Fears that the fourth quarter would bring a capacity crunch in the North American outbound vehicle sector have failed to materialise and the general consensus now seems to be that it will not hit any time soon, according to speakers from leading road carriers like Jack Cooper Transport and carmakers including Chrysler, Honda and BMW at last week’s Automotive Logistics Global Conference in Detroit.
Back in May, at the Finished Vehicle Logistics North America conference held in Newport Beach, California, dire warnings were heard from carmakers and logistics providers who feared a potential outbound capacity crunch, particularly for road transport, as early the fourth quarter of this year. It was expected to hit as Japanese OEMs resumed full scale production and imports and sales picked up again in the US.
Carmakers over the last months, including Ford, Toyota, Honda, Chrysler, Hyundai-Kia and others warned that the shortage of transport assets–compounded by the withdrawal of service in certain locations by the largest US provider, Allied–could reach critical levels.
However, those capacity concerns were in abeyance at last week’s conference. “I was wrong about the [capacity] tsunami wave hitting us in Q4,” admitted Mike Riggs, chairman of Jack Cooper Transport (pictured far right). “I don’t have a single carrier in our group who doesn’t currently have the capacity to match demand. We may not see an issue with capacity for another two years.” (Read more here)
It was a significant volte face for Riggs, who back in May had suggested that underestimating the size of the US light vehicle market could restrain further investment in truck and rail wagon equipment. “We are already seeing capacity issues and if 2012 hits 15m units and goes 300,000 units higher than predicted, that could be a serious problem,” he told delegates then.
Steve Tripp, head of vehicle transportation for Chrysler, said that modest individual improvements in the transport network, as well as lower-than-expected volumes, had helped in avoiding capacity problems. “For example, we’ve now implemented repair shops at our storage centres, eliminating the need to transport damaged vehicles from storage to those repair areas,” he said.
Only a few months ago, sources at Chrysler had told Automotive Logistics that the carmaker had been considering the possibility of purchasing its own trucks for vehicle logistics (it already has an inbound fleet), but that has stopped. “We are not concerned about a capacity crisis for quite a while,” said Tripp.
“I’ve always been on the opposite side of this debate and didn’t really see a major capacity problem” said Dennis Manns, American Honda’s vice president for sales planning and logistics. “Our car sales business has been severely challenged and, although [capacity] would be a good problem to have, the sales are just not coming back quickly.”
But the industry may have received a stay of execution rather than a full reprieve. For one thing, Tripp expressed concern about a shortage of tri-level rail wagons, which are used in North America to move passenger cars (SUVs and larger vehicles usually move on bi-levels). Even with some railways and providers shifting towards universal and adjustable wagons, Tripp remained worried about near-term shortages in tri-levels, not least as Chrysler now builds more passenger vehicle and small cars in North America, including the Fiat 500 in Mexico.
Capacity also has regional variations; areas which appear to be facing some shortages include the Southeast. And, importantly, the two fundamentals that threaten capacity are still in place – a shortage of drivers and low investment in new equipment.
To counter these, and rather than talking simply in terms of rates and investment, several speakers at the conference suggested major shifts in the way the vehicle logistics network is run, including even load sharing. The most notable example came from Jack Cooper Transport, which Riggs said is in the middle of developing an optimisation model using software that would be applicable and open to the entire industry. Citing an empty mileage rate of up to 70%, Riggs said that the tool would help identify return loads and better routing. By rolling it out to the industry in general – at no cost – he said there could be dramatic improvement in capacity usage and in margins. He suggested using an industry association, such as the Automobile Carriers Conference, to help make the tool more universal, and said that 2012 would be a major year for the project’s implementation.
Chrysler’s Tripp was keen, but cautioned that Jack Cooper and others would need to overcome considerable hurdles from the different commercial agreements between carriers and carmakers. “We fully support this idea, but believe coming to these agreements will be extremely challenging,” he warned.
Nevertheless, something must be done. GM’s Krathwohl summed up the mood when she said that the single biggest opportunity to eliminate waste and cost is still in finished vehicle logistics. “We still see a network that runs 65-70% empty and there is tremendous opportunity for us to share and collaborate,” she said. “That is a nut that we still have to crack.”
