Large increases in new global vehicle programmes are expected to drive up demand for packaging across much of Europe, but manufacturers still want to see more recyclable and returnable packaging, particularly on an intercontinental basis.
Although car sales across Europe continue to be fairly flat, production levels are relatively strong. Given that the demand for packaging is so closely linked to the performance of the wider industry, this should be positive news for many packaging suppliers. So, as the European automotive packaging industry begins to recover, what will be the key developments to look out for in 2011 and beyond? How are market conditions affecting sales, demand and requirements? Also, how important will factors such as the adoption of standards and the ongoing development of container pooling services prove to be on the road to recovery?
Demand, volume and sales forecast
The general consensus amongst many in the industry is that the demand, volume and sales of automotive packaging in Europe will either remain stable or rise over 2011. “Demand will rise not only in 2011, but also [for] the next two years, as all major OEMs are renewing models and launching many new ones or replacement programmes. Packaging suppliers are expecting an average growth of 15% of their turnover per year during this period,” says Marc Louwerse, transport logistics and packaging commodity director at Faurecia.
For Dave Taylor, at Honda UK, production volume and new car models will drive packaging requirements. “During the next couple of years we are forecasting a gradual increase and recovery in volume and [will be] introducing new models of the Civic, CR-V and Jazz. So, Honda will increase its packaging requirement during this period,” he says.
The extent to which packaging demand will rise seems to depend on the extent to which the carmaker or provider in question is involved in exports beyond Europe. “[The] packaging industry will be positively affected, but global players will be more present, since many programmes are [due to be] launched in new countries,” adds Louwerse.
At Opel/Vauxhall, the expectation is that demand for returnable packaging will stay about the same in 2011 as in the second half of 2010. Overall, it foresees a slight increase of below 2%. For 2012 and 2013 the forecast is for a significant demand increase for new specialised packaging.
“Expendable packaging demand will also increase significantly in 2011 by 50%, mainly due to higher intercontinental export volumes of power train components. This trend will continue through 2012 and 2013,” says Jeffrey Morrison, director of logistics at Opel/Vauxhall.
As well as highlighting an anticipated increase in the volume of production plans, and therefore packaging budgets, some observers point to the general tendency of the European automotive sector to follow trends in the US. “In the US we have seen the automotive industry make a remarkable recovery and packaging suppliers have reached 2007 volumes,” says Rodney Salmon, a consultant who works closely with Macro Plastics and Linpac.
Other commentators are more cautious. Marcelo Di Benedetto, vice president for automotive at Chep, expects European demand of automotive packaging to stay stable in 2011. “Nonetheless, we will continue to observe changes in the composition of the packaging category as OEMs, as well as their suppliers, continue to fully assess their total packaging driven cost and opt for more efficient solutions, such as outsourcing to a container pooling provider, both for their European and intercontinental flows,” he says.
Challenges for the packaging industry
To meet demand, packaging providers will need to expand production capacity and ramp up investment in anticipation of growing production throughout the supply chain.
“[Providers] needs to be prepared for increases in all areas to meet customers’ demands, [which includes] investment in packaging” says Marie Carlsson at Volvo Logistics, which offers its Emballage packaging and pooling service.
“The packaging industry will enlarge [its] production capacity. Logistics providers [will also] have to share free packaging in a much better way,” adds Thomas Kobe, director supply chain management for Central Europe at Magna Exteriors & Interiors.
There is already evidence that packaging and dunnage suppliers are likely to be busy with automotive customers again over the next year or two. “Chep, VMB and Gefco are already seeing increased volumes for their pooling operations and most packaging suppliers are seeing volumes coming through,” says Salmon.
For Honda UK, which tends to use fabrication companies to manufacture custom packaging as opposed to using ‘typical’ established packaging suppliers, the number of suppliers has reduced since the recession. However, those companies that do supply packaging to the company will be expected to meet stringent targets.
“We have also started to procure our packaging on a global basis. Our expectation of European suppliers is to challenge competitiveness in quality, cost and delivery,” says Taylor.
“We place a strong focus on designing bespoke packaging to guarantee parts quality from supplier to the assembly line, whilst being ergonomically suitable,” he adds.
Meanwhile, at Opel/Vauxhall, a particular requirement for 2011 will be for a higher level of responsiveness for expendable packaging on the back of changing demand.
“In parallel, oversea container freight will increase and the logistics providers need to support [that by] providing required equipment such as high cube sea containers as per the increasing demand. [This will] continue to grow even further in 2012,” says Morrison.
Another challenge will lie in how the industry can develop more lightweight returnable specialised container concepts–by replacing steel with new materials while also increasing the durability and strength of packaging equipment. “This should enable companies to reduce freight cost on the one hand and investment cost on the other,” adds Morrison.
More broadly, as the search for cost reduction expands globally, it is likely that the packaging sector will need to constantly keep raising the bar in developing new solutions to support more complex and globally integrated supply chains.
“Packaging companies [will] have to change from simple packaging suppliers to ‘packaging system suppliers’ that also provide consulting services and implementation management,” says Kobe.
European packaging suppliers are also likely to find they have to be extra competitive in an increasingly globalised space. Salmon points out that metal suppliers in China are amazingly low cost, even with the large shipping costs.
“Plastic suppliers do not have this problem as the European ones are already competitive, however the dunnage suppliers are struggling with textile and dividers being very competitive in the Far East. However some OEMs and tier suppliers are looking for quality and local European suppliers are ready for these enquiries,” he explains.
Depending on who you talk to, any discussion of the wider application of standards tends to be greeted with either anticipation or frustration. For some, packaging standardisation will be a key topic over the next few years, particularly in terms of intercontinental supply chain flows.
“While in Europe standards are already well established and adopted, when it comes to developing regions the picture is very different,” says Di Benedetto.
A research survey by Chep revealed that a majority of executives acknowledge that the lack of standards hinders larger network economies, and also drives complexity in many operations processes, such as repacking, extra-handling and excessive waste management or stock control efforts.
“We believe that the debate on standards to support the global supply chain is open and Chep, as the largest equipment pooling provider, has a key role to play,” says Di Benedetto.
At Honda, the situation is slightly different to most other European manufacturers in that they have only one main plant in Europe and tend to operate in a closed loop between plant and supplier. “Therefore we have developed our own standardised packaging in isolation from the rest of the industry. However we may move towards more ‘standardised’ packaging in the future,” says Taylor.
For Salmon, the subject is fraught with complication and confusion. “Standards seems to rear their ugly head in every debate–what standards? The only International standard is ISO Sea containers. Every country has its own size, some even more,” he says. “When we talk about VDA, what standard sizes are they looking to? Apparently they are now looking at 1140mm by 990mm, which will go with the other four sizes they promote. Let us [allow] the OEMs and tier suppliers to decide on what they want and [how standards should be] worked to fit the component parts,” he adds.
Finally, Carlsson points out that any talk of new standards is very much linked to new plants and how they are built. “It is easier to change standards if you build a new plant,” she says.
In the packaging business, environmental issues are particularly important given that, for many companies, the efficient use of recyclable and returnable packaging is so closely linked to cost management.
“Recycling, buying back old packaging and making new from recycled is a definite for all OEMs and tiers to follow. Reduced transport kilometres for packaging and parts delivery are all under scrutiny,” says Salmon.
In recent years, Honda UK has been working towards a ‘zero waste to landfill’ target, which was achieved in 2010. The company’s policy is now to always use returnable packaging.
“Our other main focus is to maximise the efficiency of our inbound logistics, working to the principle that an efficient supply chain reduces cost and CO2 emissions,” says Taylor.
For Di Benedetto, the search for improvements in the environmental impact of packaging solutions forms a part of practically everyone’s agenda. However, he also points out that the Chep survey revealed that the environmental aspect comes behind cost efficiency in terms of priority for many OEMs.
“[Whereas] we think this environmental dimension will play an increasing influence in the decision making process, we don’t expect it to be the main driver in 2011. Beyond that, we think that legislation will predominantly drive the environmental agenda,” he concludes.
Plunging into container pooling?
In recent years, many companies in the automotive industry have begun to outsource the logistics of pallet and container management to third-party pooling management service providers–but will solutions of this kind continue to be cost effective over the coming years?
“In most cases returnable is the most cost effective even in longer chains. It is important in some cases to find partnership to find balance in the flows,” says Carlsson.
For Salmon, another critical factor influencing the cost effectiveness of container pooling is the need to ensure that users, including tier suppliers and OEMs, don’t lose the packaging or hang on to it for too long. “Pooling will also help the environment by reducing the kilometres the packaging travels. Pooling has the opportunity to go continental with good communication on all parties to understand the freight movements,” he says.
The above mentioned Chep research survey shows that reducing the total packaging-driven cost per part is undoubtedly the most relevant topic in the automotive packaging agenda in 2011. As a result, says Di Benedetto, container pooling is likely to be high in the list of priorities since it can deliver tangible savings in three ways: for intercontinental supply chains, for companies with their pool of containers but seeking to outsource pooling management or, in some cases, inject cash by selling their pool to a pooling operator; finally, pooling helps companies managing expendables in their local or regional markets.
Second to cost, the Chep research shows that, as far as packaging is concerned, the globalisation of the automotive supply chain is the second largest area of interest for the industry. Another key finding is that, although this increasingly global chain is driven by many forces, the large majority of companies continue to operate with expendable packaging, both across the supply chain and for their intercompany flows.
“This situation raises concerns about cost and quality as intercontinental flows grow,” says Di Benedetto. Chep is now developing more intercontinental solutions in response.
Until now, the pooling of standard containers for the automotive industry on an intercontinental scale is rare and not usually considered to be cost effective. A key challenge for companies will lie in how they can effectively coordinate such decision-making and implementation on a global scale.
For the packaging sector, the challenge lies in how it manage this flow of containers. For logistics providers, such increased global integration is likely to require them to develop expertise in new areas such as customs and legal frameworks, ‘track & trace’ capabilities and multimodal transport.
“Effectively responding to these challenges will certainly result in a competitive edge in every sector,” says Di Benedetto.
“Achieving returnable container pooling across all industries on an intercontinental scale will help to fully utilise sea freight by avoiding empty container flows and movements. This is likely to have environmental and financial benefits,” says Antonio Aguilar Gonzalez, manager of containerisation Europe at Opel/Vauxhall.
“However, a major prerequisite to achieving this is to improve global standards for the few intercontinental returnable packaging footprints for multiple and total industry usage,” he adds.
In summary, many commentators predict a period of modest but consistent growth for the European automotive packaging industry throughout 2011 and beyond. Although the anticipated improvement in prospects is likely to be broadly welcomed, it will also be accompanied by a new set of challenges for the sector. In particular, many of those European packaging suppliers looking to ramp up operations will need to adapt to increasingly integrated global scale logistics operations and face up to continued fierce competition from rivals in emerging economies.
