Car carrier freight rates show Q1 spike

Car carrier freight rates between Europe and China showed a significant increase in February, rising from $50 per cubic metre (p/cbm) in December last year to $64p/cbm in February before settling down to $53 p/cbm in April.

Given that rate levels are largely driven by supply and demand, the figures could be explained by a post-Chinese New Year increase in demand for new vehicles from markets including Germany, which is seeing a increase in exports to China. BMW is just one carmaker that has seen substantial growth selling more than 223,500 units last year, 14% of its global total.

A significant increase was also seen in the net freight rates for the movement of high-and-heavy equipment, which went up from $140p/cbm in February this year to $161p/cbm in April.

As can be seen, bunker adjustment factor (BAF) levels increased at this time by $10 p/cbm, reflecting the rise in oil prices which are expected to recede through Q3 as a subsequent fall-off in prices works its way into carrier BAF surcharges, according to analyst firm Drewry.

The increase could also be related to the fact that shipping lines are facing greater costs because of repositioning, moving more vessels to German ports to collect cargo because of demand for European marques.

Russian regulations risk delivery delays and production
Over the last three months, from the beginning of April to the end of June, Russia’s Ministry of Transport has had in force regulations on truck axle weights that have restricted the normal operating limits of ten tonnes and reduced them to between three and four tonnes.

According to the Ministry, the restrictions on heavy traffic were enforced in the interests of safety and to limit damage to the (often poorly maintained) roads during a period characterised by excessive water damage caused by melting snow. The law allows individual regions to limit movements of heavy goods for periods of up to 30 days over the three months but those periods may differ from one region to the next, potentially extending the disruption for carriers operating on long routes.

Despite the emphasis on safety, the government has failed to take into account several problems that OEMs and LSPs have to face, according to Dominik Buszta, consultant for automotive and transportation at analyst firm Frost & Sullivan. These include the increasing price of the transport, the lengthy time of car delivery (especially in the eastern parts of Russia) and problems in supply chain management.

“Around 80-85% of cars are still transported by road,” said Buszta. “The government decision could likely change the market situation by increasing the popularity of rail transport in the future. However, neither Russian Railways nor the LSPs are ready for these changes [and] this decision will not increase the popularity of the Russian logistics market for foreign investors in the long run.”

Penalties for contravening the law are high and the purchase of transport permits is expensive, sometimes as much as RUB2,500 ($64) per 100km. Obtaining the permits is also often a lengthy process, with applications taking around 15 days.

“OEMs that have factories in Russia are facing challenges in finished vehicle logistics, hence additional costs—problems in transportation will not improve their situation,” said Buszta.

The restrictions are also having an affect on the ports. Alexander Goloviznin, deputy general director at the port of Ust-Luga, north of St Petersburg, said that the dispatch of vehicles by trucks from the port’s car terminal had been slowed down and there had been a dramatic increase in the use of rail. Goloviznin said that the terminal was well prepared for the build up of volumes but noted that the number of vehicles held was considerably higher than normal.

The additional costs and disruption were also picked up on with some fervour by the president the Association of European Vehicle Logistics (ECG), Costantino Baldissara, who went further and said the restrictions were “severely restricting the car transport sector, wreaking havoc on manufacturers and transport companies”.

“The limits frequently mean that even an empty car transporter would exceed them and they are therefore unable to move,” said Baldissara, in an open letter to Russia’s recentlysworn- in president, Vladimir Putin, and the deputy prime minister Igor Shuvalov. “The result, when there is no other way to move vehicles, means stockpiles building up in Russian ports and in the factory compounds.”

In his letter, Baldissara envisaged “huge financial losses” for transport companies operating in Russia and for any OEMs forced to stop production because of congested storage areas. And he echoed Bustza’s point that it could also “call into question the viability of investing in [Russia] if the infrastructure is unable to support industry”.

Investment in Russia currently shows little sign of slowing down, but the situation highlights again that the country is not an easy place to do business. While the Russian road network is in obvious need of upgrades both in capacity and safety terms, real progress in the country will come when governement and industry come together to resolve the axle issue, along with other bureaucratic disruptions that have become almost an annual ritual for vehicle logistics in the Russian Federation.