Daimler struck a conciliative tone at last week’s ECG Assembly by calling for a more collaborative, supportive partnership between carmakers and vehicle logistics providers that will restore the trust providers have lost in their customers since the financial crisis. Egon Christ, head of worldwide vehicle transportation for the German carmaker, told delegates in Warsaw that a lack of confidence among providers was holding back the investment necessary to meet the growing transport capacity needs of the European sector.
“There is currently what we could call a ‘fight for capacity’ in Europe with a shortage of trucks and drivers,” Christ said. “The outlook for sales and production is good so there is really no reason not to invest, but we recognise that many in the sector have a lack of confidence and trust, and this is holding back investment.”
Christ, whose company is currently enjoying record sales and exports, admitted that the recovery has been slower for vehicle logistics. “Rates are improving step by step, but they are rising from a low level. And many of the contracts still in place today were signed when carmakers were in crisis mode at the end of 2008 or 2009.”
This view supported that of the ECG president Costantino Baldissara, who earlier said that vehicle logistics providers had seen their profit margins shrink to 1-3%, compared to carmakers, whose margins were 7-10%. Putting aside the five largest companies, Baldissara said the cumulative profits of its nearly 100 members were only around €100m ($150m), and that companies lacked the resources to invest in the necessary equipment to meet demand. “We need more respect and support from our clients,” he said.
Christ said that he understood why providers were questioning the fairness in the relationship with their customers. He admitted that during the dark days of the crisis, Daimler called in all its logistics providers and either cancelled or renegotiated contracts to help lower cost. “We understand that this was difficult but we were in a fight for survival,” he said.
The in-house option
Now that the market is in recovery–at least for German producers who, according to Marius Baader from the VDA, are on pace to export a record 4.55m cars in 2011, while the German market should recover back to 3.2m sales this year–Christ said that the lack of capacity was becoming a very real problem. He outlined measures that Daimler could take to help address the issue, including using more of the spot market, building up backup providers, changing the priority of vehicles being shipped, and moving more cars onto rail. He also said that Daimler would consider building up its own fleet of transporters and doing more distribution itself.
“This is not a final decision but it is an option we are considering,” Christ said.
A move towards in-house vehicle logistics is a threat to the wider European vehicle logistics market that Baldissara has also warned about should providers fail to invest (read more here). Fiat, for example, already has an in-house car carrier, iFast, which it has said it would expand if capacity did not recover (read more here). Gefco, the logistics arm of the PSA Group, recently bought a majority share in the Italian vehicle logistics company, Mercurio Group. Such moves could push more operators out of business.
But Christ did not seem to favour the in-house option as a total solution. Rather, he called for a closer partnership between carmakers and providers that would help foster sustainable investment. “It is time to create new business principles, and to write a new code of conduct that would allow for closer partnership,” he said.
Among his suggestions were ideas that would please most ECG members, including longer contract lengths that allow providers to better plan investment. Likewise, he recognised the need for more reliable forecasts. Christ also acknowledged that carmakers had a responsibility not to accept “dumping rates”–or rates offered at a clear loss so as to win business–to keep the sector healthy.
In return, he said, providers should be prepared to be more transparent in their operations and costs to help improve efficiency. He also called for more innovation. “There are not enough new ideas from your side,” Christ said. “In the last few years we have only heard two or three new ideas.”
Aligning ACEA and the ECG
Christ suggested that one method of developing these new business practices would be through a more aligned collaboration the ACEA logistics working group–of which Christ is playing a leading role–and the ECG. Such a link has also been among Baldissara’s objectives.
Christ’s olive branch could be something of a turning point in relations between carmakers and vehicle logistics providers in Europe, who have been locked in debate over the sector’s sustainability since the crisis. While logistics providers have complained about their poor rates, carmakers have usually riposted that such prices were a simple reflection of supply and demand. But the ECG has long warned that an unhealthy vehicle logistics market would be damaging to the recovery of the automotive industry, even to the point of limiting sales. The call for improved relations suggests that Daimler believes that lack of transport capacity could become a strategically critical issue in its recovery.
The ECG Conference, where Egon Christ will again be a participant, will be held October 13-14th in Paris (read more here).
