Navigating an uncertain future

The finished vehicle logistics sector needs to find better ways to communicate and collaborate to meet the challenges of an uncertain future, delegates at this year’s finished vehicle logistics north america conference in California were told in March. Marcus Williams reports

The finished vehicle logistics industry may be facing a shortage of drivers and rail cars but it has plenty of platforms on which to communicate… and one of the main messages at this year’s FVL North America conference in Huntington Beach, California, was that people in this sector need to communicate more.

To take rail, for instance, one of the main concerns for the OEMs at the moment is the sudden shortage of rail cars for finished vehicles – something that both American Honda Motor and Subaru noted at the event. Chuck Kendig, assistant vice-president of logistics sales and production planning at American Honda Motor, said rail capacity was an issue jeopardising the otherwise good and consistent offering it had on the delivery process to the end customer. He admitted the carmaker’s planning system was more than 20 years old but said Honda was scoping out a new process to manage vehicle delivery and analysing its network in detail.

Part of the problem, Kendig said, was that carmakers needed to collaborate better on the use of rail because it was the most economic way to move vehicles.

“The railroads do a great job,” he stressed. “But throw any transport mode a huge spike and they will have trouble dealing with it. Our industry is guilty of putting huge spikes in the pipeline. The solution is that we need to collaborate more between the OEMs.”

He went to say that around 80% of Honda’s traffic goes by rail and the provision of service is generally very good.

“We spend a lot of effort collaborating with our business partners but not with each other [as carmakers]. We are in the situation we are in today because we are not planning together. You can’t expect anyone to build capacity for the peak periods. We need a more level flow.”

Gerald Lee, vice-president of vehicle planning and logistics at Subaru, said he could not understand where the shortage had come from. “The rail providers are investing [in stock] but [this shortage] has come from nowhere,” said Lee. “We have excess cars now for March delivery and this is not something we anticipated.”

What compounded the issue for the carmakers, said Lee, was the truck driver shortage, which meant that without adequate rail capacity, there was a real issue. Kendig added that retaining a stock of trucks and attempting to hire drivers for the two months of the year when there were volume spikes was unrealistic on the grounds that no one would pay for it.

Like Honda, Subaru is implementing new systems and has had one designed in-house for better allocation of space on rail.

True network optimisationOne way to improve how rail is used is better network optimisation of the entire car delivery process. Steve Tripp, vice-president of global strategy and execution at ICL Systems, revealed that despite belief by logistics providers to the contrary, the finished vehicle logistics sector had never optimised its entire network.

Tripp conducted a poll at this year’s FVL North America conference to get an idea of how network optimisation was carried out by those attending. Among the questions he asked delegates was how many times they performed a ‘blank sheet’ or complete optimisation of their outbound networks. Of those responding, 41% said every three years, while 38% said every year. Tripp also asked how much of the data on volumes should be used, to which 74% of respondents either said 100% or at least 90%.

Tripp said that in reality, a true blank sheet optimisation had never been done because the industry assumed the current position of rail ramps across the country was mainly fixed. They were therefore not included in the analysis.

On the point about using 100% of the data available for a network optimisation analysis, Tripp said no OEM in the US even had a 20% share of the total available data. “It is only their own data they are using, so we are doing this optimisation [when we do it] with low levels of data,” he said.

Tripp said the assumption that rail ramps were fixed needed to be reassessed, not least because they were established around 40-50 years ago and population centres had shifted since then, making last mile truck deliveries from those ramps less efficient.

The key questions, Tripp said, were whether any savings justified the cost of a move and whether all of the customers were being taken into consideration. Railroads conducting their own location analysis often exclude potential customer savings, he suggested.

Steve Tripp from ICL Systems suggested that despite belief by logistics providers to the contrary, the finished vehicle logistics sector had never optimised its entire network

In an ideal network optimisation for the benefit of the outbound sector in the US as a whole, all the OEMs, service providersand dealers should be involved, and perhaps even the aftermarket, Tripp suggested. It should also include all the fixed and variable costs, including equipment. That would be a huge and difficult task with a lot of obstacles to overcome, he admitted, but the potential savings and better use of assets made it worth considering.

Given that the total cost of vehicle logistics in North America is around $10 billion annually, Tripp estimated, saving just 1% would yield $100m for reinvestment. It could even provide an answer to the truck driver shortage by removing unnecessary and lengthy road trips through better allocation of rail ramps.

Positive signsWhile the industry awaits that ideal scenario, there are initiatives to improve rail links already underway. On the theme of being connected and collaborative, North American rail provider BNSF has been working with terminal services provider Pasha Automotive Services to develop a vehicle storage yard and rail facility near San Diego port. The move to develop an existing rail facility and 5.25-acre tank yard next to Pasha’s vehicle processing facility was needed because of increased inbound volumes from Mexico, which have pushed the National City Marine Terminal (NCMT) to capacity.

The San Diego Area has strict windows for multi-level cargo train access due to heavy passenger train traffic and the NCMT rail ladder has a capacity of 142 multi-level rail cars, according to Dave Fleenor, assistant vice-president, automotive sales and marketing at BNSF. Added to this, there was previously little space close to NCMT for the storage of empty rail cars to replenish the NCMT rail ladder, he said.

BNSF identified the older National City Rail Terminal, just one mile from NCMT, as an opportunity. That facility had been underused for several years and was unable to support multi-level rail cars, so BNSF replaced the aging track, installed new switches and now has capacity for 45-50 multi-level rail cars.

Fleenor said the redevelopment took less than a year to complete and the yard was connected with the rest of Pasha’s facilities.

Brian Mason, vice-president of business development and administration at Pasha, explained that the storage yard facility, which was due to be completed during April, was next to its truck centre in Otay Mesa. It has 930 sq.m of processing capacity and 3,000 parking spaces.

Another example of collaboration between the OEMs, rail providers and truck sector to improve efficiency was outlined by Mark Anderson, president and COO of United Road. Following a meeting in Atlanta in 2016 with rail providers and OEMs that was overseen by the AIAG, the parties set up a working group with a range of goals, including how to reduce dwell time and increase velocity.

Brian Mason talked about Pasha’s new storage facility at San Diego port, which will be completed in April next to its truck centre in Otay Mesa

The working group established a range of objectives, including improved communication at a local level, data exchange standardisation, the adoption of best practices for problem resolution and increased weekend activity.

The group has carried out various tests, including of a ‘geobay’ system designed to improve facility throughput. This entails sorting the railyard into sections to minimise the driver’s distance to pick-up, with vehicles arranged by OEM or destination.

“One real success was at [BNSF’s] Mira Loma railyard [outside Los Angeles] where each mode worked really hard and had some noteworthy accomplishments on decreased dwell,” said Anderson.

Anderson said the working group had identified issues including the position of fleet cars that were not for immediate delivery but were taking up a priority location and could be relocated; and the problem of haulage firms failing to work around the rail unloading schedule and thus delaying the completion of unloading. He added that by identifying incremental improvements through the committee, which now meets quarterly, and addressing them, real progress could be made.

Fleenor said BNSF was using the geobay application everywhere now and, while there was a cost increase and more employment required, the goal was to get units off the facility.

“We are trying work with truckers to make it more efficient,” said Fleenor. “We can see the benefit and will invest.”

A new legacy in ITImprovements to IT in managing issues such as dwell time, velocity, damage and quality control is also important, however.

Kendig said American Honda was looking for new technology off the shelf, rather than building its own systems, because better connections were needed with the other OEMs and providers of transport services. Expecting those collaborating with Honda on shared gains in productivity to line up with its outdated legacy systems was not the way forward, stressed Kendig.

That said, Govin Ranganathan, head of logistics at Silicon Valley-based electric vehicle-maker NIO USA, recognised that carmakers had invested a lot of time in their existing systems, improving them with updates based on feedback. Ranganathan said it may not make sense to change that. However it is not an issue NIO USA suffers from, equipped as it is with its own IT department with access to the latest technology.

IBM’s Senthil Virthachalam said the use of the latest technology, including blockchain, was key to reducing barriers within trade

Senthil Virthachalam, strategy and transformation senior managing consultant at IBM, said the use of the latest technology was key to reducing barriers within trade, including blockchain technology.

He said blockchain-enabled companies could build solutions in a controlled environment, limiting the number of parties allowed access and also what information was allowed into the ‘distributed ledger’. Virthachalam said it was not about replacing the systems a company already had, but about bringing them together.

Collecting real-time data connected by the internet of things (IoT) – be it from a vehicle in the delivery chain, geobay information or weather and traffic reports – and bringing it together in the blockchain brought benefits for all involved, said Virthachalam.

Autonomy and uncertaintyThe prospect of autonomous vehicles (AVs) being used in logistics will greatly accelerate over the next decade, suggested Jason Kuehn, vice-president of market analyst Oliver Wyman, with ground applications moving toward $500 billion in 2030 (in an industry worth an estimated $800 billion by then). Kuehn said such logistics applications were where the money would be and that the supply chain was already becoming more autonomous.

The movement of cargo by AVs, autonomous facility surveillance, and driverless trucks and ships are all on the horizon, he said. While rail is not particularly the focus right now, Kuehn pointed towards the mode’s potential and said it could account for 24% of ground transport take-up by 2030. He said that as technology moved to level 3 autonomous vehicles, which would be able to load and unload themselves onto transport equipment, there was promise for rail to adopt the process, as it was more straightforward with a rail ramp than with an individual car-carrying ruck.

Brandon Mason, automotive director and mobility speaker for rival analyst PwC, suggested that manufacturers could trim current trucking costs by nearly 30% by 2040 if the sector aggressively adopted autonomous trucking.

Jack Cooper’s Sarah Amico said shared ownership of vehicles could lead to demand driving a different sort of sales, meaning business for the car carriers

Sarah Amico, chairman of Jack Cooper Holdings, said this autonomous and connected future, in which consumers shared electric vehicles, was creating uncertainty – not only in terms of when it would arrive but in consumer behaviour. That meant volatility for a tightly managed outbound supply chain, she suggested.

In terms of autonomous vehicle technology, there is still a need for human judgement, especially given unexpected events, and completely autonomous delivery vehicles remain a long way off, said Amico.

But her biggest concern about new technology was related to privacy and personally identifiable information being left in connected vehicles delivered onward to new users.

“A lot of your information continues to reside in the vehicle long after you have rented it,” said Amico. “We are going to have to take that a lot more seriously as an industry. The higher the number of players that are touching this in the supply chain and potentially have access to that information, the greater the risk.”

On the question of shared ownership of vehicles as a future trend (currently only accounting for 6% of vehicles in use, according to a Morgan Stanley study she cited), Amico said this did not necessarily mean fewer vehicles sold and thus fewer requiring moving.

“My suspicion is that as the utilisation of assets goes up, so will the turnover, so in effect you could be burning through more VINs in driving a different sort of sales,” she said.

Partnership and logistics as a competitive advantageWhatever the rate at which new technologies are taken up and big data-driven optimisation of the network is embraced, logistics in the outbound sector needs to be seen as a route to competitive advantage. Senior executives at carmakers do not think of logistics when they are ranking the priorities of their business, suggested Gerald Lee of Subaru, but it can be a tactical advantage, especially when getting a new model year to market.

Chuck Kendig agreed that it had strategic value and that there was a clear advantage to getting a vehicle to market. He also pointed to how collaboration could work to avoid hampering delivery.

The prospect of AVs being used in logistics will greatly accelerate over the next decade, suggested Jason Kuehn at market analyst Oliver Wyman

“In Mexico, we will soon have neighbours about 11km to our east [of Honda’s plant in Celaya], which will be Toyota,” said Kendig. “If we don’t collaborate with them, our logistics network will slow down and so will theirs. So if we don’t coordinate our shipments to the port or up the centre of the country, we are going to hurt each other.”

Govin Ranganathan at NIO USA said it was currently a priority among carmakers to get up to speed with autonomous and connected technology, something that had pushed logistics to even more of an afterthought. But he also pointed to areas where logistics innovations were getting cars to market in faster times, such as through containerisation, and indicated that given NIO USA’s smaller volumes, it was able to experiment with faster ways of delivery with fewer touch points.

While there are a growing number of cases demonstrating how big data and connected technology can benefit the finished vehicle transport industry, especially from gathering data for better network optimisation, investing in systems that could just as quickly disappear as they arrived is a risk for the companies investing in them. That risk is enhanced by the current regulatory climate under the Trump administration, with its social media-led, snap policy statements on vehicle, parts and material import tariffs.

Sarah Amico had some words of comfort, however: “The best way, in my opinion, to navigate uncertainty is to know who you are and what you value; to set stakes in the ground not in response to events that happen or technologies that take hold – and certainly not in response to the President’s twitter feed – but to know who you are, based on facts.”

Finished Vehicle Logistics North America is part of the global Automotive Logistics series of conferences.

The next conference in the series is Automotive Logistics China, which takes place between April 17th - 19th in Chengdu