European vehicle logistics sector needs billions

European finished vehicle logistics providers are in need of up to €7 billion in financing if they are to meet the needs of a recovery in car sales and production, revealed Costantino Baldissara, president of the Association of European Vehicle Logistics (ECG) at the association’s annual conference in Rotterdam last week. But as analysts warned of a sales ‘payback’ following the end of scrapping incentives across European countries, the medium term outlook for investment in the sector remains uncertain.  

 

Speaking at the association’s annual conference in Rotterdam last week, Baldissara revealed that the vehicle logistics sector in Europe had lost around 20,000 jobs and 20% of its capacity. And he stated that the sector would need between €4-7 billion to rebuild truck, railwagons and ships that have been scrapped during the past year to avoid a future “capacity disaster”.

 

“There is a risk of a serious bottleneck for the whole of the European automotive business because the [vehicle transport] capacity cannot grow at the rate of economic recovery,” he said.

 

Scrapping incentive programmes in much of Western Europe, together with measures to reduce capacity by logistics providers, have led to a degree of stability today for providers. However, Baldissara, citing rising consumer confidence and industrial output across the world, said that the sector would need more support now from OEMs, governments and especially banks to be able to make the necessary investments.

 

There was some encouragement from the European Commission (EC). Baldissara revealed that he had recently received a letter from the commission affirming that vehicle logistics is “an associated industry of car manufacturing,” an obvious truth that had been missing in European legislation before (read more here). He was cautious about stating what this recognition means, although in theory it suggests that the vehicle logistics sector could in future be eligible for some of the aid given to carmakers by state governments. But Baldissara cautioned that the definition of such aid would vary widely in each member state.

 

Johann Friedrich Colsman, from the transport cabinet of the EC, told delegates that the commission would continue to encourage co-modality in the European transport network. Among the EC’s programmes, he announced that the budget for the Marco Polo project, which gives financial support to European short sea and inland waterways, had been raised from €100m to €400m.

 

But not everyone believes that the moment is right for new investment in transport capacity. Arthur Maher, head of European production for JD Power and Associates, suggested that Europe would see a decline in sales next year with the end of the incentives, particularly Western Europe and Germany, which he predicted would drop 10% and 27%, respectively. While he acknowledged that incentives helped clear out unwanted inventory and kept factories running, “there will be a price to pay,” he said.

 

Opinions varied over exactly would that price would be. Marius Baader, an analyst from the German carmaker’s association (VDA), pointed out that even if the German market fell back to around 3m units (from projected levels above 3.5m units this year), sales would resemble levels from before the crisis. And although the German incentive programme ran out of funds in August, the market had held up reasonably well in September, with domestic new orders dropping around 10% from September last year, when sales were still relatively strong.

 

In good news for some logistics providers, despite lower sales next year, Maher predicted Pan-European production would rise by about 2.7% as OEMs slowly restock inventory, and foreign orders pick up. Gaurav Anand, a research analyst on vehicle flows for IHS Global insight, predicted that while domestic markets in Europe would remain depressed, vehicle flows from Europe to other regions would start to grow again in 2010. By 2011, European exports to markets in Africa, Asia and North America would surpass 2008 figures, according to IHS projections.

 

Anand predicted imports to Europe could decline over the next years, particularly as some manufacturers from Asia, such as Hyundai-Kia, increase production on the continent, particularly in Central and Eastern Europe. A notable exception is Indian imports, which Anand predicted would rise from 3.4% of Asian imports to Europe in 2008, to 12.3% by 2011. Chinese production is not expected to have a significant impact on imports to Europe within the next five years, he said.

 

These trends suggest there will be changes to the current patterns of vehicle flows. However, the picture that emerged remained cloudy, with no clear direction of regional or brand dominance, even with growth expected to be faster in Eastern Europe and excess production capacity in Western Europe. That will challenge logistic providers’ plans for allocating, rebuilding or shrinking transport capacity going forward, particularly as German sales cool.

 

“The future success of providers will depend on the accessibility of capacity and flexibility,” said Wolfgang Göbel, the ECG chairman of the board and head of marketing from Mosolf. “We’ve been able to shift capacity from France or Spain this year to Germany, but it will be a challenge to see how that goes forward next year.”

 

The conference also paid respect to several distinguished members of the automotive logistics industry. The ECG inaugurated a new award for the top performer of its ECG Academy for vehicle logistics, in honour of Giovanni Paci, a board adviser to the ECG who died suddenly last month at the age of 48. Baldissara granted Paci with a posthumous honorary certificate from the ECG academy.

 

Baldissara also honoured Louis Yiakoumi, publisher and conference director of Automotive Logistics magazine and conferences, with a certificate from the ECG academy, as an honorary Automobile Logistician. Baldissara praised Yiakoumi’s knowledge, passion and service to the European vehicle logistics sector for more than a decade.

 

“It is a great honour to receive this recognition from an august organisation such as the ECG,” Yiakoumi said upon receiving the award, although it was notable to many in the audience that for the first time in many years at an automotive logistics conference, he was lost for words.