a month later, the effects were still being felt by industry players. Toyota was one OEM that said it was still facing disruption in the supply of parts to its assembly facilities in the country.
– In regulatory news, India and China both made significant changes to standardised car transporter lengths and dimensions.
In April, the Indian government confirmed that a new national 18.75 metre maximum length limit would be applied to trucks carrying finished vehicles from next year. China’s new rules on truck dimensions came into force in July, with a transition period to meeting the new standard, which is generally going to be a maximum of 22 metres.
– A trend in North America of shifting production to the cheaper labour environment of Mexico, especially for lower profit, smaller vehicles, continued to play out in 2016 with some of these carmakers even being targeted by Donald Trump during his election campaign (see below).
In May, Fiat Chrysler Automobiles (FCA) said it was making changes to its production pattern in North America as part of efforts to focus its plants on larger, more profitable vehicles. The changes included shifting the production of some Jeep models (pictured) from the US to Mexico.
Also in May, Kia began assembly at its plant in the country, shipping vehicles by rail and short-sea to the US; in October, meanwhile, Audi officially opened its $1.1 billion Mexican plant in San José Chiapa to make the Q5 SUV model, which it will export globally.
Later in the year, Ford confirmed Focus production would move to Mexico.
According to the Centre for Automotive Research, automakers including BMW, FCA, Ford, General Motors, Honda, Hyundai, Mazda, Nissan and Volkswagen have announced more than $24 billion in Mexican investments since 2010. Through November, Mexico was on pace to beat the record 2.28m vehicle exports to the US and Canada achieved in 2015.
– In one of the biggest automotive-related acquisitions of 2016, Nissan announced the $2.2 billion purchase of a stake in Mitsubishi in May. In completing the purchase of the 34% stake in October, Nissan added another company to its 17 year-old global alliance with Renault. Not only did the deal make the combined group the world’s third largest car producer with an anticipated 10m vehicles in 2016, but it is also expected to result in major synergies over the next few years.
– There is no doubt that one of the most significant stories of the year was the shock result of the referendum in the UK on whether it should remain in the European Union.
The automotive industry had figured prominently in the referendum campaign. David Cameron, the prime minister (who resigned following the result), and other ministers frequently gave speeches from car plants, warning about the risk to trade and supply chains in the event of ‘Brexit’.
Executives from the like of Jaguar Land Rover, Toyota, BMW, Ford and Nissan, meanwhile, had all warned that their businesses were highly integrated with the EU and that a vote to leave would be risky.
While uncertainty about the eventual outcome will remain for sometime, given that negotiations over the UK’s exit from the EU are only likely to officially start next year, some, like Nissan, have already committed to a future in the country.
This despite the risk of significant tariffs if a hard Brexit scenario plays out.
– In July, a group of four truck manufacturers were hit with the highest ever cartel fine of €3 billion ($3.3 billion) by the European Commission for fixing prices and colluding over the implementation of new emissions standards.
Over a 14-year period, from 1997 to 2011, Volvo Trucks, Daimler, Paccar’s DAF and CNH Industrial’s Iveco conspired with each other – and with VW-owned MAN – on the factory prices of medium and heavy trucks, the European Commission found.
– After months of attempts to restructure debt and improve liquidity, shipping line Hanjin Shipping filed for bankruptcy.
The fall of the South Korean company, once the world’s seventh largest shipping company, reflects the overall struggles of an industry plagued by overcapacity and pressure on freight rates.
Ford was reported to have suffered significant disruption to the inbound supply of parts to Australia as a consequence of the Hanjin saga and to have turned to air freight as a solution.
The carmaker has since ended production in the country, following a decision made in 2013. That closure of local production is not necessarily a reflection of a weak Australian car market, however, as evidenced by the opening in April of the country’s largest ro-ro terminal.
The share price of what is one of the largest third party providers serving the Chinese automotive sector is currently more than double its original opening price.
– After slowdowns and stoppages, Volkswagen reached agreements with two of its suppliers, which are part of the Prevent DEV Group, ending disruption to output at assembly and component plants in Germany. The issue affected six of its plants, including its largest global assembly plant in Wolfsburg, as well as its main engine and transmission plants in Salzgitter and Kassel, forcing the carmaker to put around 28,000 employees on Kurzarbeit, or ‘short working’ hours. Hundreds of companies across the supply chain were also affected.
The company also suffered widespread shutdown in Brazil, with that stoppage thought to be related to seat supplier Keiper, also owned by Prevent DEV Group, though VW do Brasil would not confirm this.
– In India, the country’s lower house of parliament approved the bill required to bring in India’s Goods and Services Tax, which has the potential to transform the country’s domestic logistics and make it easier for manufacturers to move freight across internal state borders.
– A protest by truck drivers and farmers in France threw freight movements through the port of Calais into disarray in September, leading to delays into and out of France and the UK. They were protesting about the camp in Calais known as ‘The Jungle’, which by then was holding 9,000 immigrants looking for residency in the UK.
Towards the end of the month the French government announced the dismantling of the camp, which took place about a month later.
– Russian carmaker Avtovaz was hit by serious supply problems to its plants in the country following the bankruptcy of one of its (and Russia’s) largest automotive parts suppliers, AvtovazAgregat.
Reports in the Russia media around the time indicated that the company had entered into negotiations with the majority of its tier one suppliers in an effort to revise contract terms and reduce prices for components.
– In October, German authorities reached a settlement with logistics provider DB Schenker over allegations that Russian customs officials in the port of St Petersburg were bribed between 2010 and mid-2012 to speed up the passage of automotive parts to Ford’s plant in the area.
After four years of investigation by the Public Prosecutor’s Office in Cologne, Schenker agreed to a fine of €2m ($2.19m) in settlement of the matter.
– UECC and VW made significant news regarding lower emissions ships, with the former taking delivery of the first dual-fuel carrier and the latter announcing that it had agreed to charter two LNG-powered car-carrying vessels from Siem Car Carriers for its Europe-North America route, starting in 2019.
Within the same month the International Maritime Organization (IMO) officially approved more stringent global sulphur emission requirements that must be in place by the end of the decade.
– In what was without doubt the biggest story globally this year, Donald Trump stormed to a shock victory in the US presidential election.
The victory created major uncertainty, given his campaign rhetoric around eliminating free trade agreements and threatening global production networks.
Investment bank Jefferies said at the time: “We believe there’s a risk both factors may continue to negatively impact global trade following the US election result, which is expected to lead to increased protectionism.”
Since his election victory, Trump has already indicated that on his first day in office he would withdraw from the Trans-Pacific Partnership (TPP), a trade deal signed by 12 Pacific Rim countries, including the US.
He has also said he plans to renegotiate the North American Free Trade Agreement with Mexico and Canada, which has been in place for over two decades.
The TPP pledge does not bode well for the Transatlantic Trade and Investment Partnership (TTIP), a complex trade deal currently in the negotiation phase between the US and Europe that has already faced many stumbling blocks on both sides of the Atlantic.
Only a week before the US election, Canada and Europe signed the Comprehensive Economic and Trade Agreement (Ceta). It has been suggested that Ceta will only achieve its full potential alongside the TTIP.
– In another sign of consolidation in the shipping industry, Maersk, which hadn’t made a significant acquisition in over a decade, recently announced the purchase of Hamburg Süd.
The move followed an agreement announced in October by global maritime logistics providers Kawasaki Kisen Kaisha (K Line), Mitsui OSK Line (MOL) and Nippon Yusen Kabushiki Kaisha (NYK) to integrate their respective container shipping businesses into a new joint venture.
In the ro-ro sector, Scandinavian finished vehicle and breakbulk shipping lines Wallenius and Wilhelmsen signed an agreement in September to establish a new ownership structure for their three jointly-owned companies.
– It has also been revealed this month that the Mexican government has been deploying troops since the autumn at various troubled areas in response to rising vandalism and theft targeting railway lines and automotive cargo.
Multiple sources suggest as many as 1,000 troops have been deployed at various hotspots in the country, including in Guanajuato and other parts of the central Bajío region.